2016 (7) TMI 797 - AT - Central Excise

Tribunal Allows CENVAT Credit on Bought-Out Items in Boiler Installation

The Tribunal allowed M/s Thermax Ltd. to avail CENVAT credit on bought-out items used in boiler installation, overturning the disallowance by the ... CENVAT credit on bought-out components - Classification of final product where assembly occurs off-site - Inputs for the purposes of CENVAT Credit Rules - Admissibility of rebate claim within the scope of a show cause notice - Principle that rebate entitlement corresponds to credit entitlementAdmissibility of rebate claim within the scope of a show cause notice - Whether allowing the assessee to file a rebate claim was beyond the scope of the show cause notice and the authority of the Commissioner - HELD THAT: - The Tribunal held that permitting the assessee to advance or have its rebate claim acknowledged is not a detrimental adjudicatory outcome which could be said to travel beyond the notice. A show cause notice serves to inform the assessee of proposed detrimental action; acceptance or acknowledgement of a claim by the noticee cannot be characterised as an outcome outside the notice. The impugned order merely acknowledged admissibility of a rebate claim without granting or directing a particular disposal of the rebate application, and therefore the Revenue's contention that this exceeded the notice or the Commissioner's authority is without merit. [Paras 2]Revenue's contention rejected; acknowledgement of rebate claim was within scope and not beyond the show cause notice.CENVAT credit on bought-out components - Classification of final product where assembly occurs off-site - Inputs for the purposes of CENVAT Credit Rules - Principle that rebate entitlement corresponds to credit entitlement - Whether duty-paid bought-out items brought into the manufacturer's factory and incorporated in boilers cleared for export or supply to SEZ qualify as inputs for availing CENVAT credit - HELD THAT: - The Tribunal found that the boilers are the final product of the manufacturer even though physical assembly and erection at site is necessary. Where contractual and statutory requirements result in bought-out components being brought into the factory, tested, repacked and removed as part of the boiler clearance, the manufacture of the boiler in final form is rendered at the factory gate. Consequently every component and input that goes into the final product, including bought-out items, falls within the definition of input (as per rule 2(k)(i) as it stood during the relevant period) for the purposes of CENVAT credit. The Tribunal relied on its earlier decision in the appellant's own case and on precedents (including Flat Products Equipments (I) Ltd) and emphasised the policy of relieving exports from tax burden; where duty has been discharged on a value inclusive of bought-out parts or rebate is available on those parts, the corresponding CENVAT credit claim cannot be disallowed. [Paras 9, 11]Bought-out items brought into the factory and forming part of the boiler cleared for export or SEZ supply are inputs; CENVAT credit on such bought-out parts is allowable and the demand cannot be sustained.Final Conclusion: Impugned order set aside; appeal of M/s Thermax Ltd allowed and Revenue's cross-appeal dismissed. Issues Involved:1. Disallowance of CENVAT credit on bought-out items.2. Eligibility for rebate claim on inputs.3. Classification and duty liability of boilers including bought-out parts.4. Applicability of previous judicial decisions and statutory provisions.Detailed Analysis:1. Disallowance of CENVAT Credit on Bought-Out Items:The primary issue in this case was whether M/s Thermax Limited could avail CENVAT credit on bought-out items used in the manufacture and erection of boilers. The Commissioner of Central Excise, Pune - I, disallowed the CENVAT credit amounting to Rs. 5,90,83,654/- on the grounds that these bought-out items were not inputs for manufacture and thus ineligible for CENVAT credit. The appellant-assessee argued that these items were essential components for the final product (boilers) and should be considered inputs under the CENVAT Credit Rules, 2004. They contended that the final assembly of the boiler, which includes both manufactured and bought-out items, is classifiable under heading 8402.The Tribunal found that the bought-out items are indeed inputs as they are essential for the functioning of the boiler, which is the final product. The Tribunal referred to the HSN Explanatory Notes and previous judgments, including Flat Products Equipments (I) Ltd v. Commissioner of Central Excise, which supported the view that bought-out items, if included in the value of the final product, qualify for CENVAT credit.2. Eligibility for Rebate Claim on Inputs:The Revenue challenged the impugned order to the extent that it allowed the appellant-assessee to file a rebate claim. The Tribunal dismissed this contention, stating that a show cause notice is intended to notify the tax-assessee of proposed detrimental action and the adjudication should be limited to that extent. The admission of a rebate claim by the noticee is not a detrimental outcome and does not exceed the scope of the show cause notice. The Tribunal observed that the impugned order merely acknowledged the admissibility of the rebate claim without granting it or directing its disposal in a specific manner.3. Classification and Duty Liability of Boilers Including Bought-Out Parts:The Tribunal examined whether the duty liability arises only on the pressure parts manufactured by the appellant or on the entire boiler, including bought-out parts. Referring to the decision in Commissioner of Central Excise, Pune I v. Thermax Bobcock & Wilcox Ltd, the Tribunal concluded that the boiler, in its complete form, is liable to duty, including the value of bought-out items. The Tribunal noted that for domestic clearances, bought-out items are generally not brought into the factory, and no credit is taken on them. However, for exports and supplies to special economic zones, these items are brought into the factory, tested, and dispatched along with manufactured parts, making them eligible for CENVAT credit.4. Applicability of Previous Judicial Decisions and Statutory Provisions:The Tribunal considered various judgments cited by both parties. The appellant-assessee cited cases like Flat Products Equipments (I) Ltd, Dicitex Dicor Pvt Ltd, and Finolex Cables Ltd, which supported the eligibility of CENVAT credit on bought-out items. The Revenue relied on the judgment in KCP Ltd v. Commissioner of Central Excise, which held that items not manufactured in the factory do not qualify for MODVAT credit. The Tribunal found that the bought-out items, being essential for the final product (boiler), qualify as inputs under rule 2(k)(i) of the CENVAT Credit Rules, 2004.The Tribunal also referred to the decision in Flat Products Equipments (I) Ltd, which emphasized that bought-out parts exported on payment of duty under a rebate claim form part of the complete machinery and are eligible for CENVAT credit. The Tribunal noted that the policy of non-exportability of taxes supports the appellant's claim for CENVAT credit on bought-out items used in exported boilers.Conclusion:The Tribunal set aside the impugned order and allowed the appeal of M/s Thermax Ltd., granting them the right to avail CENVAT credit on bought-out items used in the installation of boilers. Consequently, the appeal of the Revenue was dismissed, and the cross-objection was disposed of. The judgment reinforces the principle that bought-out items, if essential for the final product and included in its value, qualify for CENVAT credit under the relevant rules and judicial precedents.