2014 (2) TMI 634 - AT - Central Excise

CENVAT Credit on capital goods - assessee has availed 100% credit in the first year itself instead of 50% - levy of penalty - Held that - Respondent are entitled to take CENVAT credit of duty paid on capital goods up to 50% in the financial year in which the capital goods have been procured and remaining 50% of duty paid on capital goods is entitled as CENVAT credit in the subsequent year. As in this case, the respondent have availed the CENVAT credit of 100% of the duty paid on capital goods in the year in which the capital goods have been procured. - respondents are not entitled to take credit more than 50% in the year in which the capital goods have been procured. But in the subsequent year, they are entitled for the said credit. - Therefore, the argument advanced by the AR that they are required to reverse entire credit is not correct. - Levy of interest and penalty amounting to ₹ 5000/- confirmed.

Summary

Issues:
1. Interpretation of Rule 4(2)(a) and 4(2)(b) of CENVAT Credit Rules, 2002.
2. Entitlement of the respondent to avail CENVAT credit on capital goods.
3. Correctness of the adjudicating authority's order.
4. Imposition of penalty and interest on the respondent.

Analysis:

1. The main issue in this case revolves around the interpretation of Rule 4(2)(a) and 4(2)(b) of the CENVAT Credit Rules, 2002. The respondent, a manufacturer of audio video CDs, procured capital goods in 2003-04 and took credit for the entire duty paid on these goods in the same financial year. The revenue contended that the respondent was only entitled to take credit for 50% of the duty paid in the year of procurement, with the remaining 50% to be availed in the subsequent year.

2. The adjudicating authority initially confirmed the demand for reversal of excess credit along with interest and imposed a penalty equivalent to the duty involved on the respondent. However, on appeal before the Commissioner (Appeals), the authority's decision was overturned. The revenue challenged this decision, arguing that the respondent did not comply with Rule 4(2)(a) and 4(2)(b) and should reverse the excess credit taken.

3. The revenue contended that the respondent had not followed the prescribed rules and should reverse the excess credit taken in the year of procurement. On the other hand, the respondent argued that they were entitled to avail the entire CENVAT credit in one go, even though 50% was to be utilized in the subsequent year. They claimed that the credit had not been utilized and hence they had complied with the rules.

4. After considering the submissions and examining Rule 4(2)(a) and 4(2)(b) of the CENVAT Credit Rules, the judge found that the respondent was only entitled to take credit for 50% of the duty paid on capital goods in the year of procurement. Since the respondent had availed 100% credit in the same year, they were required to pay interest for the intervening period until the subsequent year when the remaining credit could be utilized. The judge also imposed a penalty of Rs. 5000 on the respondent for the error committed.

5. In conclusion, the appeal was disposed of with the decision that the respondent was not entitled to take credit for more than 50% in the year of procurement, but they could avail the remaining credit in the subsequent year. The respondent was directed to pay interest for the intervening period and a penalty for the error made in availing the credit in advance.