No Provision Mandating Assessee To Install All Capital Goods In Year Of Procurement Itself To Avail Cenvat Credit: Gauhati High Court

The Gauhati High Court has held that it is not mandatory for the assessee to install all capital goods in the year of procurement itself so as to avail CENVAT credit.

The bench of Chief Justice Vijay Bishnoi and Justice Suman Shyam has observed that as long as the CENVAT credit is availed during the period of exemption available under the Notification dated July 8, 1999, the claim of the assessee would not stand extinguished merely because the CENVAT credit claim was not lodged nor availed during the financial years when the capital goods were procured.

The appellant or assessee is engaged in the business of manufacturing oxygen and nitrogen and is registered with the Central Excise Department. The assessee has its manufacturing unit at Saukuchi, Lokhra Road, Guwahati, Assam. The manufacturing unit of the appellant commenced its commercial production on March 26, 2004. Under Notification No.32/99-CE dated July 8, 1999, issued by the Central Government, the appellant was entitled to exemption on the credit of CENVAT, including exemption on capital expenditure.

The appellant had procured capital goods from M/S INOX Air Products Ltd. for use in the factory during the years 2007–08. However, the plants and machines so procured during the years 2007–08 were not installed or put to use in the factory until the year 2011. The assessee had availed of CENVAT credit amounting to a sum of Rs. 22,93,920/- during the financial years 2010–11 and 2011–12 on capital goods received during the months of November 2007, December 2007, and January 2008.

As per the department, CENVAT credit against capital goods was available to the assessee only during the financial years 2007–08 and 2008–09 in terms of Rule 4(2) of the Cenvat Credit Rules. Therefore, the assessee could have utilized the Cenvat Credit up to 50% towards payment of central excise duty only in those financial years, and the balance of 50% could have been used in the subsequent financial years. The machines procured in 2007 and 2008 were not disclosed by the assessee.

A show cause notice was issued to the assessee to show cause as to why the erroneous refund of excise duty sanctioned during the period from November 2007 to January 2008, as well as the wrongful availment of CENVAT credit during the financial years 2010–11 and 2011–12, should not be recovered from the assessee.

The Additional Commissioner of Central Excise and Service Tax, Guwahati, had passed an order in which it was held that the amount demanded by the department was not recoverable from the assessee under the law.

The department appealed before the Commissioner (Appeals) Customs, Central Excise, and Service Tax (NER), Guwahati. The Commissioner (Appeals) Customs, Central Excise, and Service Tax (NER) had interfered with the order, thus allowing the appeal filed by the department.

The appellant preferred an excise appeal before the Central Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata. The CESTAT held that the refund claim did not contain any declaration of procurement of capital goods without availment of CENVAT credit. As far as the subsequent availment of CENVAT credit is concerned, without a finding of ineligibility for the amount claimed and in view of the recovery of a refund that was in excess of such deferred credit, the CESTAT holds that the entitlement to CENVAT credit is not deniable. Recovery of that amount is not correct by law. Accordingly, the appeal was allowed to the extent of setting aside the demand of Rs. 22,93,920 while upholding the recovery of Rs. 15,95,332.

The assessee contended that even though the capital goods were procured in the years 2007–08 and 2008–09, the machines so procured were not installed or put to use in the factory until the year 2011. Therefore, the CENVAT credit was claimed by the appellant only in 2011 upon the installation of the machines. There is no provision either in the CENVAT Credit Rules, 2004 or the Central Excise Notification dated July 8, 1999, laying down that the CENVAT credit would have to be availed only in the year of procurement, failing which such a claim would be barred in the subsequent years.

The department contended that the provisions of the Cenvat Credit Rules, 2004, more particularly Rule 2(a), make it clear that the capital goods would have to be used in the factory for CENVAT credit. The assessee would be entitled to claim CENVAT credit to the extent of 50% of the amount at the end of the same financial year, but it cannot carry forward its entire claim beyond the year of procurement. The CENVAT credit availed by the appellant on account of capital goods was illegal, and therefore, the Tribunal has rightly permitted recovery of it.

While Rule 2(a) lays down the definition of “capital goods," the conditions for providing CENVAT credit under the Rules are laid down under Rule 4. A plain reading of Rule (2)(b) of Rule 4 shows that the balance of CENVAT credit may be availed in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer. Rule (2)(a) of Rule 4 of the Rules of 2004 provides that CENVAT credit in respect of capital goods received in a factory or on the premises of the provider at any point in a given financial year shall be taken only for an amount not exceeding 50% of the duty paid on such capital goods in the same financial year. However, neither Rule 4 nor Clause 2B contained in the Notification dated July 8, 1999, creates any embargo on claiming CENVAT credit with regard to capital goods in any subsequent financial year, provided the same has been installed in the factory in such subsequent years.

The court held that the order for recovery of the amount of CENVAT credit as affirmed by the Tribunal is held to be unsustainable in the eyes of law.

Counsel For Appellant: D Saraf

Counsel For Respondent: S. C. Keyal

Citation: 2024 LiveLaw (Gau) 40

Case Title: Premier Cryogenics Limited Versus The Commissioner Central Excise And Service Tax

Case No.: C.Ex.App./84/2018

Click Here To Read The Order