2016 (8) TMI 937 - AT - Central Excise

CENVAT credit - capital goods and services received by them during the period 01/04/2005 to 28th of February 2006, during which period their final products were exempted from payment of Central excise duty - Held that - there is no doubt that at the time of receipt of capital goods, the final products of the appellant were chargeable to nil rate of duty and therefore these capital goods fall within the purview of sub rule 4 of rule 6 and hence not entitled to Cenvat credit. The only argument advanced by the appellant is that the credit has been taken in the same financial year in which their final products became dutiable. We find that this is not a valid reason to permit such credits. - Decided against the appellant

Summary

Issues:
1. Availment of CENVAT credit on capital goods during the period of exemption from Central excise duty.
2. Interpretation of Rule 6 of the CENVAT Credit Rules regarding the eligibility of CENVAT credit on capital goods used in the manufacture of exempted goods.

Analysis:
The appeal in this case challenges the order of the Commissioner (Appeals) regarding the demand for CENVAT credit availed by the appellant on capital goods received during a period when their final products were exempted from Central excise duty. The appellant, a manufacturer of asbestos cement sheets, argued that since their final product became dutiable in the same financial year as the receipt of capital goods, they should be entitled to the CENVAT credit.

The Tribunal examined Rule 6 of the CENVAT Credit Rules, specifically sub rule 4, which states that no CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods. The Tribunal noted that at the time of receiving the capital goods, the final products of the appellant were chargeable to nil rate of duty, making the capital goods ineligible for CENVAT credit as per the rule. The appellant's argument based on the timing of dutiability of final products was deemed invalid.

Referring to a previous decision by the Larger Bench of the Tribunal in the case of Spenta International Ltd versus Commissioner of Central Excise, Thane, it was established that credit eligibility is determined based on the duty liability of the final product at the time of receiving capital goods. Applying this precedent, the Tribunal concluded that since the final products were duty-exempt when the capital goods were received, the appellant was ineligible for the CENVAT credit on those goods. Therefore, the impugned order was upheld, and the appeal was dismissed.

In conclusion, the Tribunal's decision reaffirmed the principle that CENVAT credit on capital goods used in the manufacture of exempted goods is not permissible if the final products were duty-exempt at the time of receiving the capital goods. The judgment provides clarity on the interpretation of Rule 6 of the CENVAT Credit Rules and underscores the importance of aligning credit eligibility with the duty liability of final products at the relevant time.