2015 (5) TMI 1104 - AT - Central Excise

CENVAT credit - capital goods used in the factory - denial of credit on the ground that appellant has recovered the cost of the capital goods from their foreign buyers therefore they have lost the ownership of the capital goods consequently the Cenvat credit is required to be reversed by the appellant as they had removed the goods as such from the factory - Held that - it is not in dispute that capital goods have been procured by the appellant and are still lying in their factory and are being used by the appellant themselves for manufacturing the final product - appellant is still using these capital goods in their factory and moreover the owner of the capital goods - appellant has correctly taken the Cenvat credit and not required to reverse the Cenvat credit - appeal allowed - decided in favor of appellant.

Summary

Issues: Cenvat credit denial on capital goods used in factory.

Analysis:
1. Issue of Cenvat credit denial: The appellant, a pharmaceutical products manufacturer, appealed against the denial of Cenvat credit on capital goods used in their factory. The Revenue contended that since the appellant recovered the cost of capital goods from foreign buyers, they lost physical control and ownership, necessitating reversal of Cenvat credit as per Rule 3(5) of Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld this view. However, the appellant argued that they still had physical possession and were using the capital goods for manufacturing final products, hence not required to reverse the credit.

2. Legal arguments: The appellant's counsel emphasized that despite recovering costs from foreign buyers, the capital goods remained in the factory and were crucial for production, justifying the retention of Cenvat credit. Conversely, the Revenue cited a High Court decision where physical control loss led to credit reversal. The key contention was whether recovering costs from foreign buyers affected the appellant's entitlement to Cenvat credit.

3. Judgment: The Tribunal analyzed the situation, noting that the appellant retained physical possession and continued using the capital goods for manufacturing. It distinguished the present case from the precedent cited by the Revenue, where the leaseholder lost control over the premises. The Tribunal concluded that the appellant rightfully claimed Cenvat credit and wasn't obligated to reverse it. Consequently, the impugned order denying the credit was set aside, and the appeal was allowed with any necessary relief.

In summary, the Tribunal ruled in favor of the appellant, affirming their entitlement to Cenvat credit on capital goods used in their factory despite recovering costs from foreign buyers, as they maintained physical possession and ownership of the goods essential for their manufacturing operations.