Cenvat credit on Capital goods procured in the previous year to taking registration – 100% credit taken in the year of registration

PJ/Case Laws/2011-12/1191

Cenvat credit on Capital goods procured in the previous year to taking registration – 100% credit taken in the year of registration – whether permissible.

Case: Commissioner of C. Ex, Bangalore-II v/s Progressive System

Citation: 2011(267) E.L.T.473 (KAR.)

Issue:- Cenvat credit on Capital goods procured in the previous year to taking registration – 100% credit taken in the year of registration – whether permissible.

Brief Facts:- Respondent-assessee is a manufacturer of machine tools falling under Chapter 84. They took Excise registration on 16.4.2007. They availed Cenvat credit in respect of certain capital goods which were procured by them in the year 2006-07 and 2007-08.

Department issued SCNs against the assessee on the ground that the respondents were not entitled to take credit on capital goods procured before registration. On being communicated the assessee reversed the credit under protest. The Adjudicating Authority passed order under Rule 14 of CCR, 2004 read with Section 11A of the Central Excise Act, 1944 confirming the demand.

In appeal, the Appellate authority affirmed the said order. Aggrieved by the same, assessee preferred an appeal to the Tribunal. The Tribunal held that Rule 3 (1) of the Rules governed availment of the credit of the various types of duties and there was no bar on SSI taking Cenvat Credit on inputs or capital goods received during 2006-2007. The SSI unit can accumulate capital goods credit till it is exhausted the exempted value of clearance and start paying duty, thereoff. The Tribunal held that as per Rule 4(2) of the Rules an assessee can avail capital goods credit upto 50% in the year of receipt of goods and balance in the subsequent financial year. In the instant case, the entire credit has been availed in 2007-2008, the year following the receipt of the goods. The said availment was not inconsistent with the legal provisions. Accordingly, the Tribunal set aside the impugned order and allowed the appeal granting relief to the assessee.

Against the order of the Tribunal, Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue contended that in view of Rule 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 utilize at any point of time. In the instant case, admittedly, the assessee did not utilize the credit in the year in which the Cenvat credit was availed.

Reasoning of Judgment:- The High Court held that as the assessee has not yet registered its unit under Rules, the assessee was not entitled to utilize the Cenvat Credit in the year of acquiring the same. Rules 4(2)(a) of the Cenvat Credit Rules, 2004 provides that only to the extent of 50% of the Cenvat Credit could be utilize by the assessee during the year it is availed of. However the said Rules do not mandate that the credit should be utilized in the very same year. Once the credit is not utilized in the same year, then the Rule 4 (2) (b) provides that it can be utilized in any year and to the full extent. Therefore in the instant case, as Cenvat credit was availed of in the year 2006-2007, when assessee had not yet registered under Rule 9 of the Central Excise Rules, 2002 the assessee did not utilize the Cenvat credit. It is only after registration in the subsequent year that they have utilized the entire Cenvat credit which was standing to their credit. Therefore, it was held that the finding of the Assessing officer as well as the First Appellate Authority that the assessee could not have utilized 100% credit is erroneous. The Tribunal was justified in setting aside the said orders and in allowing Cenvat credit to the assessee in the next year of its availment under the Rules.

Decision:- Appeal dismissed.
Comment:- this decision implies that the credit can be taken afterwards on capital goods even if he is not registered with the department. The respondent was availing SSI exemption and not registered with the department. When he crossed the limit, he took the registration and took the Cenvat credit on capital goods. This implies that the SSI unit can take credit when he is registered with the department.

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PJ/Case Laws/2011-12/1191

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