2008 (2) TMI 234 - AT - Central Excise

Tribunal Decision on Capital Goods Eligibility, MODVAT Credit, and Penalties

The Tribunal upheld the eligibility of certain items as capital goods, overturned the denial of MODVAT credit on specific goods like HTS, iron and steel ... Credit on capital goods – goods used in fabrication of parts of plant & in providing structural support to plant are eligible to credit – credit on paint used for painting plant is allowed – goods necessary for carrying on business are eligible for credit - we allow this appeal of the assessee except for their claim as regards capital goods credit for cement used for construction of foundation for machinery - penalty imposed on TCL for claiming credit on the goods is not justified Issues: Eligibility of MODVAT credit on various goods claimed as capital goods by M/s. Thirumalai Chemicals Ltd., denial of credit on specific items like Heat Transfer Salt (HTS), iron and steel goods, denial of Modvat credit on iron and steel goods, paints, cement, and imposition of penalties.Analysis:1. The appeals addressed the eligibility of MODVAT credit for duty paid on goods claimed as capital goods by M/s. Thirumalai Chemicals Ltd. (TCL), specifically focusing on the denial of credit on items like Heat Transfer Salt (HTS) and iron and steel goods. The Commissioner (Appeals) affirmed the denial of credit on HTS and iron and steel goods, stating that HTS was refractory material and iron and steel goods were considered building materials. The penalty imposed on TCL was reduced from Rs. One lakh to Rs. 75,000.2. In the appeal filed by the Revenue, they contested the allowance of capital goods credit on cables, control panels, and switches. The Tribunal referred to a previous decision regarding wires and cables as essential items necessary for business operations and not consumables, thereby upholding the eligibility of wires, cables, control panels, and switches as capital goods. The Revenue's appeal was dismissed.3. TCL filed an appeal against the denial of Modvat credit on materials like HTS, CTD bars, angles, channels, beams, joists, and HR plates, along with the imposition of a penalty. The Tribunal recognized HTS as an integral part of the plant for manufacturing Phthalic Anhydride, falling under the Central Excise Tariff classification. Iron and steel goods were also considered components of the plant, supporting various equipment. The appeal filed by TCL was allowed, overturning the denial of Modvat credit and penalty imposition.4. Another appeal by TCL challenged the denial of Modvat credit on iron and steel goods, paints, cement, and a penalty. The Tribunal found these items were essential for the fabrication of plant components like reaction vessels and tanks, qualifying them as eligible capital goods. Paints used for plant safety were also considered eligible. However, regarding cement, the Tribunal referenced various decisions, ultimately concluding that cement used in the construction of machinery foundations was not eligible for capital goods credit, aligning with a High Court judgment. The penalty imposed on TCL for claiming credit on these goods was deemed unjustified, except for the claim related to cement.In conclusion, the Tribunal upheld the eligibility of certain items as capital goods, overturned the denial of Modvat credit on specific goods, and addressed the penalty imposition, ensuring a comprehensive analysis of the issues raised in the appeals.