2014 (10) TMI 807 - AT - Central Excise

Denial of CENVAT Credit - Capital goods - initially capital goods used for manufacturing of exempted goods only - Held that - Capital goods had been received during period from September 2004 to August 2005 when the Cenvat credit had been taken and according to the appellant at that time, they had intention to use these goods for the manufacture of fruit pulp based soft drink (exempted goods) as well as for manufacture of aerated waters (dutiable goods) and for this reason only, they had availed capital goods Cenvat credit, while initially using the machinery only for manufacture for the exempted final product. This aspect has to be verified on the basis of records. If the appellant at the time of receipt of the capital goods during September 2004 to August 2005 period, had filed any declaration to the Department or had sent some letter to the Department intimating that they would be using this machinery for manufacture of dutiable final product (aerated waters) as well as exempted final product (the fruit pulp based soft drinks), or there is any other evidence indicating that at the time of receipt, the appellant had plans to use the machinery, in question, for manufacture of dutiable as well as exempted final products like the machinery, without any modification, being capable of manufacture of both the dutiable final products (aerated/carborated waters) as well as exempted final products (MAAZA) alongwith declaration/intimation of dual use , they would be eligible for Cenvat credit. If there is no such evidence, it would have to be presumed that at the time of receipt, they had plans to use the capital goods, in question, only for manufacture of the fruit pulp based soft drinks (exempted final product) and it is only subsequently they decided to switch over to manufacture of dutiable final product (aerated waters) and in that event, in accordance with the Tribunal s judgment in case of Surya Roshni Ltd. (2003 (5) TMI 95 - CEGAT, NEW DELHI) and Spenta International Ltd. (2007 (8) TMI 25 - CESTAT, MUMBAI), they would not be eligible for Cenvat credit. Accordingly, the impugned order is set aside and the matter is remanded to the Commissioner for denovo decision, keeping in view our above observations.

Issues Involved:
1. Eligibility for capital goods Cenvat credit.
2. Application of Rule 6(4) of Cenvat Credit Rules, 2004.
3. Interpretation of manufacturer's intention at the time of receipt of capital goods.
4. Relevance of the Tribunal's previous judgments in similar cases.

Detailed Analysis:

1. Eligibility for capital goods Cenvat credit:
The primary issue is whether the appellant is eligible for capital goods Cenvat credit amounting to Rs. 1,64,08,716/- for machinery used exclusively for manufacturing 'MAAZA', a fully exempt product, during the period from September 2004 to August 2005. The Department argued that under Rule 6(4) of the Cenvat Credit Rules, 2004, the appellant is not eligible for Cenvat credit as the machinery was exclusively used for manufacturing exempted goods. The appellant contended that their intention was always to use the machinery for both exempted and dutiable products, and they started producing aerated waters (dutiable goods) from October 2006 after minor adjustments and software changes.

2. Application of Rule 6(4) of Cenvat Credit Rules, 2004:
Rule 6(4) states that Cenvat credit is not admissible on capital goods used exclusively in the manufacture of exempted goods. The appellant argued that the rule does not apply if the machinery is used for both dutiable and exempted goods, even if not simultaneously. The Tribunal agreed that Cenvat credit is admissible if the machinery is used for both types of products at different times, provided there is evidence of the intention to use the machinery for dutiable goods at the time of receipt.

3. Interpretation of manufacturer's intention at the time of receipt of capital goods:
The Tribunal emphasized the need to verify the appellant's intention at the time of receipt of the capital goods. If the appellant had declared or intimated to the Department their intention to use the machinery for both dutiable and exempted products, they would be eligible for Cenvat credit. The Tribunal noted the importance of the manufacturer's certificates, which stated that the machinery could produce aerated waters after minor adjustments and software changes, supporting the appellant's claim.

4. Relevance of the Tribunal's previous judgments in similar cases:
The Tribunal discussed the applicability of previous judgments, particularly CCE, Indore vs. Surya Roshni Ltd. and Spenta International Ltd. vs. CCE, Thane. These judgments held that eligibility for Cenvat credit is determined by the use of capital goods at the time of receipt. However, the Tribunal distinguished the current case by noting that if the appellant's intention to use the machinery for both types of products is established, the previous judgments would not apply.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the Commissioner for a de novo decision. The Commissioner is directed to verify the appellant's intention at the time of receipt of the capital goods, considering any declarations or evidence provided. If the appellant's intention to use the machinery for both dutiable and exempted products is established, they would be eligible for Cenvat credit. The appeal and miscellaneous applications were disposed of accordingly.

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