2006 (7) TMI 21 - AT - Central Excise

Central Excise Cenvat credit Capital goods - The 50% credit in next year cannot be denied on the ground that some parts of generator were sent out for repair and subsequently installed on receipt back Credit allowed

Summary

Issues: Denial of Modvat credit, Interpretation of CENVAT Credit Rules

In this judgment by the Appellate Tribunal, New Delhi, the issue revolved around the denial of Modvat credit of less than Rs.17 Lakhs relating to the purchase of capital goods (DG sets) by the appellants. The Rule required the appellant to take 50% of the credit in the year of purchase and the remaining in the second year. The dispute arose in the second year when the credit was denied due to certain parts of the DG sets being sent out for repair. The denial was based on sub-rule 2 (b) of Rule 4 of the CENVAT Credit Rules, which necessitates the capital goods to be in possession and use of the manufacturer of final products in the subsequent year.

Upon examination, the Tribunal found no violation of the aforementioned sub-rule in the present case. Even though parts of the DG sets were temporarily sent out for repair, they were subsequently brought back and installed within the required timeframe. This satisfied the specific requirement of the capital goods being in use during the financial year. The Tribunal criticized the lower authorities' decision as unreasonable, highlighting that reversing CENVAT Credit each time a machine required repair outside the factory would disrupt the functionality of the CENVAT credit scheme for capital goods and introduce significant administrative challenges.

Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant, granting consequential relief. The judgment was pronounced in open court on 25.7.2006, emphasizing the importance of adherence to the CENVAT Credit Rules and the practical implications of their interpretation in ensuring the smooth operation of credit schemes for capital goods.