2008 (9) TMI 750 - AT - Central Excise

Appellate Tribunal: Trial run raw materials as inputs, not capital goods. Time-barred demands. Stay granted.

The Appellate Tribunal held that raw materials used during trial runs of new machineries should be considered as inputs, not capital goods, under Central ... Stay/Dispensation of pre-deposit - Cenvat credit - inputs used during trial runs of the new machineries - Held that: - we find favour with the appellant’s contention that even though the said raw materials were capitalized in the balance sheet for the purposes of income tax, the same would still remain as inputs and cannot be considered to be capital goods for the purposes of Central Excise law inasmuch as the same are admittedly not covered by the definition of capital goods. Extended period of limitation - Held that: - The audit objection was intimated to the appellant in December, 2005 and was replied by them in December, 2005 itself. The show cause notice was issued subsequently in the year 2007 and as such is prima facie barred by limitation. Petition allowed - decided in favor of petitioner. Issues:1. Disallowance of Cenvat credit on duty paid for inputs used during trial runs of new machineries.2. Imposition of penalty in identical amount.3. Interpretation of whether the raw materials used during trial runs should be considered as capital goods or inputs for Central Excise law.4. Time limitation for raising demands based on audit objections.5. Grant of stay petition.Analysis:1. The Appellate Tribunal, after considering the arguments from both sides, noted that the raw materials used during trial runs of new machineries resulted in the production of final products that were cleared after payment of duty. The Tribunal distinguished the present case from a previous decision and disagreed with the Commissioner's view that the capitalized raw materials should be treated as capital goods instead of inputs. The Tribunal highlighted that the Revenue did not claim any depreciation on the capitalized raw materials and emphasized that the raw materials, even if capitalized for income tax purposes, should still be considered as inputs under Central Excise law as they did not meet the definition of capital goods.2. The Tribunal also observed that the demands raised were beyond the normal period of limitation based on an audit objection. The objection was communicated to the appellant in December 2005, and the appellant responded in the same month. However, the show cause notice was issued in 2007, which the Tribunal considered as prima facie barred by limitation. This timeframe discrepancy was crucial in the Tribunal's decision-making process.3. Considering the above observations, the Tribunal deemed it a suitable case for the grant of a stay. Consequently, the stay petition was allowed by the Tribunal. The judgment was pronounced in court on 15-9-2008, with Ms. Archana Wadhwa and Shri B.S.V. Murthy presiding over the case.