Denial of Cenvat Credit on capital goods brought in the factory but cleared as such on payment of duty

PJ/Case Laws/2011-12/1261

Denial of Cenvat Credit on capital goods brought in the factory but cleared as such on payment of duty – whether justifiable?

Case: Saritha Sugars Ltd. v/s Commissioner of C. Ex, Guntur

Citation: 2011 (267) ELT (Tri. – Bang.)

Issue:- Denial of Cenvat Credit on capital goods brought in the factory but cleared as such on payment of duty – whether justifiable?

Brief Facts:- Appellants are manufacturers of Sugar and molasses. They were discharging the appropriate applicable duty and availing cenvat facilities under Cenvat Credit Rules, 2004. During the scrutiny of monthly returns relating to the months of May, 2006 to September, 2006, December, 2006 to January, 2007, it was noticed that appellants took Cenvat Credit on capital goods and cleared the capital goods 'as such' by reversal of such Cenvat Credit. Further scrutiny revealed that the credit availed was pertaining to the capital goods which were procured by the assessee during the financial years 2000-01, 2001-02 & 2002-03 respectively.

Revenue alleged that appellants having not informed the Department regarding receipt of these goods in their factory premises could not have availed Cenvat Credit and cleared the same.

A show-cause notice was issued for reversal of availment of ineligible Cenvat Credit and subsequent clearance of the same from factory premises by utilizing said credit was incorrect. Appellants contested the show-cause notice on various grounds including limitation ground.

The Adjudicating Authority confirmed the demand of duty with interest and also imposed penalty. Reversal of credit was held to be irregular. Hence, appellant are in appeal.

Appellant’s Contention:- Appellants submits that duty paid by them at the time of clearance of capital goods itself has to be treated as reversal of alleged ineligible credit, if any, and there cannot be any further demand of duty.

It is submitted that there is no dispute as regards receipt of capital goods in their factory premises; verification was done by the jurisdictional Range officer of the premises as regards the availability of the said capital goods; the capital goods which were intended for the power project could not be brought into effect due to business exigencies and the capital goods were cleared in the same condition as they were purchased.

Appellant submit that eligibility to Cenvat Credit cannot be disputed by the Department as the appellants had procured the capital goods on payment of appropriate duty and it was received in the factory of the appellants.

It is their submission that denial of Cenvat Credit is only on the ground that appellants intended to use these capital goods for production of electricity, which is a non-dutiable product and hence credit cannot be availed. It is his submission that Board's Circular dt. 3-4-2000 clearly indicate that in case of capital goods, receipt of capital goods is sufficient to avail credit.

Appellant submitted that all the conditions required for availment of Cenvat Credit as per the Cenvat Credit Rules were to be used for co-generation electricity plant.

Appellant relied upon the following decisions wherein it was laid down that credit can be availed on captive power plant.

- Sudalagunta Sugars Ltd. v. CCE [2006 (199) E.L.T. 760 (Tri.-Bartg.)1
- Bilt Industrial Packaging Co. Ltd. v. CCE [2007 (216) E.L.T. 217 (Tri.- Chennai)]

It is also submitted that there is no time limit prescribed for availment of credit in the current Cenvat Credit Rules and reversal of Cenvat Credit before utilization amounts to non-taking of credit. It was submitted that the entire case is hit by the limitation as they had been filing the monthly returns indicating clearly that Cenvat Credit availed on capital goods and utilization thereof for discharging duty liability on the same capital goods removed 'as such'.

Appellant relied upon the judgment in an identical case of Coromandel Fertilizers Ltd. v. CCE [2009 (239) E.L.T. 99 (Tri- Bang.)], this Bench has held in their favour.

Appellant also relied upon the decision in the case of Grasim Industries Ltd. v. CCE [2004 (164) E.L.T. 348 (Tri- Del.)] as regards the eligibility to Cenvat Credit of the power plant used for generation of electricity and further used for producing or processing of final product.

Reasoning of the Judgment:- The Tribunal held that it is undisputed that capital goods which were procured and purchased by the appellants were for captive co-generation power plant. It is also undisputed that the said capital goods were duty paid when they were received in the factory premises of appellants. It is also undisputed that the Range Officer had visited and found the availability of capital goods in the factory premises.

The Tribunal finds that the appellants' submission that they could not start or install the co-generation power plant due to business exigencies is not disputed by the lower authorities. If that be so, the credit availed by the appellants on the said co-generation power plant and subsequent removal of the same 'as such' cannot be faulted with.

As regards the Cenvat Credit on the parts of the power plant for assembling of power plant for generation of electricity, Tribunal found that the co-ordinate Bench of this Tribunal in the case of Grasim Industries Ltd. has clearly laid down that Cenvat Credit cannot be denied on the items which were used for assembling captive power generation plant and the power plant satisfied the criteria for the definition of 'capital goods'. The Tribunal also finds that the Adjudicating Authority has sought to deny the Cenvat Credit only on the ground that credit was not availed immediately.

It was held that the appellants have made out a case on the limitation aspect also, as on perusal of the monthly returns filed by the appellants and as also the various documentary evidences, it indicates that appellants have cleared the capital goods 'as such' debiting the amount of credit availed and informed the Department in their monthly returns, no objections were raised at that juncture.

The Tribunal is of the considered view that the demand confirmed by the Adjudicating Authority by holding that the extended period of limitation applies in this case, is unsustainable as the appellants have been informing the authorities about their activities in the monthly returns.

In view of the above findings, impugned order set aside.

Decision:- Appeal allowed with consequential relief.

Comment: - The Cenvat credit on parts used in manufacture of power plant assembly is allowed. Also, when the capital goods were verified by Range office then it cannot be said that these were not received in the factory. The reversal of cenvat credit is also done on as such removal and all the transaction were recorded in the returns. Hence all the objections of department were not sustainable and credit is allowed.

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PJ/Case Laws/2011-12/1261

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