CESTAT Delhi: Capital Goods CENVAT Credit Cannot Be Denied Merely Due to Silence in Remand Order

January 30, 2026 : The Delhi Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit on capital goods cannot be denied solely because an earlier remand order did not expressly refer to such credit, particularly when credit on inputs and input services had already been allowed.

The Bench comprising Justice Dilip Gupta, President, and P. V. Subba Rao, Technical Member, was deciding an appeal filed by M/s Kunsons Metals Ltd., now known as Balar Marketing Private Limited, arising out of central excise proceedings for the period 2008–09 to 2011–12. During this period, the assessee had undertaken job work without payment of excise duty, claiming exemption under Notification No. 214/86-CE, which required the principal manufacturer to furnish an undertaking to discharge the duty liability.

As no such undertaking was provided, the department issued a show cause notice and confirmed a duty demand of ₹2.37 crore along with interest. An equal penalty was imposed under Section 11AC of the Central Excise Act, 1944, and a separate penalty was levied on the company’s director. In an earlier round of litigation in 2017, the Tribunal upheld invocation of the extended period of limitation but granted substantial relief by allowing CENVAT credit on inputs and input services, granting cum-duty benefit, and directing re-quantification of duty and penalty. The matter was remanded only for the limited purpose of re-computation.

Pursuant to the remand, the Commissioner allowed CENVAT credit of about ₹1.99 crore on inputs and input services but denied credit of ₹2.86 lakh on capital goods. The sole reason for denial was that the remand order did not specifically mention capital goods credit. Duty was re-quantified at ₹2.09 crore, and an equivalent penalty was again imposed under Section 11AC.

Allowing the appeal, the Tribunal held that there was no finding in the earlier remand order denying capital goods credit, nor had the issue ever been adjudicated earlier. The Bench observed that once CENVAT credit on inputs and input services was allowed, there was no legal or logical basis to deny credit on capital goods, as all credits form part of the same CENVAT scheme.

On the issue of penalty, the Tribunal held that penalty equal to duty under Section 11AC can only extend to the duty actually intended to be evaded. Where substantial CENVAT credit is admissible, intent to evade duty can only be attributed to the net duty payable after adjusting eligible credit. After allowing capital goods credit of ₹2.86 lakh, the total eligible CENVAT credit worked out to ₹2.02 crore against recomputed duty of ₹2.09 crore, leaving a net duty of only ₹7.26 lakh.

Accordingly, the Tribunal allowed CENVAT credit on capital goods and restricted the penalty under Section 11AC to ₹7.26 lakh instead of over ₹2 crore. The assessee was held entitled to consequential relief.

Cause Title: M/s Kunsons Metals Ltd. v. Commissioner of Central Excise
Case No.: Excise Appeal No. 53710 of 2018
Coram: Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member)