Availment of 100% Cenvat credit on Capital Goods in subsequent year

PJ/Case Laws/2010-11/1167

Availment of 100% Cenvat credit on Capital Goods in subsequent year - admissibility of

Case: Commissioner of Central Excise Bangalore-II v/s M/s Progressive Systems

Citation: 2011-TIOL-277-HC-KAR-CX

Issue:- Availment of 100% Cenvat credit on capital goods in subsequent year – admissible as no mandate in CCR, 2004 that credit should be utilised in the very same year.

Brief of Facts:- Respondent-assessee is a manufacturer of excisable goods “machine tools” falling under Chapter 84. They were registered under the Central Excise on 16.04.2007 for manufacture of excisable goods. They availed Cenvat credit in respect of certain capital goods which were procured in the year 2006-07 and 2007-08. The entire credit has been availed in 2007-08, the year following receipt of the capital goods.

Department issued show cause notice to the assessee on the ground that they have availed Cenvat credit, to which they were not entitled to. On being communicated about the said fact, the assessee reversed the amount of under protest. Thereafter, an order came to be passed under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 demanding the amount of credit so taken.

Aggrieved by the same, Assessee preferred an appeal before the Commissioner (Appeal) who affirmed the impugned order. Assessee preferred further appeal to the Tribunal.

The Tribunal held that Rule 3 (1) of the Rules governs availment of credit of various types of duties. There is no bar in an SSI unit taking Cenvat Credit on inputs or capital goods received during 2006-07. The SSI unit can accumulate capital goods credit till it exhausts the exempted value of clearances and starts paying duty. Therefore, the Tribunal held that as per Rule 4 (2) of the Rules an assessee can avail capital goods credit up to 50% in the year of receipt of the goods and balance in subsequent financial years. There is no prescription that credit to any extent has to be availed in the year of receipt of capital goods. It was held that in the assessee’s case, the entire credit which was availed in 2007-08, the year following receipt of the goods, was not inconsistent with the legal provisions. Therefore the Tribunal set aside the impugned order and allowed the appeal granting relief to the assessee.

Aggrieved by the same, the Revenue has preferred appeal before the High Court.

Respondent’s Contention: - Revenue contended that in view of Section 4 (2) of the Rules, the assessee must utilize the Cenvat Credit in the year of its availment. It is only remaining 50% they can utilise at any point of time. In the present case, the credit was not utilised by the assessee in the year in which the credit was availed. Therefore, the Tribunal erred in setting aside the order of the Lower Authorities.

Reasoning of Judgment:- The High Court noted that the assessee registered under Rule 9 of CER, 2002 on 16.04.2007, which is condition precedent for utilizing the cenvat credit. The assessee availed credit during the period 2006-07. As the assessee had not registered its Unit under the Rule, the assessee was not entitled to utilize Cenvat in the year of acquiring the same. It was held that Rule 4 (2)(a) of CCR, 2004 provides that only to the extent of 50% of the credit could be utilised in the same year. Once the credit is not utilised in the same year, then Rule 4 (2) (b) provides that it can be utilised in any year and to the full extent.

In the instant case, it was held that credit was availed in year 2006-07, when the assessee had not yet registered under Rule 8 of CER, the assessee did not utilise the cenvat credit. It is only after registration in the subsequent year, they have utilised the entire credit which was available to them. Therefore, the finding of the Lower Authorities that the assessee could not have utilised 100% credit is erroneous. The Tribunal was justified in setting aside the said irregularity and allowing Cenvat credit to the assessee in the next year of its availment under the Rules. No merits in appeal.

Decision:- Appeal dismissed.

Comment:- This is very good decision wherein the unit initially set up starts availing SSI exemption. They need not to register themselves with the department. But the capital goods are received in intial year of setting up of unit. If they are not registered then they cannot avail the cenvat credit. But this decision will provide the relief to them.

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PJ/Case Laws/2010-11/1167

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