Availment of balance Cenvat credit on Capital Goods in subsequent year if capital goods not installed

PJ/Case Laws/2011-12/1541

Case: BHARAT PETROLEUM CORPORATION LTD Vs COMMISSIONER OF CENTRAL EXCISE, MUMBAI II

Citation: 2012-TIOL-140-CESTAT-MUM-LB

Issue:- Whether assesses eligible to avail credit of balance 50% of amount of duty paid on capital goods in subsequent financial year, without installing the same and putting it into use?

Brief Facts:- Assessee procured capital goods in their factory which was not installed in the factory in the subsequent financial year and was not yet put to use. They sought to avail credit of balance 50% amount of duty paid on said capital goods. The disputed period is 2003-2004.

Matter was referred to the Larger bench of the Tribunal for interpreting the expression used in the Rule i.e. ‘possession’ and ‘use of the manufacturer of final products’, which is the condition for availing credit of balance 50% in the subsequent years as provided under Rule 4(2)(b) of the CENVAT Credit Rules.

There were two conflicting decisions in existence. In Parasrampuria Synthetics vs. CCE, Jaipur [2004 (170) ELT 327 (Tri-Del.)] the Tribunal took a view that the balance 50% of Cenvat credit can be taken by a manufacturer in case the capital goods were in use of the manufacture of final products and in that case as the capital goods were not installed/used by the manufacturer hence the balance credit of 50% was denied.

In another case of Ispat Industries Ltd. vs. CCE, Raigad reported in [2006 (199) ELT 509 (Tri-Mumbai)], the Tribunal held that in case the capital goods were at the stage of erection in the plant, the credit of 50% cannot be denied on the ground that the capital goods were not put to use.

Reasoning of Judgment:- The Larger Bench perused Rule 4 (2) (b) and observed that said Rule provided 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, 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 Tariff, are in the possession and use of the manufacture of final products in such subsequent years.

It was noted that in this case, the capital goods are lying in the factory and the process of erection was being carried out.

The Larger Bench also perused the judgments given in Parasrampuria Synthetics vs. CCE, Jaipur. The Larger Bench found that the capital goods were not installed in the factory ans in the absence of contention, that process of installation was being carried out, the Tribunal rightly disallowed the credit of remaining 50% of duty paid on capital goods, availed by the assessee in that case.

The judgment given in Ispat Industries Ltd. vs. CCE, Raigad was also perused. It was noted that in the case of Ispat Industries Ltd. vs. CCE, Raigad the Revenue had gone into appeal before the High Court [CCE v/s Ispat Industries Ltd (Excise Appeal no. 139 of 2008)].

It was noted that the High Court noted that the Tribunal on the facts of the case had held that the expression “possession and use of the manufacturer of final products” have to be read together and would denote that the goods were available for use in the manufacture of the final goods. It was a finding of fact that capital goods lying in the factory for installation and the erection process was being carried out. Thus, the requirement that the goods were in the possession and use of the manufacturer in the year in which the balance of credit was availed of has been fulfilled. Thus, the High Court answered the question referred to the Larger Bench as under:

The condition imposed under the relevant Cenvat Credit Rules, for taking credit of balance of 50% of amount of duty on capital goods in subsequent financial years, in case the capital goods are lying in the factory for installation and the process of erection was being carried out then it has to be considered as the capital goods are in possession and use of the manufacturer.

Decision:- Matter remitted to the Division Bench to decide the appeal on merits.

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PJ/Case Laws/2011-12/1541

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