Post-Commissioning Receipt of Capital Goods Does Not Bar CENVAT Credit absent Proof of Exclusive Civil Use: CESTAT [Read Order]

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that post-commissioning receipt of capital goods does not bar CENVAT credit unless the department proves that the goods were used exclusively for civil structures.

Rana Sugar Ltd., the appellant, is engaged in the manufacture of sugar. During investigation, the department alleged that certain iron and steel items and capital goods were received after the factory had become operational. On this basis, the department denied CENVAT credit, alleging that these goods could not have been used for supporting plant or machinery and were instead used for sheds or civil construction.

The appellant’s counsel argued that capital goods are received in factories on a continuous basis and that there is no legal requirement that such goods must be received only before the commencement of production. They argued that the department did not produce any evidence to show that the goods were used exclusively for civil structures or sheds and mere timing of receipt cannot be a ground to deny credit.

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The revenue argued that the factory was already operational, so the capital goods received later could not have been used for the installation or support of machinery. According to the department, this showed that the goods were used for civil purposes and were not eligible for CENVAT credit.

The two-member bench comprising P.K. Choudhary (Judicial Member) and Sanjiv Srivastava (Technical Member) observed that there was no evidence in the show cause notice or in the impugned order to support the department’s conclusion. The bench observed that the department had only relied on the fact that the factory had already started production.

The tribunal explained that receipt of capital goods is an ongoing process in manufacturing units and that capital goods can be received even after commercial production has begun. The bench explained that timing alone does not establish that the goods were used only for sheds or civil structures.

The bench also pointed out that the department failed to prove exclusive use of the goods for civil construction. In the absence of such proof, denial of CENVAT credit was not justified. The tribunal held that CENVAT credit could not be denied merely because capital goods were received after the factory became operational. The denial of credit on this ground was set aside.

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