CENVAT Credit Rules, 2002 provides for availing of CENVAT credit on capital goods. These Rules were superseded by CENVAT Credit Rules, 2004 which also allow for availing of CENVAT credit on capital goods. The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year.
Rule 4(2)(b) of CENVAT Credit Rules, 2002 provides that the balance of Cenvat credit may be taken in any financial year subsequent to the financial year in which the capital goods other than components, spares and accessories, refractories and refractory materials and goods falling under Heading No. 68.02 and sub heading No. 6802.10 of the First Schedule to the Tariff Act are in the possession and use of the manufacturer of the final productions in such subsequent years. The intention of the Government is clear from the underlined words 'possession and use' that the capital goods should be in possession and also in the use of production for availing the balance fifty per cent in any subsequent financial year. The words 'use of' means installation. The words 'in any financial year subsequent to the financial year' imply that the second fifty per cent can be availed not necessarily in the first subsequent year but any of the subsequent years.
The CBEC circular No. B-4/7/2000-TRU dated 3.4.2000 in para 8 when it lays down that installation is not a pre requisite for taking capital goods credit, is actually speaking in respect of the first fifty per cent cenvat credit, which can be availed on receipt of the capital goods, without waiting for the installation. In respect of the balance fifty per cent CENVAT credit, the circular says that the same can be taken in a financial year subsequent to 2000-2001.
In 'M/s Ispat Industries Ltd., V. Commissioner - 2006 (168) ELT 379 (Tri.) the tribunal while interpreting the term 'in possession and use' interpreted the word 'use' to mean 'for use of the assessee' and the words 'possession and use of' have to be read together, which would mean that the goods are still available with the assessee for use in the manufacture of the final products. The tribunal held that as long as the capital goods are lying in the factory meant for installation and future use in the manufacture or the final product, they have to be treated as in possession and use of manufacturer and denial of fifty per cent credit is not sustainable.
In 'Parasrampuria Synthetics Ltd., V. Commissioner - 2004 (170) ELT 327 (Tri. Del) it has been held that fifty per cent of the balance credit cannot be allowed without installation/use of the goods in the financial year during which it is claimed. In the case 'M/s Goyal M.G. Gases Pvt. Ltd V. Commissioner of Central Excise, Ghaziabad - 2004 (168) ELT 369 (Tri. Del) it was held that 'capital goods not inv use of assessee in subsequent financial years in which 50% credit was taken the assessee was not eligible for the same.
Rule 4(2)(a) CENVAT Credit Rules, 2004 provides that in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year if such capital goods are cleared as such in the same financial year. Further it provides that the balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act, are in possession of the manufacturer of final products, or provider of output service in such subsequent years. The present rule in force shows only possession is necessary and not in use as required in erstwhile rule.
In 'Commissioner of Central Excise, Mumbai V. Fiat India Pvt. Ltd.,' - 2009 -TMI - 34845 - (CESTAT, MUMBAI) the respondents were engaged in the manufacture of automobiles and its falling under Chapter heading 87039090 and 87089900 of Central Excise Tariff Act, 1985. During CERA audit, it was observed that the respondents had availed capital goods representing 50% of the duty paid on the capital goods acquired during the year 2002-03. The balance 50% was availed by them in the subsequent year i.e., in the month of April 2003, even though the capital goods though in their possession but were not put in use. As such it was alleged that they had not fulfilled the conditions of provisions of Rule 4(2) of CENVAT Credit Rules, 2002. It was further alleged that the capital goods were put to use on various months of the year 2003-04 and the respondents had not acquired any new capital during the year 2003-04. Show cause notice was issued to the respondent demand interest on the amount of 50% of the capital goods CENVAT Credit availed before the date of its entitlement, under Section 11A and 11AB read with Rule 12 of the CENVAT Credit Rules, 2002. Penalty was also imposed. The same was confirmed by the Adjudicating authority.
In the appeal, the Commissioner (Appeals) set aside the order on the following grounds:
> That the issue involved is covered by the tribunal's decision in 'Ballarpur Industries case' reported in 2003 (156) ELT 423 (Tri. Mumbai) and 'Ispat Industries' case reported in 2006 (199) ELT 509 (Tri. Mumbai);
> That there is no specific provision in the CENVAT Rules that the capital goods should be installed and used before balance credit can be taken;
> That the CBEC Circular No. B-4/7/2000-TRU, dated 3.4.2000 also explicitly lays down that installation is not a pre requisite for taking capital goods credit.
The Revenue filed appeal before the tribunal against the order of the Commissioner (Appeals). The issue involved in the case is whether the respondents were correct in availing the balance amount of 50% capital goods CENVAT Credit in the month of April 2003 in respect of the capital goods acquired during the year 2002-03, which though, in their possession, were not put to use for production.
The tribunal analyzed the provisions of Rule 4(2)(b) of CENVAT Credit Rules, 2002 and Rule 4(2)(b) of CENVAT Credit Rules, 2004. It held that at the relevant point of time both possession and use were essential condition. It is clear that during the period in question the respondents were barred from availing balance 50% of CENVAT Credit till the capital goods were put to use for production.
The respondent has relied upon the Tribunal's decision in the case of 'Commissioner of Central Excise, Pune - I V. Tata Motors' - 2008 (226) ELT 466 (Tri. Mumbai) in which it has been held that the subsequent circular F.No. 267/26/2006-CX8, dated 28.4.2008, issued by CBEC restricting availment of credit of rest 50% only after installation of the capital goods is oppressive in nature and should be applied prospectively and the former CBEC Circular F. No. B-4/7/2000-TRU, dated 3.4.2000 permitting availment of 50% CENVAT Credit as and when capital goods are received in the factory and rest 50% in the next financial year is a beneficial one and should be applied retrospectively.
The tribunal held that the CBEC Circular dated 3.4.2000 cannot be considered beneficial to the assessee as it nowhere holds that rest 50% credit can be availed in subsequent financial year even before installation of the capital goods. Further, the tribunal in 'Tata Motors' case has not gone into the question as to whether the rest 50% credit is admissible only after the installation of the capital goods. Hence the decision of the tribunal cannot be considered as precedent for availing rest 50% credit in subsequent financial year before installation of the capital goods.
The tribunal set aside the order of the Commissioner (Appeals) and allowed the appeal filed by the revenue.