Whether capital goods credit be disallowed in subsequent year of their purchase if final products become exempted?

PJ/Case Laws/2012-13/1364

Case:-ARANI AGRO OIL INDUSTRIES LTD VS COMM. OF CENTRAL EXCISE-II, VISAKHAPATNAM

Citation:-2008-TIOL-1883-CESTAT-BANG

Brief facts:-The assessee has availed Cenvat credit of 50% on the capital goods in the second year when the final products were completely exempted. Revenue proceeded against the appellants on the ground that the availment of Cenvat credit of 50% on the capital goods subsequent to the first year is not in order, for the simple reason that in the second year the final products were completely exempted and the said capital machinery was used exclusively in the manufacture of exempted products. This is the legal position in terms of Rule 6 of the Cenvat Credit Rules.

Appellant contention:-Appellant stated that they were not only manufacturing the exempted products but also other dutiable products. Moreover, in terms of the rule, in the first year 50% of the credit can be taken and the rest of the credit can be taken in the subsequent years. Hence, he urged that absolutely there is no violation of any law.

Respondent contention:-Respondent stated that the submission made by the learned advocate was not made either before the Original Authority or before the Appellate Authority. Even the dutiable products which were supposed to have been manufactured have also not been on record anywhere. Hence, they requested the Bench to uphold the impugned order.

Reasoning of judgement:-It was noticed by the Tribunal that the ground urged by the learned advocate was not at all before the Original Authority. There is also no evidence to show that the said machinery had been used for other dutiable products. In these circumstances, Tribunal have to uphold the reversal of the credit. However, it was pleaded that there was a bonafide interpretation of the provisions and there was no intention to take any irregular credit. Tribunal found merit in this argument. Accordingly, the penalty is not justifiable; however, the appellant is liable to pay the interest. In view of the above discussion, only the penalty of Rs.10,000/- is set aside. Thus, the appeal is allowed to this extent.

Decision:-Appeal partly allowed.

Comment:- The analogy drawn from this case is that the assessee is required to reverse the balance 50% credit of the capital goods if final products are exempted subsequently in the next year.

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PJ/Case Laws/2012-13/1364

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