2012 (4) TMI 201 - AT - Central Excise

Eligibility of CENVAT Credit for Materials in Fabrication: Judgment Favoring Respondent with Partial Allowance

The appeal in this case concerned the grant of CENVAT credit to the respondent for various materials used in fabrication of capital goods, repairs and ... Appeals of the department against grant of CENVAT credit to the respondent in respect of MS plates, angles, channels, HR plates, coils, etc.to have been used for fabrication of capital goods,for repairs and maintenance (reconditioning) of plant and machinery - Held that:- the Second Explanation to the definition appears to work in favour of the respondent - Where the Second Explanation confers inputs status on goods used in the manufacture of capital goods which are further used in the factory, cannot be disputed that such status can be extended to goods used in the replacement of parts of capital goods, which process, in the present case, has been described as repairs and maintenance (reconditioning) - Cenvat Credit allowed. - in favour of respondent. Credit availed for fabricating supporting structures which in turn were used for erection of capital goods – Held that:- the appellant has a valid point in as much as, in the case of Saraswati Sugar Mills - 2011-TMI-204794-SUPREME COURT OF INDIA the Hon ble Supreme Court refused to recognize a structural support as capital goods under Rule 57Q of the erstwhile Central Excise Rules, 1944 - with the result that angles, sheets, plates, etc. in this case cannot be held to have been used as inputs in the manufacture of capital goods – in favour of Department. Whether the respondents are liable to be penalized on the ground of irregular availment of CENVAT credit on sheets, plates, angles, etc. used in fabricating structural support to capital goods – Held that:- is remanded to the original authority for fresh decision having regard to the findings on merits recorded Issues:Grant of CENVAT credit for various materials used, admissibility of credit for repairs and maintenance of plant and machinery, eligibility of credit for fabricating capital goods, interpretation of Second Explanation to Rule 2(k) of CCR, 2004, consideration of structural materials as inputs for CENVAT credit.Analysis:1. The appeal concerned the grant of CENVAT credit amounting to Rs.4,65,296/- to the respondent for the period from July 2006 to January 2009 for various materials used in fabrication of capital goods, repairs and maintenance of plant and machinery, and fabricating structural support. The lower appellate authority had set aside the demand of duty and vacated penalties imposed on the assessee by the original authority.2. The records indicated the usage of materials for fabricating capital goods, reconditioning plant and machinery, and fabricating supporting structures. The dispute primarily revolved around the admissibility of CENVAT credit on structural items used for repairs and maintenance of plant and machinery.3. The respondent claimed CENVAT credit under Rule 2(k) of the CENVAT Credit Rules, 2004, for goods used in reconditioning plant and machinery. The appellant argued against credit for goods used in repairs and maintenance, citing a Tribunal decision. However, the respondent relied on a different Tribunal decision and a High Court judgment to support their claim.4. The appellant contended that materials used in fabricating non-excisable plant and machinery could not qualify for CENVAT credit, referencing a Supreme Court judgment. The Superintendent (AR) supported this argument.5. The respondent argued that they were entitled to CENVAT credit under the Second Explanation to Rule 2(k) of the CCR, 2004, which included goods used in the manufacture of capital goods further used in the factory. The exclusion clause added in 2009 was highlighted to support the claim.6. Regarding materials used for fabricating supporting structures, the Superintendent (AR) relied on Tribunal and Supreme Court judgments to argue against considering them as inputs eligible for CENVAT credit.7. The judgment favored the respondent on the issue of materials used for reconditioning plant and machinery, citing the Second Explanation to Rule 2(k) and previous Tribunal decisions. The materials used in replacement of worn-out parts were considered eligible for CENVAT credit.8. The respondent's case was supported by the Second Explanation for materials used in fabricating capital goods, leading to a decision in their favor on this issue.9. However, the judgment found no merit in considering structural materials used for fabricating supporting structures as inputs for CENVAT credit. Citing a Supreme Court case, it was concluded that such materials did not qualify as inputs under Rule 2(k) and the Second Explanation, leading to a partial success for the department's appeal.10. The plea of limitation was raised but not considered due to not being raised before the lower appellate authority.11. The appeal was allowed in part, with a remand to the original authority for reconsideration of penalties based on the findings, providing the respondents with an opportunity to be heard on this specific issue.