2024 (12) TMI 791 - AT - Central Excise

CENVAT Credit on capital goods - Availment of 100% CENVAT Credit on cylinders considering the same as input instead of 50% of the credit, being maximum permissible availment for capital goods in a year - HELD THAT - Though cylinder was accepted as capital goods, it was considered as part of the printing machine and therefore, taking of full CENVAT Credit at 100% by the Appellant can t be considered as irregular, apart from the fact that such credit was never ever utilised by the Appellant to its fullest extent and proportionate interest was also paid for the expressly debarred period. The order passed by the Commissioner of Central Excise, Mumbai-III is hereby set aside - Appeal allowed.

Summary

Issues:
Availment of 100% CENVAT Credit on cylinders falling under Chapter 84 of Central Excise Tariff Act, 1985; Interpretation of Rule 2(k) of CENVAT Credit Rules, 2004; Legality of duty demand, interest, and penalty imposed from April 2011 to March 2014.

Detailed Analysis:
The judgment pertains to an appeal challenging the confirmation of duty demand amounting to Rs. 68,26,125 under Rule 14 of the CENVAT Credit Rules, 2004, along with interest and penalty, due to the Assessee-Appellant's availing of 100% CENVAT Credit on cylinders, which were considered as inputs instead of capital goods. The Appellant, a manufacturer of excisable goods, had been availing CENVAT Credit on various items, including cylinders, which were later found to be ineligible for full credit post an amendment to Rule 2(k) of the CENVAT Credit Rules in 2011. The dispute arose as the Appellant argued that the cylinders were eligible for full credit as per the exclusion Clause C to Rule 2(k) and even paid interest on the disputed amount as per the department's version. The Appellant contended that the entire exercise was revenue-neutral, citing judicial precedents to support their case (para 2-3).

During the appeal hearing, the Appellant's Counsel argued that the cylinders were essential components eligible for full credit or at least 50% credit as capital goods, and any excess credit availed was duly paid back as interest. On the other hand, the Authorised Representative supported the Principal Commissioner's order, emphasizing Rule 4(2)(a) of the CENVAT Credit Rules, which limits credit on capital goods to 50% of duty paid in the same financial year (para 4).

The Tribunal analyzed the case record, submissions, and relevant legal provisions. It noted that the issue of credit availed exceeding 50% of duty paid on capital goods was central to the dispute. The Tribunal highlighted the amendments to the CENVAT Credit Rules, particularly the provision prohibiting credit after six months of invoice issuance, making the demand notice issued in 2014 legally unsustainable. The Tribunal concluded that the Appellant had not utilized the excess credit and had sufficient balance in its CENVAT Credit Account, indicating no wrongful utilization of credit (para 5).

Regarding the interpretation of Rule 2(k) of the CENVAT Credit Rules, the Tribunal examined the findings of the Principal Commissioner, who classified the cylinders as capital goods integral to the printing machine. The Principal Commissioner's observation emphasized the essential role of cylinders in the printing process, leading to the acceptance of full credit availed by the Appellant. The Tribunal concurred with this assessment, setting aside the Commissioner's order and providing consequential relief to the Appellant (para 6-8).