2008 (12) TMI 322 - AT - Central Excise

Cement as Capital Goods for Cenvat Credit: Tribunal Seeks Clarity

The Tribunal referred the issue of whether cement used in the foundation or as structural support for machinery qualifies as 'capital goods' for Cenvat ... Cenvat credit on cement used in construction of civil foundation as structural support to plant and machinery for the purpose of modernization and expansion of existing chemical plant. - stand of the Revenue is that the cement is not used either directly or indirectly at any stage in the process of manufacture of any of their products and therefore, it appears that the cement cannot be considered as capital goods. It was also pointed out that the cement cannot be presumed to be as ‘input’ for the assessees, under the said Cenvat Credit Rules. – Whether Cement can be considered as capital goods when used in foundation/supporting structure for machinery - Since different Benches of the Tribunal themselves have taken contrary decision, in my view, this is a fit case for referring to the Larger Bench of the Tribunal. Issues Involved:1. Whether cement used in the foundation or as structural support for machinery qualifies as 'capital goods' under the Cenvat Credit Rules, 2002/2004.Detailed Analysis:1. Nature of the Respondents' Business and Use of Cement:The Respondents are engaged in the manufacture of excisable goods such as Sugar Caustic Potash and Sulphuric Acid. They availed Cenvat credit on cement used in the construction of civil foundations as structural support for plant and machinery during the modernization and expansion of their chemical plant.2. Revenue's Standpoint:The Revenue denied the Cenvat credit on cement, arguing it does not fall under the definition of 'capital goods' as per Rule 2 of the Cenvat Credit Rules, 2002/2004. The Revenue maintained that cement is neither used directly nor indirectly in the manufacturing process and thus cannot be considered as 'input' or 'capital goods'. Consequently, the lower authority demanded the wrongly availed Cenvat credit along with interest and imposed penalties.3. Commissioner (Appeals) Decision:The Commissioner (Appeals) allowed the Respondents' appeals, relying on several case laws, including:- United Phosphorous Ltd. v. Commissioner of Central Excise- Commissioner of Central Excise v. India Cements Ltd.- Lloyds Steels Industries Ltd. v. Commissioner of Central Excise4. Grounds of Appeal by Revenue:The Committee of Commissioners found the Orders-in-Appeal to be illegal on several grounds:- Cement does not fall under the definition of 'Capital goods' or 'Input'.- Cement does not contribute to any change in the substance for manufacturing the final product.- Cement used in civil construction cannot be used in the production or processing of final products.5. Supporting Case Laws for Revenue's Argument:The Revenue cited several Supreme Court and High Court decisions, including:- J.K. Cotton Spg & Wvg Mills Co. Ltd. v. Sales Tax Officer, Kanpur- Quality Steel Tubes (P) Ltd. v. CCE, U.P.- Union of India v. Hindustan Zinc Ltd.6. Respondents' Arguments:The Respondents argued that cement should be considered an accessory under Rule 2(a)(A)(iii) of the Cenvat Credit Rules, 2004. They cited various decisions supporting the view that cement used in the foundation or as structural support for machinery qualifies for Cenvat credit. Key cases included:- Bhushan Steel & Strips Ltd. v. CCE- Lloyds Steel Industries Ltd. v. CCE- Aditya Cement v. UOI7. Tribunal's Observations:The Tribunal noted conflicting decisions from different benches regarding the eligibility of cement for Cenvat credit. While some decisions supported the Respondents' stance, others favored the Revenue's position. The Tribunal highlighted the necessity of cement in foundation or supporting structures for machinery, but also acknowledged the Revenue's argument that foundation work is civil construction and not part of machinery.8. Referral to Larger Bench:Given the conflicting decisions, the Tribunal deemed it appropriate to refer the matter to a Larger Bench. The issue framed for consideration was:'Can cement be considered as capital goods for the purpose of Cenvat credit when it is used for foundation/supporting structure for machinery in the light of erstwhile Central Excise Rules, 1944/Cenvat Credit Rules, 2002/2004Rs.'The Tribunal ordered the Registry to place the matter before the Hon'ble President for constituting a Larger Bench to resolve the issue.