2018 (11) TMI 1205 - AT - Central Excise

Tribunal allows cenvat credit on HR Coils for locknut manufacturing, clarifies input definition.

The Tribunal ruled in favor of the appellant in a case concerning cenvat credit on H.R. Coils used for manufacturing locknuts in both DTA and SEZ Units. ... Denial of Rebate claim and demand of duty - credit reversed is claimed by the appellant as rebate considering the clearances to SEZ Unit as export, in terms of SEZ Act and Rules - Revenue’s case is that the portion of the H.R.Coils, which are slit to the dimensions as per the requirement of their SEZ Unit are not intended for use in the DTA Unit and as such will not be entitled to the cenvat credit - Held that:- The appellant, instead of receiving the H.R.Coils in the factory and availing cenvat credit and subsequently sending them to job workers for slitting, has chosen to directly send the coils to the job workers for slitting and availed cenvat credit only after receipt of the sheets. There is no infirmity in such procedure. Rule 4 (5) of the Cenvat Credit Rules, 2004, provides for clearing the inputs for carrying out various processes. Rule 3(4)(b) of the Cenvat Credit Rules, 2004 provides that inputs on which cenvat credit have been availed may be cleared as such subject to reversal of the proportionate credit. Since slitting of coils into sheets does not amount to manufacture, for clearance of sheets received to SEZ Unit, the appellant was required to only reverse the proportionate credit. Since, there is no dispute that such reversal have been made, there is no scope for ordering payment of any other amount. The lower adjudicating authority appears to have proceeded on a completely wrong footing by considering the slit sheets as inputs for the appellant. He has overloaded the fact that the items procured on which cenvat credit stands availed are H.R.Coils procured from SAIL. Considering H.R.Coils as input, the cenvat credit cannot be denied. Appeal allowed - decided in favor of appellant. Issues:- Cenvat credit availed on H.R. Coils for manufacturing locknuts in DTA Unit and SEZ Unit- Admissibility of service tax credit paid to commission agent- Discrepancy in dimensions of sheets used in DTA Unit and SEZ Unit- Reversal of cenvat credit on sheets cleared to SEZ Unit- Interpretation of the term 'input' under Cenvat Credit Rules, 2004Analysis:Cenvat Credit on H.R. Coils:The appellant procured H.R. Coils from SAIL for manufacturing locknuts in both DTA and SEZ Units. The coils were slit into sheets of different dimensions for each unit's requirements. Cenvat credit was availed on the duty paid on H.R. Coils upon receipt of slit sheets. The Revenue argued that sheets meant for the SEZ Unit, not usable in the DTA Unit, should not qualify for cenvat credit. However, the Tribunal held that since the H.R. Coils were used in manufacturing locknuts, cenvat credit cannot be denied. The appellant was entitled to the credit as the coils were essential inputs for the final product.Admissibility of Service Tax Credit:The appellant claimed service tax credit paid to the commission agent for procuring H.R. Coils. The Revenue contended that this credit should be reversed for sheets cleared to the SEZ Unit. The Tribunal disagreed, stating that the service tax was paid for eligible input services, and the appellant correctly availed the credit. The appellant was deemed entitled to the service tax credit as well.Discrepancy in Sheet Dimensions:The Revenue observed a difference in the dimensions of sheets used in the DTA and SEZ Units during a factory inspection. They argued that sheets not suitable for the DTA Unit should not qualify as inputs for cenvat credit. The Tribunal noted that the appellant had proportionately reversed credit for sheets sent to the SEZ Unit, complying with regulations. The discrepancy in dimensions did not affect the eligibility of the appellant for cenvat credit.Reversal of Cenvat Credit for SEZ Unit:Show-cause notices were issued to reverse cenvat credit wrongly claimed on sheets cleared to the SEZ Unit. The Adjudicating Authority ordered such reversal, which the appellant challenged in the appeal. The Tribunal found that the appellant had appropriately reversed credit for sheets diverted to the SEZ Unit. Since the appellant treated these clearances as exports, the credit reversal was in line with SEZ regulations.Interpretation of 'Input' under Cenvat Credit Rules:The Tribunal analyzed the definition of 'input' under Rule 2(k) of the Cenvat Credit Rules, 2004, which includes goods used in manufacturing the final product. It concluded that H.R. Coils procured by the appellant were integral to the manufacturing process of locknuts. The appellant's direct dispatch of coils to job workers for slitting and subsequent availing of cenvat credit on received sheets was deemed appropriate. This procedure complied with relevant rules, and the appellant's entitlement to credit was upheld.In conclusion, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellant. The judgment emphasized the importance of correctly interpreting the term 'input' and ensuring compliance with cenvat credit regulations.