TMI Blog2006 (8) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... the year, in which the goods have been received in the factory as provided under Rule 57AG(1) of Central Excise Rules, 1944? (iv) Whether in the facts and circumstances of the case, the learned Tribunal was legally justified in confirming the order of Assessing officer and Appellate Authority recovering Duty and also upholding the levy of penalty of Rs. 1.00 lacs imposed under Rule 173Q(1)(bb) of Central Excise Rules, 1944?" 2. The basic facts in the back-drop of which the aforesaid questions have arisen are that the appellant is engaged in the manufacture of concentrates from the ores of lead and zinc. Until 31-3-2000, the appellant was entitled to avail Modvat credit only on the installation of the capital goods even though received by it and meant to be used by it in the manufacture of the products. 3. With effect from April 1, 2000, new Cenvat Rules came into force. Under the new rules, instead of waiting until installation of such capital goods, it could avail Cenvat credit of the duty paid on capital goods used by it in the manufacture, on receipt of such capital goods in the factory in two installments - the first installment of 50 per cent of the duty paid on capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the capital goods were installed prior to March 31, 2000 and not to those factories where goods were installed after 1-4-2000. 9. The Modvat credit on the capital goods under the Central Excise Rules, 1944 was allowable under Rule 57Q. Under clause (vii) of Rule 57Q, in respect of capital goods received in the factory on or before March 31, 2000, Modvat credit in respect of the duty paid on capital goods was not allowable on a date prior to the capital goods were installed in the factory. Thus according to the existing Rule 57Q, as on the date, the assessee has received the capital goods in his factory he was not entitled to avail the Modvat credit in respect of such capital goods until the capital goods were installed prior to March 31, 2000. 10. The scheme of Modvat credit was, however, replaced by Cenvat Credit Rules, 2000 which were to be effective from 1-4-2000. Under Rule 57AC, vide clause (c) Cenvat credit in respect of the capital goods could be availed on receipt of the capital goods in the factory in the year in which the capital goods were received. However, the amount of such Cenvat credit in the same financial year was not to exceed 50 per cent of the Duty pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the matter was referred to the Central Board of Excise and Customs and clarifications were required to be issued. The Board circular, referred to in the order of the Tribunal - so far as it relates to the present controversy, is encapsuled in para 9 and 10 of the circular which are reproduced hereinbelow : "9. Referring to sub-rule (2)(c) of rule 57AC, it has been pointed out that there are cases in which the capital goods were received before 1st day of April 1, 2000, and also installed before that date. However, the Modvat credit on the capital goods was not taken for some reason prior to 1-4-2000. It has been pointed out that in this situation, not being covered under rule 57AC(2)(c) the duty paid on the capital goods causes burden to the manufacturer. It has also been reported that in some cases the inputs were received in the factory on or before 31-3-2000 but credit was not taken for some reason. It is clarified that in the situations mentioned, even though the Modvat credit was not taken by the manufacturer the Modvat credit had been "earned" by the manufacturer and, therefore, the manufacturer is entitled to take the CENVAT credit of this amount under Rule 57AG(1). 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital goods in the factory and after the receipt of the capital goods in the factory the subsequent installment of the Cenvat credit could be availed only in the subsequent financial year to the financial year in which the capital goods were received in the factory of the manufacturer provided that the capital goods are still in the possession and use of the manufacturer of the final product in such subsequent financial year. That only ensured that the capital goods received and installed by the assessee must be at least used for a reasonable period of more than one year in order to avail the full Modvat/Cenvat credit. 18. Rule 57AG on which reliance has been placed by learned counsel for the petitioner also speaks that unutilised credit earned by the manufacturer under Rules 57A, 57B and 57Q shall be allowed to the manufacturer under the Cenvat rules only and shall be capable of being utilised in accordance with Cenvat rules only. Therefore, for availing the Cenvat credit in respect of the goods received prior to 1-4-2000 in the factory but installed and used after 1-4-2000 is also to be governed by the rules of availing the Cenvat credit under Rules of 2000 as amended from time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngful availing of the Modvat credit which the manufacturer has reason to believe is not permissible under the rules. This is not the case herein. Therefore, the foundation of levy of penalty is that whether the assessee cannot hold a reasonable belief that Cenvat/Modvat credit under the rules is not permissible. On the consideration of relevant rules and notifications, we are of the opinion that if the assessee reasonably believed that he is entitled to avail Modvat/Cenvat credit in the manner is which he has availed, the penalty is not leviable. 23. In view of the complexity of the situation, in the absence of sufficiently clear provisions about the transitional period and the core area having been left unclarified for availing 100 per cent credit available on the duty paid on capital goods received in the factory prior to 1-4-2000 but installed in financial year 2000-2001 the credit utilized by the assessee on the reasonable belief that he is entitled to avail 100 per cent credit when he installed the capital goods could not be said to be baseless or imaginary exercise. 24. Consequentially, the appeal is partly allowed. The order to the extent of levy of penalty for availing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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