100% of capital goods credit taken by the assessee in the same financial year, whether they are required to reverse the entire credit in the next year or liable for interest and penalty for the intervening period?

PJ/CASE LAW/2015-16/2667

Case-COMMISSIONER OF CENTRAL EXCISE, MUMBAI-I Versus KRCD LTD.

Citation-2014 (303) E.L.T. 587 (Tri. - Mumbai)

Brief Facts-The brief facts of the case are that the respondent is a manufacturer of audio video CD. During the period 2003-04, the respondent procured capital goods on which duty was paid by them. The respondent took credit of whole of the duty paid on capital goods in the same financial year. The revenue is of the view that as per Rule 4(2)(a) and 4(2)(b) respondent is entitled to take credit to the extent of 50% of the duty paid on the capital goods in the year in which capital goods have been procured and remaining 50% is entitled for the subsequent year. Therefore, the show-cause notice was issued to the respondent for reversal of the excess credit taken by them in the financial year in which the capital goods have been procured by them.

Appelants Contention-The ld. AR on behalf of the revenue submits that in the impugned order there is a finding that the respondent has complied with Rule 4(2)(a) and 4(2)(b). Therefore they are entitled for the credit. This is factually incorrect. Therefore, impugned order is to be set aside and adjudicating authority’s order is to be confirmed.

Respondents Contention-The ld. consultant on behalf of the respondent submits that the respondent are entitled to avail Cenvat credit of the whole of the amount of the credit although 50% in the same year and 50% in the subsequent year, and the respondent has taken the credit in one go but same has not been utilised by them. Therefore, they have complied with condition of Rule 4(2)(a) and 4(2)(b) of Cenvat credit Rules, 2002. Therefore, appeal is to be dismissed.

Reasoning Of Judgement-Heard both sides. Considered the submission.The tribunal have gone through the provisions of Rule 4(2)(a) and 4(2)(b) which are reproduced as under :-
“Rule 4. Conditions for allowing Cenvat credit.-
(1)……….
(2) (a) The Cenvat credit in respect of capital goods received in a factory 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 :
Provided that the Cenvat credit 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 the said capital goods are cleared as such in the same financial year.
(b) 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, if 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. 6801.10 of the First Schedule to the Tariff Act, are in the possession and use of the manufacturer of final products in such subsequent years.”
After going through the above said provisions, tribunal find 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. Therefore, tribunal hold that the 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. Admittedly, in this case in subsequent year they have not availed any credit on such capital goods. Therefore, the argument advanced by the AR that they are required to reverse entire credit is not correct. As the respondents have taken the credit in advance wrongly which is entitled to take in the subsequent year. As the respondent has availed the credit in advance, therefore the respondent are required to pay interest for the intervening period for which they are entitled to take credit. Further, as the respondent has committed an error, therefore they are liable to pay the penalty under Rule 27 of Cenvat Credit Rules. Accordingly, penalty of ` 5000/- is confirmed against the respondent. In these terms, appeal is disposed of.

Decision-Appeal party allowed

Comment-The analogy in the case is that according to the provisions of Rule 4(2)(a) and 4(2)(b) an assessee can take only 50% of Cenvat credit of duty paid on capital goods in the same financial year and the balance 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. The reversal of entire credit taken on capital goods, in the next year is not correct because he automatically becomes eligible for that part of Cenvat and instead of this the assessee only has to pay interest for the intervening period and also to pay penalty under Rule 27 of Cenvat Credit Rules.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2667

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