2007 (9) TMI 107 - AT - Central Excise

Denial of credit on capital goods Plant and machinery were on the verge of complete installation, no any production has been started No question arise of use of capital goods in production of exempted goods SCN issued and demand are premature so set aside

Summary

Issues: Application for waiver of pre-deposit of duty, denial of credit for capital goods used in manufacturing exempted goods, premature demand raised before installation of machinery.

In this judgment by the Appellate Tribunal CESTAT, Mumbai, the issue at hand was the application for waiver of pre-deposit of duty amounting to Rs. 51,49,012, along with an equal penalty, representing cenvat credit taken on capital goods. The Tribunal decided to proceed with deciding the appeal itself at this stage with the consent of both parties after waiving the pre-deposit requirement. The denial of credit for capital goods was based on the argument that the goods were used exclusively in the manufacture of exempted goods, specifically a solvent extraction plant. The appellants' assertion that they would also manufacture dutiable products in the same plant was rejected due to lack of substantiation.

The Tribunal acknowledged the appellants' submission that the provisions of Rule 6(4) of the Cenvat Credit Rules, 2002 were not applicable in this case. This was supported by the adjudicating authority's finding that the plant and machinery were not fully installed, and trial production had not commenced. Rule 6(4) is triggered only if capital goods are used exclusively in the manufacture of exempted goods after installation. Since the machinery was not operational at the time of the show cause notice or the impugned order, the demand was deemed premature.

As a result, the Tribunal set aside the demand and penalty, allowing the appeal with consequential relief. The appellant had already paid Rs. 7,14,999. The judgment emphasized that if, after installation, it is discovered that the plant and machinery are indeed being used exclusively for manufacturing exempted goods, Rule 6(4) would empower the department to recover the cenvat credit availed. The decision was dictated in court, providing a comprehensive resolution to the issues raised in the appeal.