CESTAT Chennai Sets Aside ₹3.03 Crore Demand Against Ford India Over Premature CENVAT Credit

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 29 October set aside the denial of CENVAT credit to Ford India Private Limited, holding that its Sanand unit was eligible to avail the credit upon commencement of production and that taking credit before receiving the capital goods amounted, at most, to premature availment.

A Bench comprising Judicial Member P. Dinesha and Technical Member M. Ajit Kumar observed:

“It is also an undenied fact that upon commencement of production activity, Sanand unit was eligible to avail the cenvat credit and hence, at the most, it may amount to availment of cenvat credit prematurely i.e. prior to the receipt of the capital goods.”

The dispute arose after the Central Excise Department found that Ford India's Sanand factory had availed CENVAT credit on certain imported capital goods before their actual receipt.

Subsequently, the credit was transferred to the company's Chennai unit. The Department alleged that the transfer violated the CENVAT Credit Rules, 2004, and confirmed a demand of approximately Rs. 3.03 crore.

Ford India contended that it had availed the credit due to an inadvertent mistake and that its Chennai unit had reversed the disputed credit before the issuance of the show cause notice. It further argued that the Sanand unit was otherwise eligible to avail the credit and that denying it entirely was unjustified.

The Tribunal noted that the Chennai unit had reversed the disputed credit well before the issuance of the show cause notice. It also observed that the Sanand unit had not subsequently availed the credit despite being eligible. It held that completely denying CENVAT credit to the Sanand unit was not in accordance with law.

Further, the Bench considered the Department's objection that Ford India had availed 100% credit on capital goods in the first year, instead of the permissible 50%. Referring to the Bombay High Court's decision in Commissioner of Central Excise v. Satish Industries, it noted that the Department had acknowledged Ford India's eligibility to claim the remaining credit in subsequent financial years.

It observed that the Department had not disputed the company's subsequent eligibility to avail the credit. It therefore held that the denial of credit and the demand confirmed against Ford India could not be sustained.

Accordingly, the CESTAT set aside the Commissioner's order and allowed Ford India's appeal with consequential benefits, if any, in accordance with law.

Appearances: Advocate Raghavan Ramabadran appeared for Ford India. M. Selvakumar, Authorised Representative, appeared for the Revenue.