2008 (9) TMI 170 - HC - Central Excise

Admissibility of credit on Capital goods whether the assessee was entitled to avail credit in respect of capital goods which were initially used in the manufacture of exempted final product but subsequently, the same were used for manufacture of dutiable final product - It is clear from the order passed by the authorities below that initially, on trial basis, the machine was put to use and when subsequently, regular production .was started, the cenvat credit was claimed credit admissible

Summary

Issues:
1. Interpretation of Rule 57AD(3) and Rule 6(4) of the Cenvat Credit Rules, 2001 regarding credit on capital goods exclusively used in manufacturing exempted goods.
2. Admissibility of modvat credit on capital goods initially used for exempted goods and later for dutiable goods.
3. Application of precedents - M/s. Kailash Auto Builders and M/s. Arvind Mills Ltd.
4. Disallowance and confirmation of cenvat credit under Section 11A of the Central Excise Act, 1944.
5. Imposition of penalties and recovery of interest under relevant provisions.

Analysis:
1. The case involved a dispute over the admissibility of cenvat credit on capital goods initially used for exempted goods. The Tribunal allowed the appeal of the respondent based on precedents like M/s. Kailash Auto Builders and M/s. Arvind Mills Ltd., holding that credit would be admissible when the goods were later used for dutiable products. The revenue contended that Rule 57AD(3) and Rule 6(4) prohibit credit on goods exclusively used for exempted products. The Tribunal's decision was challenged on these grounds.

2. The Commissioner (Appeals) upheld the respondent's appeal, emphasizing that the capital goods were eventually used for dutiable products, justifying the admissibility of credit. The Tribunal concurred, citing the decision in M/s. Kailash Auto Builders and M/s. Arvind Mills Ltd. The Tribunal also referenced a case involving a similar scenario where credit was allowed for goods utilized after the commencement of dutiable production. The Tribunal's order dismissing the revenue's appeal was based on these findings.

3. The revenue argued that the Tribunal's decision contradicted Rule provisions and precedents like M/s. Surya Roshni Ltd. However, the Court differentiated the facts, noting that the capital goods in question were not put to a different use but were initially used on a trial basis for exempted goods before being used for dutiable products. The Court found no substantial legal questions in the Tribunal's order and dismissed the appeal accordingly.

4. The judgment clarified the distinction between cases where capital goods transition from exempted to dutiable production, emphasizing the eligibility for credit based on actual usage. The decision highlighted the importance of considering the specific circumstances of each case and applying relevant legal provisions and precedents to determine the admissibility of cenvat credit on capital goods.