2019 (1) TMI 423 - AT - Central Excise

CENVAT Credit - availing 50% credit on capital goods after absolute exemption - manufacture of cotton yarn - appellant availed exemption under Notification No.29/2004-CE dt. 09.07.2004 which provides 4% duty advalorem and also under Notification No.30/2004-CE dt. 09.07.2004 which provides for Nil rate of duty - denial of credit on the ground that cotton yarn was therefore absolutely exempted during the period from 07.12.2008 to 06.07.2009, and the assessees were prohibited from paying duty on their own and hence the assessees were not entitled for Cenvat Credit during this period. Held that - No doubt, as per sub-rule (4) of Rule 6 of Cenvat Credit Rules, 2004, availment of cenvat credit is barred in respect of capital goods which are used captively in the manufacture of exempted goods. However, when the manufacturer was entitled to take credit on the duty paid capital goods at the time of their receipt it would be unjust and beyond the provisions of law to deny availment of remaining amount of credit only on the grounds that at the time of taking the second instalment the final goods were exempted. What is important to be seen is the eligibility or otherwise availment of credit, at the time of receipt of the goods in the factory. Restriction of availment of 50% in the first financial year and the balance subsequently, is only a procedural compulsion brought about by sub-ordinate legislation. However that cannot take away the right of availment of credit that is vested with the appellant at the time when goods were received in the factory. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Whether the assessee was entitled to avail Cenvat Credit on capital goods during the period when the final product was wholly exempted from duty.
- Whether the assessee's ineligibility to avail credit during the disputed period was admitted by reversing the ineligible credit.
- Whether the assessee could take Cenvat credit on capital goods when the final product was fully exempted.
- Whether the eligibility of capital goods should be decided based on the receipt of goods and dutiability of the finished product.

Analysis:
1. The case involved the assessee, engaged in the manufacture of cotton yarn, availing exemptions under various notifications. The Department contended that the assessee was not entitled to Cenvat Credit on capital goods during a specific period when the final product was wholly exempted from duty. The dispute arose from the interpretation of relevant notifications and rules.

2. The Department issued a show cause notice disallowing credit and imposing penalties. The original authority disallowed the credit, leading to an appeal by the assessee. The Commissioner (Appeals) set aside the original authority's order, prompting the Department to file the present appeal.

3. The Department argued that the assessee was prohibited from paying duty on wholly exempted goods and could not opt to pay duty under a specific notification. The Department highlighted that the assessee had reversed the ineligible credit, indicating acknowledgment of ineligibility during the disputed period.

4. The Tribunal analyzed the provisions of the Cenvat Credit Rules, particularly Rule 6(4), which restricts credit on capital goods used in the manufacture of exempted goods. The Tribunal noted that the assessee was entitled to take credit on capital goods at the time of receipt, despite the final product being exempted later. The Tribunal emphasized the importance of eligibility at the time of receipt and upheld the lower appellate authority's decision.

5. The Tribunal dismissed the Department's appeal, stating that the assessee's right to avail credit at the time of goods receipt could not be denied based on subsequent exemptions. The Tribunal referenced a relevant precedent and concluded that the denial of remaining credit solely due to subsequent exemptions was unjust and beyond legal provisions.

6. In conclusion, the Tribunal found no merit in the Department's appeal and upheld the decision of the lower appellate authority. The Tribunal's detailed analysis of the Cenvat Credit Rules and relevant notifications supported the assessee's entitlement to avail credit on capital goods despite subsequent exemptions on the final product.