2017 (10) TMI 1586 - HC - Central Excise

CESTAT Chennai's Error Corrected: Division Benches' Rulings Over Vandana Global Case

The Ramco Cements Limited Versus The Commissioner of Central Excise No. I, Tamil Nadu.

The Ramco Cements Limited Versus The Commissioner of Central Excise No. I, Tamil Nadu. - TMI Issues Involved:1. Eligibility of Cenvat Credit under Rule 57AA of the Central Excise Rules, 1944, for goods used in machinery as 'capital goods'.2. Eligibility of Cenvat Credit under Rule 57AA of the Central Excise Rules, 1944, for goods used in machinery as 'inputs'.3. Reliance on the decision of the Tribunal's Larger Bench in Vandana Global Limited v. CCE, Raipur.4. Consistency of the impugned judgment with the Supreme Court judgments in CCE, Coimbatore v. Jawahar Mills Limited and CCE, Jaipur v. Rajasthan Spinning and Weaving Mills Limited regarding the definition and concept of capital goods.Issue-wise Detailed Analysis:1. Eligibility of Cenvat Credit under Rule 57AA for goods used in machinery as 'capital goods':The court examined whether the goods used in the machinery installed in the factory for production could be classified as 'capital goods' under Rule 57AA of the Central Excise Rules, 1944. The assessee argued that the goods were essential for manufacturing activities and should be considered as parts, accessories, and components of the machines. The original adjudicating authority and the Commissioner (Appeals) had rejected this claim, stating that the items were not eligible for credit as capital goods. The court referred to previous decisions, including the Division Bench's ruling in ThiruArooran Sugars v. CESTAT, which had established that structurals and other materials used to support machinery could be treated as capital goods if they were integral to the manufacturing process.2. Eligibility of Cenvat Credit under Rule 57AA for goods used in machinery as 'inputs':The court also considered whether the goods could be classified as 'inputs' under Rule 57AA. The assessee contended that the goods were necessary for the manufacturing process and should be eligible for Cenvat credit as inputs. The court referred to the Division Bench's decision in ThiruArooran Sugars, which had concluded that structurals, cement, and iron and steel used in constructing foundations could fall within the definition of inputs under Rule 2(k) of the 2004 Rules. The court noted that various judgments had consistently ruled in favor of treating such goods as inputs eligible for Cenvat credit.3. Reliance on the decision of the Tribunal's Larger Bench in Vandana Global Limited v. CCE, Raipur:The CESTAT, Chennai, had relied on the Larger Bench decision in Vandana Global Limited v. CCE, Raipur, to reject the assessee's appeal. The court examined the applicability of this decision and noted that the Division Bench in ThiruArooran Sugars had disagreed with the Tribunal's view that the 2009 Notification would have retrospective effect. The court emphasized that the issue should not have been decided solely based on the Vandana Global case, especially when there were multiple Division Bench decisions from the jurisdictional High Court supporting the assessee's position.4. Consistency of the impugned judgment with the Supreme Court judgments:The court evaluated whether the impugned judgment was consistent with the Supreme Court's rulings in CCE, Coimbatore v. Jawahar Mills Limited and CCE, Jaipur v. Rajasthan Spinning and Weaving Mills Limited. These judgments had established the 'user test' to determine the eligibility of goods as capital goods. The court noted that the Division Bench in ThiruArooran Sugars had applied the user test and concluded that structurals and foundations used to support machinery were integral parts of the capital goods and thus eligible for Cenvat credit. The court found that the impugned judgment was contrary to these Supreme Court rulings and should be set aside.Conclusion:The court concluded that the CESTAT, Chennai, had erred in its judgment by relying solely on the Vandana Global case and not considering the consistent rulings of the Division Benches of the jurisdictional High Court. The impugned order was set aside, and the substantial questions of law were answered in favor of the assessee and against the Revenue. The appeal was allowed with no order as to costs.