2008 (1) TMI 292 - AT - Central Excise

Credit on capital goods - ground for denial is that the appellants were not in possession of capital goods when they took the credit - Merely because the capital goods were removed on payment of duty, assessee s plea for availing the cenvat credit in terms of duty paying documents during the subsequent year cannot be denied, as there is no provision in law for such denial

Summary

Issues:
Denial of cenvat credit for capital goods received during a specific period.

Analysis:
The appeal in this case arose from an Order-in-Appeal denying the appellants the benefit of availing cenvat credit for capital goods received between May 11, 2002, and June 26, 2003. The denial was based on the ground that the appellants were not in possession of the capital goods when they claimed the credit. However, the appellants argued that they realized their entitlement to the credit after clearing the goods and subsequently availed it. The Revenue contended that the pre-condition for taking credit, as per Rule 4(2)(b) of the Cenvat Credit Rules, is that the appellant should be in possession of the capital goods at the time of claiming the credit. The Commissioner (Appeals) had acknowledged the violation as procedural and reduced the penalty. The Bench, after careful consideration, found that the appellants were rightfully entitled to the credit as they were in possession of the capital goods when they claimed the balance 50% credit in a subsequent financial year. The Bench emphasized that the Rules do not mandate possession of goods at the time of taking credit, and since the appellants were in possession and use of the goods in the relevant financial year, the denial of credit was unjustified. Thus, the Bench granted a full waiver of duty demand and penalty until the appeal's disposal.

In a separate judgment, the learned Counsel argued that there is no provision in the rule to deny cenvat credit even if the capital goods have been removed. They highlighted that the rule allows for availing credit in subsequent years if the duty paying documents are in order. The learned JDR opposed this, stating that once capital goods are removed on payment of duty, credit cannot be availed. The Division Bench, in Stay Order No.754/2007, analyzed the issue and held that the assessee was eligible to avail cenvat credit for subsequent years even if the capital goods were removed, as there is no legal provision for denial in such cases. Agreeing with the Division Bench's findings, the Judge overruled the lower authorities' decision, stating that denying credit in this scenario is not legally justified. The appeal was allowed with consequential relief, emphasizing the eligibility of the appellants to claim cenvat credit for the subsequent year despite the removal of capital goods on payment of duty.