2007 (4) TMI 126 - AT - Central Excise

Cenvat/Modvat - Revenue contended that appellant is not eligible for credit on the ground that they removed the capital goods from the factory for home consumption - Held that revenue contention was not correct and set aside

Summary

Issues:
1. Availment of Cenvat credit on capital goods leased out.
2. Interpretation of Rule 8 of the Cenvat Credit Rules, 2002.
3. Imposition of penalty for irregular availment of credit.

Issue 1: The party availed Cenvat credit on capital goods that were leased out to another company. The Revenue disputed this claiming that the capital goods should be used in the factory of the manufacturer of final products for credit to be availed. The Revenue argued that after being leased out, the goods are in the premises of another manufacturer, thus constituting removal for home consumption. The Tribunal examined Rule 8 of the Cenvat Credit Rules, 2002, which allows for the transfer of unutilized Cenvat credit to a transferee factory in case of lease. It was concluded that as the capital goods had already taken credit for the duty, there was no unutilized credit to transfer to the lessee. Relying on past case laws, the Tribunal upheld the Commissioner's decision to drop the demand for credit availed on the leased capital goods, dismissing the Revenue's appeal.

Issue 2: The interpretation of Rule 8 of the Cenvat Credit Rules, 2002 was crucial in determining the validity of availing Cenvat credit on leased capital goods. The Tribunal clarified that in this case, there was no unutilized credit to transfer to the lessee as the duty on capital goods had already been accounted for. This interpretation, supported by past rulings, justified the Commissioner's decision to drop the demand for credit availed on the leased goods. The Tribunal found no legal basis for the Revenue's appeal, affirming the proper application of Rule 8 and the Commissioner's findings.

Issue 3: The imposition of a penalty for irregular availment of credit was also contested. The party had leased out their Distillery Unit and irregularly availed 50% of the credit on capital goods after the lease. However, they had already reversed this amount, emphasizing that the credit was only a book entry and was never utilized. Citing relevant case laws, the Tribunal set aside the penalty and demand for interest, noting that when credit had not been utilized, the imposition of penalty and interest was not justified. Consequently, the Tribunal dismissed the Revenue's appeal and allowed that of the Party, providing consequential relief.

In conclusion, the Tribunal's detailed analysis of the issues surrounding the availment of Cenvat credit on leased capital goods, the interpretation of Rule 8 of the Cenvat Credit Rules, and the imposition of penalties resulted in the dismissal of the Revenue's appeal and the allowance of the Party's appeal with consequential relief.