2015 (4) TMI 1030 - AT - Central Excise

Cenvat/Modvat Credit - Whether cenvat credit eligibility is to be determined with reference to dutiability of the final product on the date of receipt of the goods or the date of utilization of 50% credit - Held that - CENVAT credit eligibility is to be determined with reference to the dutiability of the final product on the date of receipt of capital goods. - facts herein is squarely covered by the ruling of the Larger Bench of this Tribunal in the case of Spenta International Ltd. (2007 (8) TMI 25 - CESTAT, MUMBAI). Accordingly the impugned order is set aside - Decided in favour of Revenue.

Summary

Issues:
1. Availability of CENVAT credit on capital goods utilized for manufacturing exempted goods.
2. Interpretation of CENVAT Credit Rules, 2004 regarding the admissibility of credit on capital goods.
3. Determination of CENVAT credit eligibility with reference to the dutiability of the final product on the date of receipt of capital goods.

Analysis:

Issue 1: Availability of CENVAT credit on capital goods utilized for manufacturing exempted goods
The case involved a manufacturer availing full exemption on products prior to a duty imposition. The dispute arose when the manufacturer claimed CENVAT credit on capital goods received during the exempted period. The Tribunal held that although initially the capital goods were utilized for exempted goods, the subsequent dutiability of the final products allowed for the CENVAT credit in the following year.

Issue 2: Interpretation of CENVAT Credit Rules, 2004 regarding the admissibility of credit on capital goods
The respondent-assessee argued that as per Rule 4(2)(a)&(b) of the CENVAT Credit Rules, 2004, credit on capital goods not taken during the exempted period could be availed when the final products became taxable. They relied on a Tribunal ruling allowing such credit without a time limit. However, the Revenue contended that eligibility for CENVAT credit should be determined based on the date of receipt of capital goods in the factory of production.

Issue 3: Determination of CENVAT credit eligibility with reference to the dutiability of the final product on the date of receipt of capital goods
The Tribunal examined a similar case where the Larger Bench held that CENVAT credit eligibility is to be decided concerning the dutiability of the final product at the time of receiving capital goods. The Tribunal emphasized that if capital goods were exclusively used in manufacturing exempt products, MODVAT credit would not be available. The ruling clarified that the date of receipt of capital goods is crucial for determining the admissibility of credit, even if the goods were installed and used post-receipt.

In conclusion, the Tribunal, considering the precedent set by the Larger Bench, allowed the Revenue's appeal, setting aside the impugned order and emphasizing that CENVAT credit eligibility is to be determined with reference to the dutiability of the final product on the date of receipt of capital goods. The penalty imposed on the respondent-assessee was also set aside due to the interpretational nature of the issue.