[Order per : Jyoti Balasundaram, Vice-President]. - We have heard both sides on the issue referred, namely, “Whether Cenvat credit eligibility is to be determined with reference to the durability of the final product on the date of the receipt of the goods or the date of utilization eligibility of 50% credit.”
2. The facts of the case are that the assessees are manufacturing socks falling for classification under CET sub-heading 6102.00 and were exempted from payment of duty prior to the 2003 Budget. The goods became dutiable only w.e.f. 1-4-2003. Certain capital goods were received by the assessees during June 2002 and September 2002 and installed in March 2003 and some of the capital goods were used in March 2003. Cenvat credit on the goods has been denied on the ground that final products (socks) were exempt at the time of receipt of capital goods, on the basis of the Tribunal’s decision in CCE, Indore v. Surya Roshni Ltd. reported in .
3. As per Rule 4(2) of the Cenvat Credit Rules, 2002, Cenvat credit upto 50% was available the moment capital goods were received in the factory of the manufacturer and the remaining 50% in any financial year subsequent to the financial year in which the capital goods were received.
4. Rule 6(4) of the Cenvat Credit Rules, 2002 which is the relevant rule in this case and which provides that “No Cenvat credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year”, is pari materia with Rule 57R(1) of the Central Excise Rules, 1944.
5. The decision in the case of Surya Roshni cited supra, holding that availability of Modvat credit is to be looked into at the time of receipt of capital goods and that Modvat credit will not be available if capital goods are exclusively used in the manufacture of exempted products, was appealed against before the apex court which dismissed the civil appeal of the assessee on the ground of non-maintainability, as seen from (S.C.). Paragraph 5 of the Tribunal’s decision in Surya Roshni is reproduced below :-
“5. We have considered the submissions of both the sides. Rule 57Q(2) of the Central Excise Rules, 1944 provides that the manufacturer of the final product shall be allowed credit of the duty paid on the capital goods. Sub-rule (1) of Rule 57Q mentions that the provisions of sub-section “AAAA” shall apply to goods described in the Table given below the sub-rule. Rule 57R(1) bars the availment of credit of the duty if the capital goods are used in the manufacture of final products on which no excise duty is payable. The credit is availed of as and when the capital goods are received by the manufacturer. When the impugned machine was received, it has been used in the manufacture of bulbs which were exempted from the payment of whole of the duty of excise leviable on them. The classification list may contain details of goods which are liable to pay duty. But it cannot be claimed therefrom that the machine was also meant to be used in the production of final goods chargeable to duty. The declaration mentioned in sub-rule (2) of Rule 57T to the effect that the capital goods in question shall not be used exclusively for production of an exempted final product has not been brought on record. The availability of Modvat credit is to be looked into at the time of receipt of the capital goods. If the capital goods are exclusively used in the manufacture of exempted products, Modvat credit will not be available to the manufacturer. Subsequently, the exempted product becomes dutiable on account of withdrawal of exemption or the manufacturer puts the capital goods to other use would not revive the question of Modvat credit which stands determined at the time the capital goods was received. The decision of the single Bench of the Tribunal in Kailash Auto Builders case is not applicable to the facts of the present matter as the Appellants therein “have made their intention clear that they would be using the said capital goods in the manufacture of excisable final products once the factory starts working to its full capacity.” Further, the facts are also different in the case of Bhaskar Industries Ltd. inasmuch as in the said matter the Respondents “had a project to set up a composite mill for spinning, weaving and processing” meaning thereby for manufacture of excisable goods which are chargeable to duty. We observe that the Respondents therein “kept the option of availing the Modvat credit on capital goods in abeyance for about a year, till implementation of the third phase, namely, the fabric processing. The assessed submitted the required declaration under Rule 57T of the Central Excise Rules with the clear intention that it shall be availing the credit on implementation of the third phase as the final product of third phase was dutiable.” In view of this, the Respondents are not entitled to Modvat credit. Accodingly, we set aside the impugned Order and allow the Appeal filed by the Revenue.”
6. The relevance of the date of receipt of capital goods for the purpose of availment of credit has already been recognised by the Tribunal in Grasim Industries Ltd. v. CCE, wherein the Tribunal held that credit to the extent of 75% of CVD on capital goods alone was permissible, as this was the percentage of admissibility of credit on the date when the capital goods were received under Project Import Regulations in the factory of the manufacturer, i.e. on 29-2-2000, although installed in the factory on 6-3-2000 and used subsequently, rejecting the argument of the appellants that the restriction to the extent of 75% of credit admissibility having been removed by issue of Notification 11/2000-CE dated 1-3-2000. 100% credit was admissible, as capital goods were installed only post 1-3-2000. Paragraphs 6, 7 and 8 of the order are reproduced herein below :-
“6. From the narration of facts and the facts as noted above, we observe that the only issue that arises for consideration in the present appeal is whether the date of receipt of the goods in the factory or the date of availing the Modvat credit is relevant to the quantum of credit admissible. We observe that this issue is no longer res integra as the issue has already been decided in favour of the Revenue by various decisions of the Tribunal such as :
(a) Binani Cement Ltd. v. CCE, Jaipur-II reported in wherein it has been held that vested right of taking credit arise on the date of receipt of the goods and that date of installation of the goods only being a deferred date of taking credit for administrative reasons, credit is eligible on date of receipt of the goods. In para 11, the Bench has agreed with the contention of the Revenue that Modvat credit must accrue on the goods on the date of receipt in the factory and not on the date of installation.
(b) HEG Ltd. v. CE reported in (NRB -New Delhi) wherein it is held that Modvat credit on capital goods can be utilised from the date of receipt of the goods before its use in the installed plant.
(c) Hindustan Cables Ltd. v. CCE, Bolpur reported in (ERB - Kolkata) wherein it was held that credit taken before installation of the goods is not deniable.
(d) Hind Spinners Industries Growth Centre v. CCE reported in (NRB - New Delhi) wherein it is held that Modvat credit can be taken and utilised before installation of machine or accessories especially in factories already in existence and specified final product manufactured and cleared.
(e) Pudumjee Pulp & Paper Mills Ltd. v. CCE reported in (WRB - Mumbai) wherein it is held that credit can be taken after receipt of goods.
7. We also note that that the appellants themselves in the written submissions have stated that “the moment capital goods were received in the factory, the credit was available”. This undoubtedly means the assessees became eligible to the credit with effect from the date on which goods were received, though they may be taking the credit only on a later date when the goods are installed in the factory, as per their convenience. Therefore, the quantum that would be permissible has to be with reference to the date of receipt of the capital goods in the factory and note the date of installation or use.
8. In the instant case, the quantum of credit permissible was only 75% at the relevant time when the goods were received in the factory. It was on a later date the quantum was raised to 100% by amending Notification No. 11/2000, dated 1-3-2000 and this Notification is not retrospective. Therefore, we are of the considered opinion that the appellants are eligible to claim the benefit that was permissible on the date of receipt of the capital goods in the factory. In view of our discussion above, following the ratio of the decisions cited supra, we hold that there is no ground to interfere with orders passed by the authorities below and we uphold the same and reject the appeal.”
The civil appeal against this order was dismissed by the Supreme Court, as reported in (S.C.).
7. In the case of Binani Cement Ltd. v. CCE, , the Tribunal held that vested right of taking credit arises on the date of receipt of the goods and that the date of installation of capital goods being only a deferred date of taking credit, for administrative reasons, credit is eligible on the date of receipt of the goods. In CCE v. Sengunthar Spinning Mills, , it was held that the availability of Modvat credit on capital goods has to be determined at the time of receipt of capital goods in the factory and if no modvat credit was available at that time, the question of subsequently making available any Modvat credit would not arise.
8. The recent decision of the Tribunal in CCE v. Precot Mills Ltd., follows the Surya Roshni decision and the Grasim Industries decision as well as the Sengunthar decision, to hold that the relevant date for determination of availability of Modvat credit is the date of receipt of capital goods in the factory and if on that date no credit was available, it cannot be allowed subsequently. It was held that when the machinery in respect of which the capital goods had been taken, were not used for manufacture of dutiable goods on the date of receipt in the factory, capital goods credit is not available on such machinery.
9. The ACE Timez decision reported in , which takes a contrary view from those set out above, considers Rules 4(2)(a) & (b) of the Cenvat Credit Rules, 2002 and holds that these rules do not provide for denial of credit on the ground that it is not taken in the same financial year in which capital goods were received, and only restricts credit to 50% of the duty paid, in the financial year of receipt of capital goods, and do not provide for lapsing of credit if the balance 50% is not taken in the same financial year in which the capital goods were received. The above judgment does not consider Rule 6(4) of the Cenvat Credit Rules, which clearly stipulates that no credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods. In other words, the ACE Timez decision discusses the manner in which credit to be availed as per Rule 4(2)(a) & (b) and does not discuss eligibility in terms of Rule 6(4). Moreover, the ACE Timez decision does not consider the Tribunal’s earlier decisions in Surya Roshni and Grasim Industries.
10. In the light of the above discussion, we answer the reference by holding that Cenvat credit eligibility is to be determined with reference to the dutiability of the final product on the date of receipt of capital goods.
11. The papers are now returned to the referral Bench for further orders.
(Pronounced in Court on 1-8-2007)