2012 (9) TMI 885 - AT - Central Excise

Tribunal broadens 'input' definition under Cenvat Credit Rules, allowing appeal on Central Excise duty credit order.

The Tribunal allowed the appeal, overturning the order demanding recovery of Central Excise duty credit on welding electrodes used for repair and ... Eligibility of CENVAT Credit - Whether during the period from January, 2008 to August, 2008, they were eligible for credit of Central Excise duty paid on welding electrodes used for repair and maintenance of plant and machinery - Held that:- Definition of ‘input’ as given in Rule 2(k) of Cenvat Credit Rules, 2004 covers the goods used “in or in relation to manufacture” of final products, whether directly or indirectly which is a much wider than the expression “used in manufacture”. While repair or maintenance by itself is not a process of manufacture, this activity certainly has nexus with manufacture of final product and would be covered by the expression - “used in or in relation to manufacture of final product” as no manufacturing activity is possible with malfunctioning machinery - Decided in favour of assessee. Issues:Whether the appellant is eligible for credit of Central Excise duty paid on welding electrodes used for repair and maintenance of plant and machinery.Analysis:The appellant, engaged in cement manufacturing, sought credit of Central Excise duty paid on welding electrodes used for repair and maintenance of plant and machinery for the period from January 2008 to August 2008. The department contended that such items were neither capital goods nor inputs, leading to a show cause notice for recovery of credit amounting to Rs. 2,19,439. The Assistant Commissioner confirmed the demand for Cenvat credit, along with interest and penalty, through an order-in-original dated 25-5-2009. Upon appeal to the Commissioner (Appeals), the initial decision was upheld, resulting in the current appeal.The appellant's counsel argued that judgments from various High Courts, including Chhattisgarh, Karnataka, and Rajasthan, supported the eligibility of Cenvat credit on welding electrodes used for repair and maintenance of plant and machinery. Conversely, the department's representative cited a conflicting judgment from the Andhra Pradesh High Court, asserting that such credit could not be claimed under Rule 2(k) as welding electrodes did not qualify as input or capital goods.In the analysis, the Tribunal acknowledged the differing views presented by the High Courts but emphasized the broader definition of 'input' under Rule 2(k) of the Cenvat Credit Rules, 2004. The Tribunal noted that the goods used in or in relation to the manufacture of final products, directly or indirectly, were covered by this definition, extending beyond mere 'used in manufacture.' While repair and maintenance activities did not constitute manufacturing processes themselves, they were deemed essential for the manufacturing of final products, as malfunctioning machinery hindered manufacturing activities. Consequently, the Tribunal found the impugned order unsustainable, overturning it and allowing the appeal.