Cenvat credit is available on capital goods used for manufacture of exempted intermediary products which are used in turn for manufacturing of dutiable final product
Samsung Electronics India Information and Telecommunication Ltd. (SEIITL) was a public limited company which was amalgamated with Samsung Electronics India Ltd. (Respondent) with effect from April 1, 2003 by the order of the Delhi High Court dated May 7, 2003. Prior to amalgamation, SEIITL was engaged in the manufacture of colour monitors and CTV chassis on job work basis for the Respondent. For the execution of such job work, SEIITL had purchased 10 numbers of Auto Insertion Machineries (capital goods) from the Respondent and availed Cenvat credit on the same.
The Department denied Cenvat credit to the Respondent as availed wrongly in contravention of erstwhile Cenvat Credit Rules, 2001 (Credit Rules) .The Respondent filed an appeal before the Hon’ble CESTAT, New Delhi who allowed the appeal and held that the Respondent was eligible to avail Cenvat credit.
Being aggrieved, the Department filed an appeal before the Hon’ble High Court of Allahabad contending that since the capital goods were exclusively used for job work purpose i.e. goods manufactured by SEIITL were exempted goods, Cenvat credit cannot be allowed.
The Hon’ble High Court of Allahabad noted that the Central Board of Excise & Customs issued a Circular No. 665/56/2002-CX, dated September 25, 2002, which indicated that Cenvat credit cannot be denied on capital goods used in the manufacture of intermediate products exempt from payment of duty, which are used captively in the manufacture of finished goods chargeable to duty.
In the instant case, SEIITL only manufactured the chassis, which is only a part of a TV. It is not a finished product and is only an intermediary product. SEIITL supplied intermediary product to the Respondent, which manufactured the TV and paid duty on it. Consequently, it was entitled to avail Cenvat Credit in order to prevent the cascading effect, if duty was levied. Accordingly, the appeal filed by the Revenue was dismissed.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: email@example.com)