2017 (1) TMI 918 - AT - Central Excise

CENVAT credit on Capital goods - denial on the ground that w.e.f. 02/01/2006, assessee were manufacturing exempted goods from the said capital goods - Held that - the capital goods were capable of being used even before installing the entire range of capital goods. It is undisputed fact that the capital goods were received when the appellant was paying Central Excise duty on the clearances and that the capital goods were used for the manufacture of excisable goods on which duty was paid. The appellant opted to avail the benefit of said N/N. 50/2003-CE w.e.f. 02/01/2006. Before 02/01/2006, the said capital goods were used for manufacture of dutiable goods. The ratio of decision of Larger Bench of this Tribunal in the case of Spenta International Ltd. Versus Commissioner of Central Excise, Thane 2007 (8) TMI 25 - CESTAT, MUMBAI is squarely applicable in the facts and circumstances of the present case where it was held that the eligibility of Cenvat credit is to be determined with reference to the dutiability of the final product on the date of receipt of capital goods. In the present case the capital goods were received when the dutiable final products were being manufactured. Therefore, in the present case Cenvat credit was admissible to the appellants. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Admissibility of Cenvat credit on capital goods used for manufacturing exempted goods.

Analysis:
The appellant, engaged in manufacturing lighting products falling under Heading No.8539 of the Central Excise Tariff Act, procured capital goods from August 2003 to December 2005. They claimed Cenvat credit on these capital goods, which was utilized for duty payments until January 2006. However, the Revenue contended that the credit was inadmissible as the appellant started manufacturing exempted goods from January 2006, leading to a Show Cause Notice for recovery of Cenvat Credit. The Commissioner disallowed the credit under Rule 14 of Cenvat Credit Rules, 2004, and imposed a penalty. The appellant argued that eligibility for credit should be determined at the time of receiving the capital goods, when they were manufacturing dutiable goods. The appellant relied on the decision of the Larger Bench in Spenta International Ltd. v. Commissioner of Central Excise, Thane, emphasizing the importance of the date of receipt of capital goods for credit eligibility.

The Tribunal considered the submissions and found that the capital goods were received and used for manufacturing dutiable goods before the appellant opted for exemption under Notification No. 50/2003-CE from January 2006. Referring to the decision in Spenta International Ltd. case, the Tribunal held that the eligibility of Cenvat credit should be determined based on the dutiability of the final product at the time of receiving the capital goods. Since the capital goods were received when dutiable goods were being manufactured, the Tribunal concluded that the Cenvat credit was admissible to the appellant. Consequently, the impugned order disallowing the credit was set aside, and the appeal was allowed with any consequential reliefs as per law.

This judgment clarifies the crucial aspect of determining the eligibility of Cenvat credit on capital goods based on the dutiability of the final product at the time of receiving the goods. The decision in Spenta International Ltd. case was instrumental in establishing this principle, ensuring that manufacturers can avail of Cenvat credit when capital goods are used for manufacturing dutiable goods, even if a shift to exempted goods occurs later.