2017 (1) TMI 801 - AT - Central Excise

CENVAT credit - capital goods - whether Cenvat Credit on capital goods is allowable or eligible - (a) only after the production from those capital goods commences or (b) on the day the said goods are installed in the factory premises or, (c) on the day the goods are received in the factory premises for intended production of dutiable final products? - Held that - Cenvat credit has to be determined on capital goods on the date of receipt that is as and when, the said goods are received in the factory of production along with evidence of duty paying documents. Whether the Cenvat Credit taken lawfully under Cenvat Credit laws on the receipt of capital goods in the factory can be denied later on at a subsequent stage, when the final product becomes exempted? - Rule 6(4) of CCR, 2004 - the said ruling have two clauses. The first clause provides that no Cenvat Credit shall be allowed on capital goods, which are used exclusively in the manufacture of exempted goods or in providing exempted services thereafter in 2nd Clause, it is provided that - other than the final products, which are exempt from the whole of the duty of Excise leviable thereon under any notification when exemption is granted based upon the value or quantity of clearance, made a financial year . Held that - Rule 6(4) does not debar taking of Cenvat Credit on capital goods, which are used in the manufacture of final products, although taxable, but exempt from the whole of duty of Excise under any notification when exemption is granted based upon the value or quantity of clearances - In the instant case, biscuits are normally taxable under the tariff but have been exempt vide N/N. 22/2007-CE dated 03.05.2007 with respect to the value of the product and/or MRP. Thus, the assessee falls in the second clause of Rule 6(4), which provides an exception, and as such, the credit is available on capital goods, for output, which are normally taxable but exempt under notification. CENVAT credit rightly taken and utilised - appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Whether Cenvat Credit on capital goods is allowable only after production commences, on the day goods are installed, or on the day goods are received for intended production of dutiable final products.
2. Whether Cenvat Credit lawfully taken on receipt of capital goods can be denied when final product becomes exempted.

Analysis:
1. The appellant, engaged in manufacturing biscuits, received new plant and machinery for installation in 2007. Revenue observed phased receipt of capital goods, with final consignment arriving after biscuits became non-taxable under a notification. The appellant availed Cenvat Credit on these goods. Revenue alleged the capital goods were used exclusively for exempted products, disallowing the Cenvat Credit of ?17,97,968. The Additional Commissioner upheld the demand, imposing penalties. The Commissioner (Appeals) remanded the issue, leading to a fresh order reconfirming the demand. However, the Commissioner (Appeals) allowed the appeal, holding that Cenvat Credit was rightly taken when goods were received, irrespective of subsequent exemption. The Commissioner relied on tribunal rulings emphasizing credit eligibility at the time of receiving capital goods.

2. The Revenue challenged the order, contending that as the installed capital goods were used exclusively for exempted goods, Cenvat Credit was inadmissible under Rule 6(4) of CCR, 2004. The Rule prohibits credit on capital goods used for exempted final products. The Revenue argued that since the new plant was installed after biscuits became exempt, the credit was not admissible. However, the Tribunal found that Cenvat Credit eligibility is determined at the time of receiving capital goods, as supported by tribunal and Supreme Court rulings. Rule 6(4) allows credit on capital goods used for products normally taxable but exempt under specific notifications, as in the appellant's case. The Tribunal held that the appellant rightfully availed and utilized the Cenvat Credit, allowing the appeal and dismissing the Revenue's appeal.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the Cenvat Credit on capital goods used for products exempt under specific notifications, despite installation after the products became exempt. The judgment emphasized the importance of determining credit eligibility at the time of receiving capital goods, as established by previous tribunal and Supreme Court rulings.