2025 (9) TMI 1696 - AT - Central Excise

Appeal allowed: time-bar invalid without defect memo; CENVAT credit of Rs45.5L and Rs1.6L welding demand set aside

CESTAT KOLKATA - AT allowed the appellant's appeal. The Tribunal held the appeal was not properly treated as time-barred because no defect memo was ... Time limitation - appellant’s appeal before the Commissioner (Appeals) was time-barred or not - CENVAT Credit - inputs - angles, channels, joists etc - welding electrodes. Whether, the appellant’s appeal before the Commissioner (Appeals) was time-barred or not? - HELD THAT:- It is seen that the OIO was dated 29.03.2016. The appellants have claimed that the same was received by them on 28.04.2016 and the appeal was filed on 27.06.2016. If the OIO date itself is taken as the date of serving of the same to the appellant, as has been taken by the Commissioner (Appeals), the appellant was required to file the Appeal by 28.05.2016, i.e. within 60 days. After this if the condonable period of 30 days is considered, then the appeal should have been filed by 27.06.2016. In this case, it is seen from the acknowledgement given by the Commissioner (Appeals) office that the appellant has filed their Appeal on 27.07.2016. If the Commissioner (Appeals) takes a view that the appeal was filed belatedly, proper Defect Memo should have been issued allowing the appellant to make their submissions. Tthe OIA could not have been passed by dismissing on account of time bar, nor has it been done. Therefore, there are no hesitation to hold the view that the OIA has been passed only on merits, denying the CENVAT Credit by relying the Vandana Global case law [2010 (4) TMI 133 - CESTAT, NEW DELHI (LB)]. CENVAT Credit - end capital goods / structures - HELD THAT:- The Chartered Engineer has certified usage of ‘Welding Electrodes’ and other items like Angles, Channels etc in respect of various capital goods manufactured within the factory premises - the decision of LB in the case of Vandana Global was overturned by Chattisgarh High Court [2018 (5) TMI 305 - CHHATTISGARH, HIGH COURT], holding 'Section 37(2)(xvia) provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to, the manufacture of excisable goods. Section 37(2A) of the Act - The power to make rules conferred by clause (xvi) of sub-section (2) shall include the power to give retrospective effect to rebate of duties on inputs used in the export goods from a date not earlier than the changes in the rates of duty on such inputs. Though the power to make rules include the power to give retrospective effect, while doing so the provision under consideration is neither made retrospective nor could it be treated as one.' - the denial of CENVAT Credit of Rs.45,50,485/- on various items like angles, channels, joists etc is not legally not sustainable and the same is set aside. Denial of CENVAT Credit on account of the CENVAT taken on electrodes - HELD THAT:- The issue is no more res integra. It has been held time and again that welding electrodes used in fabrication of capital goods, repairs and maintenance of the capital goods are essential for the manufacturing activity. The Delhi Tribunal in the case of Nuvoco Vistas Corporation Limited Versus Commissioner of Central Excise [2024 (7) TMI 1712 - CESTAT NEW DELHI] held that 'the appellant is entitle to CENVAT Credit on welding electrodes as inputs used in the manufacture of final products – cement and clinker.' - the confirmed demand of Rs.1,59,879 on account of CENVAT denial on welding electrodes set aside. The impugned order gets set aside and the appeal stands allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the appeal before the Commissioner (Appeals) was barred by limitation, and whether the date of communication/receipt or date of issue of the order determines the limitation period for filing the appeal under the regime applied. 2. Whether principles of natural justice were violated by not issuing a defect memo or providing opportunity to cure alleged delay before rejecting the appeal as time-barred. 3. Whether CENVAT credit is admissible on inputs falling under Chapter 72 (angles, channels, beams, joists, plates, bars, structural steel) used in fabrication of support structures, base frames, platforms, staircases, weighbridge supports and similar fabricated items installed in factory premises - i.e., whether such fabricated supporting structures/components qualify as 'capital goods' under Rule 2(a) of the CENVAT Credit Rules, 2004. 4. Whether CENVAT credit is admissible on welding electrodes (Ch. 38) used in fabrication, repair and maintenance of capital goods. 5. The legal effect of the Larger Bench decision in Vandana Global Ltd. vis-à-vis subsequent High Court and Tribunal decisions and whether Vandana Global remains good law for the periods in question. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Limitation: date of communication vs date of issue Legal framework: Statutory limitation for filing appeal before Commissioner (Appeals) is 60 days from communication of the order, with a condonable period of 30 days as per Sec. 35(1) (as applied by the authorities). Precedent treatment: Decisions cited by appellant (G. Muthu Kumar; BSNL v. CCE) support computing limitation from date of receipt/communication rather than date of issue. Interpretation and reasoning: The Tribunal examined the adjudication order dated 29-03-2016 and the appellant's assertion that service/receipt occurred on 28-04-2016, with appeal filed on 27-06-2016 (within 60 + 30 days if receipt date is taken). Evidence indicated that the order bore a file number suffix and was dispatched by post rather than served in person; no dated acknowledgement proving service on date of issue was produced by Revenue. The Commissioner (Appeals) assumed service on date of issue without verifying divisional records and disregarded principles of natural justice by not issuing defect memo or affording opportunity to remedy delay. Ratio vs. Obiter: Ratio - limitation must be reckoned from date of communication/receipt unless positive evidence of earlier personal service is produced; absence of such proof requires accepting asserted receipt date and procedural fairness in computing limitation. Obiter - comments on practical rarity of in-person service on issue date. Conclusions: The Tribunal held the Commissioner (Appeals) erred in treating the appeal as time-barred on the basis of date of issue without proof of service; further, the Commissioner (Appeals) nevertheless proceeded on merits (confirming demand), thereby treating the matter on merits and obviating dismissal solely on limitation ground. Issue 2 - Failure to issue defect memo / breach of natural justice Legal framework: Administrative fairness requires issuing notice/defect memo to allow a party to cure procedural defects before rejecting an appeal as time-barred. Interpretation and reasoning: The Tribunal found no defect memo was issued to the appellant when the Commissioner (Appeals) took the view the appeal was late; the Commissioner (Appeals) did not verify service records and proceeded to decide merits - indicating denial of opportunity and disregard of natural justice norms. Ratio vs. Obiter: Ratio - where alleged procedural delay exists, a defect memo to afford opportunity to cure should be issued; failure to do so is a procedural infirmity. Obiter - none beyond the finding. Conclusions: The Commissioner (Appeals) ought not to have rejected the appeal summarily for delay without giving opportunity to the appellant; the Tribunal treated the matter on merits in any event. Issue 3 - Admissibility of CENVAT credit on structural steel inputs used to fabricate supporting structures (Rule 2(a) capital goods) Legal framework: Rule 2(a) of the CENVAT Credit Rules, 2004 defines 'capital goods' to include goods falling under specified Chapters and 'components, spares and accessories of the goods specified at (i) above'; Rule 2(k) and the main limb of input definition concern goods 'used in or in relation to manufacture' directly or indirectly. Precedent treatment: The Larger Bench decision in Vandana Global was relied upon by Revenue to deny credit. Subsequent High Court and Tribunal decisions (including Mundra Ports, Thiruarooran Sugars, Calcutta High Court in Surya Alloys, Madras High Court decisions such as Madras Aluminium and India Cements, Jindal Steel & Power decision of Tribunal) have critically examined or distinguished Vandana Global, with several rulings holding that fabricated supporting structures/base frames/accessories qualify as capital goods and are eligible for credit; Chhattisgarh High Court reversed Vandana Global for relevant periods. Interpretation and reasoning: The Tribunal analysed the statutory definition, the ordinary meaning of 'accessories', and the factual material (chartered engineer certificate and physical verification report) demonstrating use of structural steel items (plates, angles, channels, joists) in fabrication of items that support, mount or are integral to operation of machinery (base frames, platforms, staircases, weighbridge supports, coal injector base frame, etc.). The Tribunal observed that the definition of capital goods embraces components and accessories of specified goods, and that support structures functioning as essential accessories for capital machinery serve the 'use test' (used in or in relation to manufacture). The Tribunal noted absence of contrary evidence from Revenue to dislodge expert certification and physical verification, and found reliance on Vandana Global misplaced in view of later authoritative High Court decisions holding the amendment (Notification 07-07-2009) to be prospective and not curative for earlier periods, and holding support structures to be capital goods. Ratio vs. Obiter: Ratio - fabricated supporting structures and base frames made out of steel structural materials used to support essential machinery qualify as 'capital goods' under Rule 2(a)(A) and are eligible for CENVAT credit where they satisfy the 'used in or in relation to manufacture' test; evidence such as Chartered Engineer certificate and physical verification, absent contrary material, is admissible to establish use. Obiter - commentary on ordinary meaning of 'accessories' and on legislative intent regarding the 2009 amendment insofar as distinguishing retrospective effect. Conclusions: Denial of CENVAT credit of Rs.45,50,485 on structural steel inputs for alleged support structures was unsustainable and set aside; the Tribunal allowed credit on those items in light of statutory definition, factual certifications and subsequent judicial authority overruling or distinguishing Vandana Global for the relevant period. Issue 4 - Admissibility of CENVAT credit on welding electrodes Legal framework: Inputs used 'in or in relation to' manufacture, including for repair and maintenance, are eligible for credit under the wide language of input definitions and related rules; welding electrodes are inputs used in fabrication and maintenance. Precedent treatment: Apex Court and various Tribunals have held credit admissible on welding electrodes used in repair, maintenance and fabrication (cases such as Lafarge India Ltd., Kisan Cooperative Sugar Factory; recent Tribunal decisions including Nuvoco Vistas). Interpretation and reasoning: The Tribunal applied the 'in relation to manufacture' test and relied on binding and persuasive precedents holding welding electrodes to be inputs for maintenance/repair and hence eligible. The factual record included chartered engineer certification of usage; there was no effective contrary material from Revenue. Ratio vs. Obiter: Ratio - CENVAT credit is admissible on welding electrodes used for fabrication, repair and maintenance of capital goods, as they are inputs 'in relation to' manufacture; this principle is firmly established by higher and coordinate authority decisions. Obiter - none beyond reliance on precedent. Conclusions: Denial of CENVAT credit of Rs.1,59,879 on welding electrodes was unsustainable and set aside; the appeal was allowed on this aspect. Issue 5 - Status of Vandana Global and effect of subsequent decisions Legal framework and precedent treatment: Vandana Global (Larger Bench) was relied upon by Revenue to deny credit. Subsequent High Court rulings (Gujarat, Madras, Calcutta, Chhattisgarh) and Tribunal decisions have examined the scope and temporal operation of the 2009 amendment and have held that the amendment was not clarificatory for earlier periods; several courts held Vandana Global not to be good law for the periods in issue and affirmed the 'use test' to admit credit for fabricated supporting structures. Interpretation and reasoning: The Tribunal accepted the line of decisions that overturned or distinguished Vandana Global for the facts and periods under consideration, noting that High Courts have held the 2009 amendment prospective and that support structures manufacture and function as accessories/capital goods under Rule 2(a). Ratio vs. Obiter: Ratio - where subsequent authoritative decisions conclude Vandana Global is not applicable to the relevant period and facts, reliance on Vandana Global to deny credit is incorrect. Obiter - observations on legislative history and explanatory statements. Conclusions: Vandana Global could not sustain the denial of credit in the present factual matrix; later High Court/Tribunal precedents govern and favor allowance of credit where inputs are used for fabrication of support structures and where welding electrodes are used for repair/maintenance. Overall Disposition The impugned denial of CENVAT credit on structural steel inputs and welding electrodes was reversed; the Commissioner (Appeals) erred in treating the appeal as time-barred without proof of service and without issuing a defect memo; factual findings supporting credit (chartered engineer certificate and physical verification) stood unrebutted. Consequential relief was directed as per law.