[Order per : Archana Wadhwa, Member (J)]. - The appellant is engaged in the manufacture of sponge iron and HR coil classifiable under Chapter 72 of Central Excise Tariff Act, 1985 and were availing the benefit of Modvat credit of duty paid on the capital goods received in their factory. As per facts on records, the appellants received capital goods for the Hot Strip Mill (HSM) - Phase II project during the year 2001-2002. In terms of provisions of Rule 4 (2) of the Cenvat Credit Rules, 2001/2002, they availed 50% of the duty paid on the said capital goods as credit. There is no dispute about the availment of said Modvat credit. Balance 50% of the credit was availed by them in the subsequent Financial Year i.e. on 11-4-2002. The dispute relates to the said availment of credit. As per the revenue, the appellant was not entitled to avail the said credit of 50% in the year 2002-2003 inasmuch as the capital goods were still at the stage of erection and had not been actually put to use.

2. On the basis of the above facts, they were issued with show cause notices on 6-5-2003 and on 1-9-2003 proposing denial of the balance 50% of the credit availed by them in the subsequent financial year of the receipt of the capital goods on the ground that they are not being actually used in the manufacture of the final products. Noticee contended before the adjudicating authority that in terms of the relevant rules, actual use of capital goods is not the criteria for availing the Modvat credit and it is sufficient as long as the capital goods are in the in possession and use of the assessee. The expression “use of” appearing Rule 4(2) of the relevant Cenvat Credit was sought to be interpreted by the appellants as “intention to use the said capital goods” or “being available for use”. The reliance was placed upon the various decision of the Hon’ble Supreme Court as also of the Tribunal. The demand was also assailed on limitation having been issued beyond the normal period.

3. However, the Commissioner did not accept the above contention of the appellant and vide his impugned order denied the Modvat credit and also imposed personal penalty of identical amount upon the appellants. He also ordered for payment of interest at the appropriate rate. Hence the present appeal.

4. After hearing both sides duly represented by Shri Joseph Vellappally, Sr. Advocate along with Shri Vipin Jain, Advocate and Shri S.S. Bhagat, ld. SDR appearing for the Revenue, we find that the Commissioner, while rejecting the appellant’s stands on merits has observed as under :-

“I observe that there is no doubt regarding the possession of the said goods with the manufacturer. The main issue is the phrase “use “ appearing in the Rules. In this context, I observe that the Rule explicitly states that the balance 50% credit can be availed only if the capital goods are in the possession and use of the manufacturer’. Hence, there is no doubt that the legislature envisaged that the credit should be availed after the capital goods are actually put to use, i.e., to defer the availment of balance credit till the said capital goods were actually put into use in the scheme of production of final products. Otherwise there would have been no need to specify the word “use” in the said Rule. If it were not the intention of the legislature that the capital goods should be put to actual use, then the word “possession” would itself suffice for availment of credit. The averment of the notice that ‘intended use’ was sufficient to avail credit does not appeal to me, since I cannot fathom any other reason for the manufacturer to possess the capital goods if it were not for “intended use”. It goes without saying that the capital goods have been purchased by the manufacturer for intended use. Hence, I believe that the word possession is qualified by the word use, i.e., it is not only necessary to possess the capital goods but also to put them to actual use. Hence, for the purposes of availment of balance credit I believe that the actual use of the capital goods was essential. I observe that the very purpose of the legislature of the deferment of balance credit would be lost, if say, on the 31st of March, the first instalment of 50% credit is availed and on the very next day, the 1st April, the balance 50% credit were to be availed. Moreover, on perusal of Rule 57AC of the Central Excise Rules, 1944, precursor to the Cenvat Credit Rules, 2000/2001/2002 it can be seen that the credit was available only after the capital goods were installed, i.e., credit was not available as soon as the capital goods were brought into the factory”.

5. The above reasoning adopted by the adjudicating authority to deny them the credit has been assailed by the appellants on the ground that the expression “use” in Rule 4(2)(b) of the Central Excise Credit Rule is “in the possession and use of the manufacturer of final products in such subsequent years”. The expression “use of” has been interpreted by the Hon’ble Supreme Court in the case of State of Haryana v. Dalmia Dadri Cement Ltd. [ (S.C.)], as also in the case of BPL Display Devices Ltd. v. CCE [ (S.C.)]. Reliance has also been placed upon various other decisions. We would like to re-produce the extract of relevant Rules 4(2)(b) of the Cenvat Credit Rules :-

“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 First Schedule to the Tariff Act are in the possession and use of the manufacturer of final products in such subsequent years“.

6. As is clear from the reading of the above Rule, balance of Cenvat credit can be taken by an assessee in any financial year subsequent to the receipt of the goods subject to the condition that the said capital goods are in the possession and use of the manufacturer of the final products in such subsequent years. The expression “use of” has been used in conjunction with the expression “possession”. As such, “possession and use of” have to be read together, which according to the simple English language would mean that the goods are still available with the assessee for use in the manufacture of the final products. The said expression cannot be interpreted as if the goods are actually being used in the manufacture of the final products. A simple example from the daily routine live would suffice the interpretation of the above expression. Buying a car for use and parking the same in the garage, even if not actually used for transportation would definitely and undoubtedly mean that the car is in possession and use of the owner”. If cannot be said that since the car has not actually been used, the same cannot be held to be in use of the owner. The clear mandate of the legislature in the above Rule is that an assessee would be entitled to the balance of 50% credit as long as the goods are in his possession and use of the manufacturer of the final products and has not been sold or cleared’ from his factory. As long as the capital goods are lying in the factory meant for installation and future use in the manufacture of the final products, they have to be treated as in possession and use of manufacturer.

7. Support for arriving at the above conclusion can also be drawn from the fact, that the expression “use of” is associated with the “manufacturer” of the final products and not with the final products as in clear distinction to the expression used in some of the Modvat Rules as “use in the manufacture of the final products”, where the use is definitely linked with the final products. As such, the expression “use of the manufacturer” M unerringly (sic) point out to the fact that the goods should be available with the manufacturer for use.

8. At this stage, we may refer to the Hon’ble Supreme Court’s decision in the case of BPL Display Devices Ltd. v. CCE [ (S.C.)], where the expression “for use” appearing in a Notification No. 13/97-Cus. were held to meant “intended for use”, by relying upon the earlier decision of the Hon’ble Supreme Court in the case of State of Haryana v. Dalmia Dadri Cement Ltd. [ (S.C.) = 1987 (Suppl) SCC 679]. The Court also observed that according to this decision the object of grant of exemption was only to debar those importer/manufacturers from the benefit of the Notifications, who had diverted the products imported for other purposes and had no intention to use the same for manufacture of the specified items at any stage. It may be noted here that the expression “use” appearing in the Notification was ”for use” in the manufacture of the items specified in the Notification was directly linked with the final products whereas the expression “use of manufacturer” appearing in the said Rule relates to the manufacturer, thus giving a wider spectrum and platform to the interpretation of the said words.

9. Tribunal in the case of Ballarpur Industries Ltd. v. CCE, Nagpur [ (Tri. - Mumbai)] held that the Modvat credit in respect of the capital goods can be availed even before the installation of the capital goods. While dealing with an identical expression appearing in Rule 57AA(a) of Modvat Credit Rules, the Court observed that the words ‘used’ occurring in this sub-rule does not postulate a specific condition of actual use of the goods in question, but as descriptive in the sense that the goods should ultimately find use. Reference was also placed upon the clarification in the Trade Notice contained in the Circular No. B-4/7/2000-TRU, dated 3-4-2000 of the Ministry of Finance, reproduced in laying down that Cenvat Rules do not provide installation of capital goods as a pre-requisite for taking Cenvat credit.

10. Reference may be made to the another decision of the Tribunal in the case of Ispat Metallics Ltd. v. CCE, Raigad, being Order No. l209/WZB/2005/C-III, dated 4-7-2005 [ (Tribunal]. In Para 2.1 (c), the Tribunal observed as under :-

“After determining as above, we find the “word” “used” in the definition of capital goods will not and cannot be interpreted to mean that it should be actually in use. The potential use by the manufacturer, at a later date would also entitle the credit. The exclusive use as already held is not contemplated. The plant in this case is capable for use for converting the iron or fines to be used by the appellants at a future date. The word “used” can denote be intermittent and or use sometime in future; we find that both sides agree that the appellants are a manufacturer of declared final products iron and Steel and have the capacity or potential to use iron ore fines also. Therefore, credit as over led cannot be denied”.

11. As we are of the view that the capital goods are in the possession of the assessee and are for use of the manufacturer, the balance 50% of the credit would be available to the assessee in the subsequent years.

12. In any case and in any view of the matter, it is the revenue’s own case that the credit can be available on actual use of the capital goods. There is no allegation or dispute that these capital goods received by the appellants were diverted or cleared in the subsequent financial years. As such, in any case the appellants would be entitled to the credit as and when these capital goods are put to use. As such, it is essentially an issue of time of taking the credit and not eligibility of the credit, in which case the same could not have been denied to the appellants in toto. If not, available in 2002-2003, the same would become available in any subsequent financial year, when the capital goods are actually installed and put to actual use. In such a scenario, the worst allegation against the appellants could be prematurely taking the credit thus entitling the revenue to the interest on the same for use of the credit during and in between the period. But this definitely cannot lead to denial of credit to the appellants.

13.  Apart from holding that the credit was admissible to the appellants on merits, we also find that the demand raised and confirmed against them is hopelessly barred by limitation. Admittedly, the appellant had reflected the fact of availing the balance 50% credit in the subsequent financial year, in their statutory monthly returns filed with the revenue. This fact is sufficient to reflect knowledge on the part of the revenue about the fact of taking balance 50% credit and is also indicative of the bona fides of the appellant. The appellants having made known to the department, no suppression or mis-statement on their part can be held against them. The issue, no doubt involves bona fide interpretation of provisions of law and failure on the part of the appellants to interpret the said provisions in the way in which the department seeks to interpret them cannot be held against them so as to invoke extended period of limitation. When there is a scope for doubt for interpretation of legal provisions and the entire facts have been placed before the jurisdictional, Central Excise Officer, the appellants cannot be attributed with any suppression or misstatement of facts with intent to evade duty and hence cannot be saddled with demand by invoking the extended period of limitation. Reference may be made to latest decision of the Hon’ble Supreme Court in the case of Gopal Zarda Udyog v. CCE, New Delhi [ (S.C.)]. As such, we hold that the demand is barred by limitation and cannot be sustained against the appellants.

14. In as much as the demand has been set aside on merits as also on limitation, there is no justification for imposition of any penalty upon them. The same is accordingly set aside. In a nutshell, the appeals are allowed with consequential relief to the appellants.

(Pronounced in Court on 4-4-2006)