2012 (12) TMI 261 - AT - Central Excise

Tribunal Allows Cenvat Credit on Machinery, Denies on Construction Materials

The Tribunal set aside the denial of Cenvat credit on structures and materials, remanding the matter for further examination of item use. Despite the ... Cenvat credit on capital goods - parts and accessories of machinery - credit inadmissible for items used to erect or construct immovable structures - acceptance of assessee's declaration where Revenue fails to verify - penalty not to be increased on appeal beyond amount upheld earlier - Rule 57Q applicability to goods received prior to 1-4-2000Cenvat credit on capital goods - parts and accessories of machinery - Rule 57Q applicability to goods received prior to 1-4-2000 - Admissibility of Cenvat/Modvat credit on disputed items received in the factory prior to 1-4-2000. - HELD THAT: - The Tribunal examined whether each disputed item was a part/accessory of machinery used in sugar manufacture or merely a structure/foundation/erection material which becomes immovable. Applying the jurisprudence in Vandana Global Ltd. and Saraswati Sugar Mills, credit is allowable on items that are parts and accessories of machines and on materials used in fabrication of such parts; credit is not allowable on goods used for erecting machinery or for constructing foundations/supporting structures because such items become immovable property. The adjudicator accepted the appellants' item-by-item declarations as the Revenue had failed to verify actual use despite directions; the Tribunal therefore decided admissibility on the available record and the appellants' declarations. On that basis the Tribunal allowed credit in respect of those items identified as parts/accessories (including items falling under Heading 8438.30 as machinery for sugar manufacture) and disallowed credit on items found to be structural/erection materials, as per the table of findings recorded in the order. [Paras 7, 11, 12, 13]Credit allowed for items identified as parts/accessories of sugar-manufacture machinery; credit disallowed for items used to erect machines or as structural/foundation materials, the determinations being made on the basis of the appellants' declarations and the record.Acceptance of assessee's declaration where Revenue fails to verify - Whether, after remand and failure of Revenue to inspect or verify use, the appellants' declarations can be treated as correct for deciding admissibility of credit. - HELD THAT: - The Tribunal observed that the matter had already been remanded and that lower authorities did not undertake the directed verification of actual use. Given the passage of time and absence of on record verification, the Tribunal exercised its discretion to accept the declarations furnished by the appellant as correct and decide the admissibility on the materials available rather than remit again for de novo consideration. The Tribunal noted this approach may introduce some inaccuracies but considered a further remand would likely produce only repetitive legal argument without useful factual verification. [Paras 7, 9, 11]The appellants' declarations as to the use of disputed items were accepted for purposes of determining admissibility of credit.Penalty not to be increased on appeal beyond amount upheld earlier - Whether the penalty imposed in the second round of adjudication could be enhanced above the penalty amount (Rs. 1,000) upheld by the Commissioner (Appeals) in the earlier proceeding. - HELD THAT: - The Tribunal held that the Revenue did not challenge the Commissioner (Appeals)'s order upholding a penalty of Rs. 1,000 in the earlier round and therefore the appeal filed by the appellant before the Tribunal could not properly result in a penalty higher than that already imposed and left undisturbed by Revenue. The Tribunal reduced the enhanced penalty imposed by the adjudicating authority to the earlier upheld amount. [Paras 6, 14]Penalty confirmed at Rs. 1,000 (reduced from the higher amount imposed in the second adjudication).Cenvat credit on capital goods - Quantification of amounts to be disallowed in accordance with the Tribunal's item wise findings. - HELD THAT: - While the Tribunal determined which items were allowable and which were not on the available record, it directed the adjudicating authority to identify and compute the monetary amounts corresponding to the items held to be disallowable, by reference to Annexure A to the show cause notice and the table of itemwise findings in the order. This is a limited remand solely for computation of amounts, not for re-adjudication of the substantive factual determinations already made by the Tribunal. [Paras 15]Adjudicating authority to compute and identify the amounts of Cenvat credit to be disallowed in light of the Tribunal's itemwise determinations.Final Conclusion: On the record and the appellants' accepted declarations, the Tribunal allowed Cenvat credit on items held to be parts/accessories of sugar manufacture machinery and disallowed credit on items used for erection or forming immovable structures; the Tribunal accepted the appellants' declarations where Revenue failed to verify use, reduced the penalty to Rs. 1,000 (the amount upheld earlier), and remanded only for quantification of the disallowed amounts. Issues Involved:1. Eligibility for Modvat credit on various items used for fabricating structures.2. Compliance with Rule 57Q of the Central Excise Rules, 1944.3. Verification of declared use of items by the appellant.4. Imposition of penalty amount.Detailed Analysis:1. Eligibility for Modvat Credit on Various Items Used for Fabricating Structures:The appellants, manufacturers of sugar, claimed Modvat credit on items used for fabricating structures like vacuum tanks and syrup extraction receivers under Rule 57Q of the Central Excise Rules, 1944. The Revenue contested this, arguing that these items were structural and not covered under the definition of Capital Goods in Rule 57Q. Initially, a Show Cause Notice was issued for the recovery of Rs. 7,41,415/-, which was confirmed for Rs. 7,40,935/- along with interest and penalties. Upon appeal, the Commissioner (Appeals) provided relief on many items, reducing the demand to Rs. 1,79,126.38 and the penalty to Rs. 1000/-.2. Compliance with Rule 57Q of the Central Excise Rules, 1944:The Tribunal remanded the case to the adjudicating authority to verify the use of the items. However, the authority reconfirmed the demand of Rs. 1,79,126.38 and imposed a penalty of the same amount, without verifying the use of each item as directed by the Tribunal. The adjudicating authority argued that the items received after 1997 were not covered under Rule 57Q as amended post-March 1997, and the appellant did not provide sufficient documentation to support their claims.3. Verification of Declared Use of Items by the Appellant:The appellant contended that the authorities failed to verify the declared use of the items, and thus their declarations should be accepted as correct. The Tribunal noted the unwillingness of the lower authorities to verify the actual use of the items, which were put to use almost 12 years ago, and decided to proceed based on the available record and the appellant's declarations.4. Imposition of Penalty Amount:In the first round of litigation, the Commissioner (Appeals) had upheld a penalty of Rs. 1000/-. The Tribunal found that the adjudicating authority should not have increased the penalty to Rs. 1,79,126.38 in the second round, as the department did not appeal against the initial penalty. The Tribunal reduced the penalty back to Rs. 1000/-.Judgment Summary:- The Tribunal set aside the impugned order regarding the denial of Cenvat credit on structures and structural materials and remanded the matter back to the adjudicating authority to examine the use of these items.- Upon remand, the adjudicating authority reconfirmed the demand without verifying the use of each item, leading the Tribunal to accept the appellant's declarations as correct.- The Tribunal allowed credit on items used as parts and accessories of machines in the factory and materials used in fabricating such items but denied credit on goods used for erecting machines or constructing foundations, as these become immovable property.- The Tribunal reduced the penalty to Rs. 1000/-, consistent with the first round of litigation.Final Decision:The Tribunal directed the adjudicating authority to identify the amounts of credits involved in each of the items stated to be disallowed and arrive at the amount to be disallowed, based on the declarations provided by the appellant. The appeal was allowed by way of remand, and the penalty was reduced to Rs. 1000/-.