2022 (1) TMI 760 - AT - Central Excise

Tribunal grants CENVAT credit for steel plates used in petroleum products manufacturing. No strict time limit for credit.

Commissioner Customs & Central Excise, Rajkot Versus Nayara Energy Limited (Vice-Versa)

Commissioner Customs & Central Excise, Rajkot Versus Nayara Energy Limited (Vice-Versa) - TMI Issues Involved:1. Eligibility of CENVAT credit on inputs received prior to 10.09.2004.2. Compliance with the conditions for availing CENVAT credit under the 2004 Credit Rules.3. Determination of whether steel plates can be considered as inputs for the manufacture of petroleum products.4. Timeliness of availing CENVAT credit.5. Imposition of interest and penalty under the relevant rules.Detailed Analysis:1. Eligibility of CENVAT Credit on Inputs Received Prior to 10.09.2004:The core issue was whether the appellant could avail CENVAT credit on steel plates received in 1997-1998, used for fabricating storage tanks, and availed in 2010. The Commissioner initially accepted that the eligibility for CENVAT credit should be determined under the 2004 Credit Rules, which were in force when the appellant was granted registration in November 2006. However, the Commissioner ultimately denied the credit, citing that the inputs were received before 10.09.2004, the effective date of the 2004 Credit Rules. This conclusion was inconsistent with the earlier finding that the factory came into existence only upon registration in 2006.2. Compliance with Conditions for Availing CENVAT Credit:The show cause notice alleged that the appellant violated rules by not earning credit under the 1944 Excise Rules and failing to file necessary declarations. The Commissioner upheld the denial of credit based on reasons beyond those in the show cause notice, which is impermissible as per the Supreme Court's rulings in Ballarpur Industries Ltd. and Toyo Engineering India Limited. The show cause notice is foundational, and the order must confine itself to its allegations.3. Steel Plates as Inputs for Manufacture of Petroleum Products:The Commissioner’s finding that steel plates cannot be considered as inputs for manufacturing petroleum products was beyond the scope of the show cause notice and incorrect. Rule 2(k) of the 2004 Credit Rules defines inputs broadly to include all goods used in or in relation to the manufacture of final products. The Supreme Court in Solaris Chemtech Limited affirmed that inputs cover goods used for rendering the final product marketable or used in the manufacturing process. Thus, steel plates used for fabricating storage tanks are indeed inputs.4. Timeliness of Availing CENVAT Credit:The Commissioner erroneously held that CENVAT credit should have been availed immediately upon receipt of inputs, citing a long gap as unreasonable. However, Rule 4(1) of the 2004 Credit Rules uses 'may' instead of 'shall,' indicating no strict time limit. The CBEC Circular dated 29.08.2000 clarified that credit need not be taken immediately. Tribunal decisions in Coromandel Fertilizers Ltd. and Steel Authority of India Ltd. supported that credit can be availed even after a significant time lapse if no outer time limit is prescribed.5. Imposition of Interest and Penalty:The Commissioner imposed a penalty under rule 15(1) of the 2004 Credit Rules for contravention of provisions. However, the Department’s appeal for interest under rule 14 was dismissed as the rule applies only when credit is taken or utilized wrongly. The appellant’s detailed documentation and explanations for the delay in availing credit were not adequately considered by the Commissioner.Conclusion:The Tribunal set aside the Commissioner’s order, allowing the appellant’s appeal (Excise Appeal No. 601 of 2012) and dismissing the Department’s appeal (Excise Appeal No. 571 of 2012). The Tribunal recognized the appellant’s eligibility for CENVAT credit under the 2004 Credit Rules, the broad definition of inputs, the lack of a strict time limit for availing credit, and the improper basis for denying credit and imposing penalties.