2025 (9) TMI 478 - AT - Central Excise

Appeal allowed: HR coils, MS plates, angles, channels and welding rods qualify as inputs for Cenvat credit after 1.4.2011

CESTAT allowed the appellant's appeal, holding that HR coils, MS plates, angles, channels, welding rods and similar goods used within the ... CENVAT Credit on HR coils, MS Plates, Angles, Channels, Welding Rods - inputs or not - welding electrodes are used in welding/jointing of various steel items and for fabrication and erection of various structures for the support of capital goods and machineries and are also used in the repair and maintenance of various equipment and machineries - period April 2012 to February 2015 - time limitation - HELD THAT:- After 1.4.2011, the definition of ‘input’ has become all sweeping and more inclusive. So long as the goods are used by the in manufacturer within the factory, those goods would qualify for Cenvat credit as ‘inputs’ - In the present case, all the goods in question under various Annexures to the SCN are no doubt, not direct inputs for manufacture of the finished goods, but are required to be used for fabrication of capital goods, which in turn are being used for carrying out the manufacturing activity. From the above definitions prior and post 1.4.2011, it can be seen that in both the cases, the inputs used for fabrication or usage in respect of any capital goods, would also qualify for cenvat credit as ‘inputs’. As a matter of fact after 1.4.2011, the situation is much more liberal. As long as the assessee is able to satisfy the condition that the goods in question has been used ‘in the factory’ of the ‘final product’, the cenvat credit cannot be denied. This would also include the goods which are used towards maintenance and repairs, since the usage is within the factory premises. In the present case, it is not the Revenue’s case that the goods in question were not received by the appellant in their factory premises, or were not accounted for properly. The effect of the amended provisions is discussed by the Tribunal Delhi in the case of Prism Cement Ltd. vs. Commissioner of Central Excise and Service Tax, Jabalpur [2016 (8) TMI 972 - CESTAT NEW DELHI] as 'The effect of substitution of the definition clause is that all goods used in the factory of the manufacturer of final product, other than the goods itemized in the excluded category mentioned therein are eligible for consideration as input for the purpose of taking Cenvat credit. H.R. Steel plates (Hardox-400) is not falling under the excluded category mentioned in definition of input.' The appellant has also clearly brought in evidence to the effect that they have not availed any cenvat credit in respect of the goods used towards ‘structural supports’, though it is found that the Tribunals and High Courts have been consistently holding that such ‘structural supports’ are essential for the functioning of the capital goods and accordingly, have been allowing the Cenvat Credit - the issue of cenvat eligibility for the like goods in question when they are used in the fabrication of the capital goods within the factory premises has been a subject matter of litigation, particularly in view of the Larger Bench’s decision in the case of Vandana Global [2018 (5) TMI 305 - CHHATTISGARH, HIGH COURT]. Subsequently, the LB decision itself was set aside by the Chattisgarh High Court. The other High Courts and Tribunals have been consistently allowing the Cenvat Credit. The Madras High Court in India Cements vs. CESTAT Chennai [2015 (3) TMI 661 - MADRAS HIGH COURT] set aside the decision of the Tribunal which had denied Cenvat credit on MS Rod Sheets, M.S. Channel, M.S. Plates, Flats etc. used in the fabrication of Fly Ash Hooper, Fly Ash Bin, Fly Ash Handling System & Kiln Brick Laying Work to hold refractories. Thus, the confirmed demand is not sustainable on merits. Time limitation - HELD THAT:- The cenvat credit taken is being accounted for by them in RG 23 A Part I and Part II and in the monthly Returns. Since the goods in question have been used within the factory premises, the appellant can be carrying Bonafide belief towards their eligibility for cenvat credit. All the case laws support the view of the appellant. Hence, it is not found that the Revenue has brought in any evidence towards willful suppression with an intent to evade by the appellant. Therefore, the confirmed demand for the extended period is legally not sustainable. The appeal filed by the appellant stands allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether various items of steel (tor steel, joists, plates, channels, beams, angles, flats), welding electrodes, LPG, lancing pipes/rods, SS rounds, silico-calcium cored wire, MS mis-rolls/cuttings/scrap and related goods qualify as 'inputs' for Cenvat credit under Rule 2(k) of the Cenvat Credit Rules, 2004 when used within the factory for manufacture, fabrication of capital goods, repair or maintenance. 2. Whether goods used in fabrication of capital goods (including in-house manufactured capital goods that are attached by bolts/nuts and removable) are excluded as 'goods used for laying foundation or making structures for support of capital goods' and thereby barred from input credit. 3. Whether goods that are consumed/incorporated in the manufacturing process (e.g., lancing pipes that melt into molten metal; 'farma' as furnace inner shell) qualify as inputs eligible for credit. 4. Whether Cenvat credit taken on goods subsequently removed to a sister unit but reversed in the same month attracts demand or is time-barred. 5. Whether the confirmed demand is time-barred and/or the appellant's claim is protected by bona fide belief and absence of wilful evasion. ISSUE-WISE DETAILED ANALYSIS Issue 1: Eligibility of various steel items, welding electrodes and LPG as 'inputs' under Rule 2(k) Legal framework: Rule 2(k) of the Cenvat Credit Rules, 2004 defines 'input' and post-amendment (w.e.f. 1.4.2011) provides that 'input' means all goods used in the factory by the manufacturer of the final product, subject to specified exclusions (including goods having no relationship with manufacture and goods used for construction/laying of foundation/support of capital goods), and excludes capital goods except when used as parts/components in manufacture of final product. Precedent treatment: The Tribunal's earlier decision (Prism Cement) is relied on to hold that goods used in the factory, even for repair and maintenance or fabrication of capital goods, fall within the broad amended definition of 'input'. Other tribunal and High Court decisions cited in the judgment similarly allow credit for steel items used in fabrication of capital goods and for consumable items essential to manufacture. Interpretation and reasoning: The Court observes that the post-2011 definition is 'all sweeping' and inclusive: goods used in the factory by the manufacturer qualify as inputs unless falling within the explicit exclusions. The adjudicating authority did not dispute receipt or factory-use of the goods. Chartered Engineer certificates and inventory/register evidence were produced showing specific quantities of steel and consumables consumed in fabrication of in-house capital goods and in manufacture. Welding electrodes and LPG were held essential for in-house manufacture and maintenance of capital goods; silico-calcium cored wire and MS scrap/misrolls were treated as raw material/inputs used in production. Lancing pipes/rods and furnace shell ('farma') were treated as consumables that are consumed or become part of the final molten metal during production, supporting their classification as inputs. Ratio vs. Obiter: Ratio - under the amended Rule 2(k) (post 1.4.2011) goods used within the factory for fabrication of capital goods, repair or maintenance, or otherwise having nexus with manufacture of final products, are eligible inputs unless they fall under the explicit exclusions. Obiter - discussion of broader case law and comparative precedents serves to support the ratio. Conclusion: Cenvat credit on the various steel items, welding electrodes, LPG, lancing pipes/rods, SS rounds, silico-calcium cored wire and MS misrolls/cuttings/scrap was held allowable as 'inputs' when used within the factory for fabrication of capital goods, manufacture, repair or maintenance. Issue 2: Distinction between fabrication of capital goods and construction/laying of foundation/support structures exclusion Legal framework: Exclusion in Rule 2(k)(B) (goods used for construction or execution of works contract of a building or civil structure, or laying of foundation/making of structures for support of capital goods) removes such goods from definition of 'input'. Precedent treatment: The Court reviews decisions allowing credit where steel items are used as parts/components of capital goods and where 'structural supports' have been allowed credit by Tribunals/High Courts; it notes prior litigation on the issue, including a Larger Bench and subsequent High Court rulings. Interpretation and reasoning: The Court distinguishes goods used to fabricate movable capital goods or parts/components of capital goods from goods used for building civil structures or laying foundations. The factual matrix (chartered engineer certificates, records) showed that the contested steel items went into manufacture of capital goods (reactors, hoppers, conveyors, ESPs, etc.) which, although affixed by bolts/nuts, are movable and not permanent civil structures or foundations. The appellant also demonstrated that additional steel quantities used for structural supports/foundations were not claimed for credit, aligning with departmental circulars. The adjudicating authority failed to examine item-wise usage or to give reasons for rejecting engineering certificates. Ratio vs. Obiter: Ratio - goods used in fabrication of capital goods (including in-house fabricated movable capital goods attached by bolts/nuts) are not excluded by the construction/foundation/support exclusion and are eligible inputs; goods used for civil construction or foundation/support of capital goods remain excluded. Obiter - commentary on past litigation trajectory and policy considerations. Conclusion: The exclusion for construction/foundation/support does not apply where goods are used to fabricate capital goods or form parts/components of capital goods; such goods qualify as inputs if used in the factory. Issue 3: Consumable goods that are melted/incorporated (e.g., lancing pipes, furnace shell 'farma') as inputs Legal framework: The definition focuses on goods 'used in the factory' and excludes goods having no relationship with manufacture; goods consumed/incorporated in production are within the ambit of inputs unless explicitly excluded. Precedent treatment: The Tribunal's Larger Bench decision (as cited in the judgment) held that lancing pipes consumed in furnace operations become part of molten metal and are eligible for credit; similar reasoning applied to furnace shell consumed in process. Interpretation and reasoning: Factual evidence showed lancing pipes/rods and the farma are essential and consumable in production - they come into contact with molten metal and are consumed or become part of the product/production process. Chartered Engineer reports and registers corroborated consumption and usage in the manufacture of billets. The Court relied on such technical facts and prior Tribunal reasoning to hold them eligible. Ratio vs. Obiter: Ratio - consumable items that are melted or incorporated in the manufacturing process and are used within the factory qualify as inputs for Cenvat credit. Obiter - ancillary technical observations about frequency of replacement and industry practice. Conclusion: Lancing pipes, furnace shells ('farma') and similar consumables consumed/incorporated in production are inputs eligible for Cenvat credit. Issue 4: Credit reversed on removal to sister unit and treatment of such reversal/demand Legal framework: Cenvat credit taken and later reversed on removal/transfer to related unit is governed by accounting and reversal rules; effective availment requires that credit was not ultimately retained. Interpretation and reasoning: The record showed cement credited when received and removed the same day to sister unit; credit was reversed at month end and notified to department. Since effectively no credit was availed (reversal shown in returns), demand on that account is not sustainable. Ratio vs. Obiter: Ratio - where credit is reversed and no effective benefit retained, demand is unsustainable. Obiter - none significant. Conclusion: Demand on cement where credit was reversed and not effectively availed is not sustainable. Issue 5: Limitation, bona fide belief and absence of wilful suppression Legal framework: Limitation for demand and extended period demands require proof of suppression or knowledge to deny limitation; bona fide belief and accounting in statutory returns may defeat extended period demands. Interpretation and reasoning: The Court found the show cause notice period extended beyond normal limitation and that the corrigendum altering demand was received later; appellant accounted for credits in returns and produced evidence; no evidence of wilful suppression or intent to evade was adduced by Revenue. Cited case law and consistent tribunal/high court rulings provided objective basis for appellant's bona fide belief in eligibility. Ratio vs. Obiter: Ratio - where credits taken in good faith, accounted in returns, supported by technical certification and consistent judicial authority, and lacking evidence of willful suppression, extended period demand is not sustainable. Obiter - procedural observations on receipt dates and corrigendum effect on limitation calculation. Conclusion: The confirmed demand for the extended period is time-barred and unsustainable in absence of evidence of willful suppression; the appeal succeeds on limitation grounds as well. Overall Conclusion The Tribunal allowed the appeal on merits and on limitation: goods used within the factory for fabrication of capital goods, repair/maintenance, or consumed in production qualify as 'inputs' under amended Rule 2(k); item-wise Chartered Engineer certifications and records supported eligibility; the adjudicating authority's rejection of such evidence without reasons was unsustainable; and the extended period demand was time-barred in absence of wilful suppression. Consequential reliefs were awarded as per law.