CESTAT allows CENVAT credit on capital goods for paint shop fabrication, sets aside time-barred demand

CESTAT Chennai allowed the appeal regarding CENVAT credit on capital goods used for paint shop fabrication. The department erroneously analyzed whether the assembled paint shop constituted excisable goods rather than examining if individual machinery components qualified for credit. The appellant had legitimately availed credit on various machinery parts and structural items under Chapters 73, 84, and 85 used for paint shop setup, which was integral to car painting operations. Tribunal relied on precedents from Hyundai Motor India and Omax Auto cases establishing credit eligibility for paint shop components. Regarding limitation, since demand was based on appellant's own book figures without establishing positive suppression acts, extended period invocation was invalid per Pushpam Pharmaceuticals SC precedent. The show cause notice was time-barred, and the impugned order was set aside.

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Issues Involved:
1. Eligibility for CENVAT credit on items used for setting up a paint shop.
2. Invocation of the extended period of limitation for demand.

Summary:

1. Eligibility for CENVAT credit on items used for setting up a paint shop:
The appellant, engaged in the manufacture of motor cars under the brand name Nissan, availed CENVAT credit on materials used in the erection and commissioning of a paint shop. The department contended that the paint shop, being an immovable property, could not be considered excisable goods, thus denying credit under the category of capital goods. The appellant argued that they availed credit on machinery, parts, and components used to set up the paint shop, which are excisable goods under Chapter Headings 84 and 85 of the Central Excise Tariff Act 1985. The Tribunal found that the department erroneously analyzed whether the paint shop itself was excisable instead of the individual items used for its setup. Citing precedents such as Hyundai Motor India Ltd. Vs. CCE & ST LTU Chennai and Omax Auto Ltd. Vs. CCE, Delhi III, the Tribunal held that the items used for setting up the paint shop, falling under Chapter Headings 84, 85, 73, and 76, are eligible for credit as capital goods.

2. Invocation of the extended period of limitation for demand:
The demand was raised by invoking the extended period of limitation, alleging suppression of facts by the appellant. The appellant countered that they had disclosed all relevant details in their ER-1 returns and that the demand was based on figures from their maintained books of accounts. The Tribunal noted that the Show Cause Notice did not specifically allege suppression with intent to evade duty, merely stating that the credit availment would not have come to the department's knowledge without verification. Referring to the Supreme Court's decision in Pushpam Pharmaceuticals Vs. CCE, Bombay, the Tribunal emphasized that when facts are known to both parties, there is no ground for invoking the extended period. Consequently, the Tribunal held the SCN to be time-barred.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential relief as per law. The decision was pronounced in the open court on 15.04.2024.

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