Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs, New Delhi
Subject : Clarification reg. Availment & utilisation of Modvat credit on machines purchased but not put to use prior to 7.1.1996
It has been brought to the notice of the Board that credit have been denied/ sought to be denied by the field formations in cases where the assessees having their factory/ unit already in operation, had availed and utilised Modvat credit of specified duty on capital goods immediately after receipt of the capital goods in their factory, holding that Board”s Circular No. 88/ 88/ 94-CX. 8 dated 26.12.1994 provides that credit could be taken only after such capital goods were brought into use. Some of the cases have been adjudicated and penalties have been imposed. Besides, a few Draft Audit Para have been accepted and a few adjudication cases have been reviewed taking the same view.
2. The matter has been examined by the Board.
3. It is found that aforesaid Circular is restricted to initial setting up of a factory and it should not be applied to units/ factories already in manufacturing operation, where Modvat credit was availed and utilised in respect of capital goods, procured and received into factory prior to 01.01.1996. It was only with the issue of Notification No. 1/96-CE(NT) dated 01.01.1996 that it was provided specifically in the rules that Modvat credit could be availed on capital goods only after the capital goods are actually installed and brought into production of excisable goods.
4. In view of the above, it is clarified that for capital goods procured and received into the factory prior to 01.01.1996, credit of specified duty availed and utilised immediately will be admissible, even if such goods were not actually brought into production of excisable goods on the date of such Availment and utilisation.
5. Trade and field formations may be informed suitably.