Capital Goods Credit – balance 50% before use
CAG had been vigorously pursuing an objection that balance 50% cenvat credit on capital goods cannot be taken in the subsequent years if the capital goods are not put to use. Board put up a spirited defence but finally caved in. Board has sometime ago informed the field that
The legal position has to be interpreted in the context of the wordings of the rule at the relevant time. As long as the word ‘use’ is specifically referred to in the rules, installation is a prerequisite to availment of the second installment of CENVAT credit. Accordingly, the audit objections have been accepted for the period 01-04-2000 to 09-09-2004. It is, therefore decided that during the period 01-04-2000 to 09-09-2004, the balance of 50 % of CENVAT credit cannot be allowed in the subsequent year unless the capital goods are put to use and mere possession is not enough. The Board desires that immediate action should be initiated for recovery of Credit wherever it is taken irregularly.
What is the action to be initiated? If the Capital goods are not put to use in 2003, but credit was taken, Board now wants action in 2006, by which time the goods must have been put to use. So what is to be done? Get the credit reversed, ask for interest and penalty and then give the credit back?
Interestingly this very issue had been considered by the Tribunal in Ispat Industries - wherein the Tribunal observed,
++ Buying a car for use and parking the same in the garage, even if no actually used for transportion would definitely and undoubtedly mean that the car is in possession and use of the owner”. It 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.
++ 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.
++ 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.
The Board and the CAG seem to be working very hard to keep the consultants rich.
Board’s F.No. – 8 dated the 28thApril, 2006