2006 (4) TMI 14 - AT - Central Excise

Central Excise Credit on capital goods Installation of CG is not pre-condition, if CG are for use in the factory and credit can be availed even before installation

Summary

Issues:
Availment of Modvat credit for capital goods not actually put to use; Interpretation of the term "use" in Rule 4(2) of Cenvat Credit Rules, 2001/2002; Dispute regarding denial of balance 50% credit availed in subsequent financial year; Allegations of limitation in issuing show cause notices; Imposition of personal penalty and interest by the Commissioner.

Analysis:
The appellant, engaged in manufacturing sponge iron and HR coil, availed Modvat credit for duty paid on capital goods received for a project. The dispute arose when the revenue contended that the appellant wasn't entitled to avail 50% credit in the subsequent year as the capital goods were not actually put to use. The Commissioner denied the credit and imposed penalties, leading to the present appeal.

The Commissioner's decision was based on the interpretation of the term "use" in Rule 4(2) of the Cenvat Credit Rules. He emphasized that the balance credit could only be availed when capital goods were actually put to use in the production process. The Commissioner argued that possession alone was not sufficient, and actual utilization was essential for availing the credit.

The appellant argued that the expression "use of" should be interpreted as the goods being available for use by the manufacturer, not necessarily in active production. They cited various legal precedents to support their interpretation, highlighting that possession and potential use should suffice for credit availment.

The Tribunal supported the appellant's interpretation, emphasizing that possession and use should be read together, indicating that the goods are available for use in manufacturing processes. They clarified that actual use was not a prerequisite, and as long as the goods were in possession for future use, the credit should be allowed.

Moreover, the Tribunal found the demand raised against the appellant to be time-barred, as the appellant had disclosed the credit availed in their statutory returns, indicating no intent to evade duty. Therefore, the demand was set aside on both merit and limitation grounds, leading to the dismissal of penalties imposed.

In conclusion, the Tribunal allowed the appeal, granting relief to the appellant by permitting the balance credit availed in the subsequent year and rejecting penalties. The judgment highlighted the importance of interpreting legal provisions in favor of the taxpayer when there is ambiguity, and emphasized the significance of timely disclosure to prevent allegations of evasion.