By TIOL News Service

MUMBAI, FEB 27, 2017: THE appellant imported capital goods which got damaged in transit but the machine was received in the factory. An insurance claim was made excluding the CVD paid on the said capital goods. Thereafter, insurance claim was settled at Rs.1,98,92,650/- without deduction of salvage amount. Later, the appellant sought redemption of the capital goods on payment of Rs.12 lakhs to the New India Insurance Company. Capital goods were retained by the appellant, installed and put to use.

Consequently, they have taken the cenvat credit of CVD.

SCN came to be issued for denial of the CENVAT credit on the ground that the machine was received in damaged condition and insurance was claimed. Inasmuch as after claiming insurance, the machine did not belong to the appellant and it was owned by New India Insurance Company. Moreover, upon repurchase of the capital goods,the credit was not admissible.

The demand was confirmed by the lower authorities, therefore, the appellant is before the CESTAT.

The appellant submitted that although insurance was claimed the machine was repaired and used in the factory, therefore, credit is admissible. Furthermore, even though during the intervening period the ownership was not with the appellant but the capital goods were lying in the factory and subsequently used, so credit cannot be denied. Reliance is placed on the decision in Modernova Plastyles P. Ltd. - 2015-TIOL-2045-HC-MUM-CX.

The AR while reiterating the findings of the lower authorities inter alia submitted that as against the claim of Rs.2crores, the appellant had repurchased the machine from the insurance company only for an amount of Rs.12 lakhs including sales tax, therefore, credit should not be allowed.

The Bench observed -

"6. I find that after receipt of the capital goods the damaged machine was lying in the factory of the appellant. Subsequently, the same machine was used by the appellant. It is also fact that appellant had not claimed the insurance in respect of CVD amount. Even though for intervening period, after insurance claim, the ownership of the machine transferred to the insurance company and thereafter the appellant has taken the ownership after making payment of Rs.12 lakhs, the fact remains that the capital goods remained in the factory of the appellant, subsequently installed and used by them. The ownership is not the criteria for allowing the credit on capital goods. The only criteria is that the capital goods should be installed in the factory of the assessee and used in the manufacture of final product which is not in dispute in the present case also…."

Holding that the CENVAT credit is legally admissible to the appellant, the impugned order was set aside and the Appeal was allowed.

(See 2017-TIOL-603-CESTAT-MUM)