2012 (9) TMI 494 - AT - Central Excise

Court allows Cenvat credit on factory maintenance items for sugar manufacturing

The court affirmed the decision allowing the respondents to claim cenvat credit on paints, varnish, Thinner, Rivtex, and related items used in sugar ... Cenvat credit – cenvat credit taken by the respondents on paints, varnish, Thinner, Rivtex and other such items – Held that:- Paint, varnish etc. are required by the respondents in the course of manufacturing of their final product - respondent has correctly taken the credit on these items Issues:- Appeal against allowing cenvat credit on paints, varnish, Thinner, Rivtex, and similar items used in manufacturing sugar.- Interpretation of whether these items qualify as capital goods or inputs for cenvat credit.- Application of the decision in Ruchi Health Foods Ltd. v. C.C.E., Chennai.- Arguments regarding the necessity of paints for preventing deterioration in machinery.- Analysis of the Commissioner (Appeals) decision on the issue.Analysis:The appeal was filed by the Revenue challenging the order that allowed the respondents to claim cenvat credit on paints, varnish, Thinner, Rivtex, and related items used in the manufacturing of sugar. The dispute centered around whether these items qualified as capital goods or inputs for cenvat credit purposes. The Revenue contended that these items did not fall under the defined categories. However, both lower authorities permitted the credit based on a precedent set by the Tribunal in the case of Ruchi Health Foods Ltd. v. C.C.E., Chennai. The Revenue argued that the items were not eligible for credit, while the respondents maintained that the paints were essential for preventing deterioration in machinery made of iron and steel, thus integral to the manufacturing process.The Commissioner (Appeals) extensively discussed the issue, emphasizing that the paints were crucial for coating machines and pipelines to prevent rusting and damage, as well as for repair and maintenance of plant and machinery in the sugar factory. The Commissioner concluded that the paints fell within the inclusive definition of inputs, encompassing goods used for protection and maintenance within the factory premises. This interpretation did not require the goods to be directly related to the manufacture of the final product, as long as they were utilized within the factory without being removed. Consequently, the Commissioner upheld the respondents' right to claim cenvat credit on these items, as they were deemed essential for the manufacturing process.Upon reviewing the Commissioner's detailed analysis and findings, the judge affirmed the decision, stating that the paints, varnish, and similar items were indeed necessary for the manufacturing operations of the respondents. Consequently, the impugned order allowing the cenvat credit was upheld, and the Revenue's appeal was dismissed. The judgment highlighted the importance of interpreting the definition of inputs broadly to encompass goods essential for the functioning and maintenance of manufacturing facilities, even if not directly involved in the production of the final goods.