2004 (3) TMI 155 - AT - Central Excise

Cenvat Credit - Capital Goods - duty paid on excisable goods used as inputs or capital goods - penalty - Whether the remaining 50% of the Cenvat Credit in respect of capital goods can be taken by the appellants in subsequent financial year, without the capital goods being installed/used - HELD THAT - The credit can be taken as and when the capital goods are received in the factory . In view of this specific clarification given by the Board, it is not open to the Revenue to argue contrary to the clarification contained in the said Circular. Refer Ranadey Micro Nutrients v. C.C.E., 1996 (9) TMI 124 - SUPREME COURT . Accordingly, first 50% of Cenvat Credit, taken by the appellants in respect of capital goods before their installation or use, cannot be denied to the appellants. To this extent, the appeals filed by the appellants, are allowed. The appellants were eligible to avail the credit in respect of capital goods, which were not installed before 1-4-2000 in the financial year, 2000-2001 upto the extent of 50 per cent of the duty. The appellants had taken a credit of Rs. 83,10,435/- in the financial year 2000-2001 in respect of the capital goods received prior to 1-4-2000 and it was not installed. They had, subsequently, reversed the credit as required by the Department. However, they had again taken the credit of the said amount in their R.G. 23C Part II on 3-10-2001 in respect of which a show cause notice dated 23-9-2002 was issued to them and the Commissioner, under the impugned order, has disallowed the same on the ground that the capital goods were lying in un-assembled condition and non-functional. As we have held that the installation/use was not a condition perquisite for taking the first 50% of the credit paid on the capital goods, the appellants are eligible to take credit. We, therefore, allow their appeal on this aspect also. A perusal of sub-rule 2(b) of Rule 57AC makes it very clear that the balance 50% of Cenvat Credit can be taken by a manufacturer in subsequent financial year only when the capital goods are (i) in the possession of the manufacturer and (ii) in use of the manufacture of final product in subsequent year. As admittedly the capital goods are not in use of the appellants in subsequent financial year, in which the balance 50% credit has been taken, the appellants were not eligible for the same. This has been fairly admitted by the appellants also when it has been mentioned by them that the credit was taken on 1-4-2001 without appreciating the change in law. In view of this, the appellants are not eligible to take the remaining 50% of credit in subsequent financial year and to this extent, the appeal, filed by them, is rejected. It has been emphasised by the Learned Senior Counsel that there was no mala fide intention in taking Cenvat credit and as the same has not been utilised towards payment of duty, no penalty should be imposed on them. We find substantial force in these submissions. It has not been disputed by the Revenue that the Credit taken by them was never utilised by the Appellants. In view of this and also the fact that the issue revolves around the interpretation of the provisions of Rules, no penalty is imposable on any of the appellants. We, therefore, set aside the penalties imposed on both the appellants. Both the appeals are disposed of in these terms.

Issues Involved:
1. Availability of Cenvat Credit of duty paid in respect of Capital Goods.
2. Validity of first 50% Cenvat Credit taken before installation.
3. Eligibility for the remaining 50% Cenvat Credit in subsequent financial years.
4. Imposition of penalties on the appellants.

Summary:

1. Availability of Cenvat Credit of duty paid in respect of Capital Goods:
The core issue in these appeals is the availability of Cenvat Credit for duty paid on capital goods. The appellants, M/s. Goyal M.G. Gases Pvt. Ltd., imported a liquid oxygen plant and took Modvat Credit on the duty paid for these capital goods. The Department issued multiple show cause notices for reversing the credit on the grounds that the capital goods were not installed or used in the factory.

2. Validity of first 50% Cenvat Credit taken before installation:
The appellants argued that, as per Rule 57AC(2)(c) of the Central Excise Rules, 1944, effective from 1-4-2000, installation of capital goods was not a prerequisite for taking Cenvat Credit. They cited the Board's Circular F. No. B-4/7/2000-TRU, dated 3-4-2000, which clarified that credit could be taken as soon as the capital goods were received in the factory. The Tribunal agreed, stating that the first 50% of Cenvat Credit taken by the appellants before installation was valid and allowed their appeal on this aspect.

3. Eligibility for the remaining 50% Cenvat Credit in subsequent financial years:
Regarding the remaining 50% Cenvat Credit, Rule 57AC(2)(b) stipulates that the balance credit can only be taken in subsequent financial years if the capital goods are still in possession and use of the manufacturer. Since the capital goods were not in use, the appellants were not eligible for the remaining 50% credit. The Tribunal rejected the appeal on this aspect, noting that the appellants had admitted to taking the credit without appreciating the change in law.

4. Imposition of penalties on the appellants:
The Tribunal found that there was no mala fide intention on the part of the appellants as the credit taken was never utilized for payment of duty. Given the circumstances and the fact that the issue involved interpretation of rules, the Tribunal set aside the penalties imposed on the appellants.

Conclusion:
The Tribunal allowed the appeals concerning the first 50% Cenvat Credit taken before installation but rejected the appeals for the remaining 50% credit due to non-use of the capital goods. Penalties imposed on the appellants were set aside.

← Previous Next →