2011 (4) TMI 1090 - HC - Central Excise

Cenvat Credit under Rule 57Q on capital goods Held that - merely because in the beginning the capital goods were used in manufacture of exempted goods the assessee cannot be denied the benefit of Cenvat credit when they started manufacturing excisable goods and clearing the said goods. There is no period of limitation prescribed for availing the Cenvat credit. Once the duty is paid on the capital goods the assessee would get a right to avail the Cenvat credit if and when they have to pay duty on excisable goods assessee is entitled to avail the benefit of Cenvat credit while clearing the excisable goods decision in favour of the assessee and against the revenue

Summary

Issues:
Whether Modvat Credit can be allowed on capital goods used for manufacturing exempted goods?

Analysis:
The case involves a dispute regarding the allowance of Modvat Credit on capital goods used for manufacturing exempted goods. The assessee, engaged in manufacturing motor vehicles for transport of goods, availed Modvat credit on capital goods under Rule 57Q of the Central Excise Rules, 1944. The Assistant Commissioner disallowed the credit, citing that as the assessee was not manufacturing any final products chargeable to Central Excise duty, the credit was inadmissible. The Commissioner of appeals upheld this decision. However, the Tribunal, based on a previous order in favor of the assessee, allowed the credit as it was not utilized for exempted goods but for excisable goods. The Tribunal highlighted that once credit on capital goods is availed, it can be used for acquiring excisable goods. The High Court noted that the capital goods were used for both exempted and excisable goods, and as there was no undertaking for exclusive use for exempted goods, the assessee was entitled to the Cenvat credit when manufacturing excisable goods. The Court emphasized that there is no limitation on availing Cenvat credit once duty is paid on capital goods. Consequently, the Tribunal's decision was deemed justified, and the demand by the Department was considered unjustified. The question of law was answered in favor of the assessee against the revenue.

This judgment clarifies the principles governing the allowance of Modvat Credit on capital goods used for manufacturing both exempted and excisable goods. It establishes that in the absence of a specific undertaking for exclusive use for exempted goods, the assessee is entitled to the credit when manufacturing excisable goods. The Court emphasized that once duty is paid on capital goods, the right to avail Cenvat credit exists without any limitation. This decision provides guidance on the utilization of such credits and underscores the importance of considering the actual usage of capital goods in determining credit eligibility.