2025 (10) TMI 551 - AT - Central Excise

CENVAT credit allowed on HR plates and sheets used for repair and maintenance of storage tanks under Rule 2(k)

M/s Hindustan Petroleum Corporation Ltd. Versus Commissioner Of Central Excise Visakhapatnam - I

CESTAT HYDERABAD - AT allowed the appeal, setting aside the Commissioner's order and holding that CENVAT credit is admissible on HR plates/sheets used for ... CENVAT Credit - inputs or capital goods - HR Plates, HR Sheets and HR Plates falling under the heading 7208 3710, 7208 3730 and 7208 5210 of the Central Excise Tariff - HELD THAT:- It is found that as per Rule 2(k), certain goods can be treated as input, when used as parts or components in the manufacture of final products. Therefore, whether the said goods have been used for the manufacture of capital goods or otherwise has to be examined. The Commissioner has not agreed to this claim on the grounds that said inputs were used for maintenance and repairs of capital goods and such activity of repair and maintenance cannot be considered as manufacturing process for manufacture of storage tanks and hence it can not be said goods used for repair and maintenance are used in manufacture of capital goods. It is found that in their own case in order THE COMMISSIONER C&C. E, VISAKHAPATNAM VERSUS M/S HINDUSTAN PETROLEUM CORPN. LTD. VISAKHAPATNAM [2016 (6) TMI 606 - CESTAT HYDERABAD], the said decision was taken to the jurisdictional High Court by the Revenue, where after going through the order of the Tribunal, the Hon’ble High Court considered the findings of the Commissioner that input credit on steel items used for repairs and maintenance of the storage tank was admissible and thereafter opined that the said decision of the Tribunal is based on the facts and there being no question of law, dismissed the appeal of the Revenue. Hon’ble Supreme Court in the case of The Kisan Cooperative Sugar Factory Ltd., Vs Commissioner of Central Excise, Meerut-1 [2023 (12) TMI 1303 - SUPREME COURT], wherein, interalia, a bunch of appeals involving similar issues i.e. whether various products including MS Plates used within the factory of the assessee for repair and maintenance, fabrication and up-keep of capital goods would be eligible for credit or otherwise, were decided by Hon’ble Supreme Court after going through the statutory provisions as well as submissions from both the sides. Hon’ble Supreme Court, interaila, held that the credit on the items used for maintenance, repair and up-keep of plant and machinery are admissible. It is also noted that the storage tanks are also otherwise clearly covered within the scope of capital goods and therefore irrespective of their being embedded to earth or otherwise, they would still be considered as capital goods. Thus, the appellants are entitled for taking credit in respect of items used for repair and maintenance of storage tank. In view of the same, the order of the Commissioner is not sustainable and therefore set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether HR plates, HR sheets and similar steel items fall within the definition of 'input' under Rule 2(k) of the Cenvat Credit Rules, 2004 when used in relation to storage tanks at a refinery. 2. Whether such steel items can be treated as capital goods under Rule 2(a) of the Cenvat Credit Rules, 2004 when used in fabrication, repair or maintenance of storage tanks. 3. Whether goods used for repair, maintenance, upkeep or fabrication of storage tanks constitute 'used in or in relation to manufacture' so as to entitle the assessee to Cenvat credit. 4. Whether the fact that storage tanks are embedded in earth (or otherwise affixed) excludes them from being regarded as capital goods for the purposes of Cenvat credit. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Characterisation as 'Input' under Rule 2(k) Legal framework: Rule 2(k) of the Cenvat Credit Rules, 2004 defines 'input' to include goods used as parts or components in the manufacture of final products or otherwise used in relation to manufacture. Precedent treatment: Coordinate Bench and earlier orders of the same Tribunal have treated similar steel items used for fabrication, repair and maintenance of storage tanks as inputs eligible for credit under Rule 2(k). Interpretation and reasoning: The Court examined whether the steel items were used as parts/components in the manufacture of a capital good (storage tank) or otherwise used in relation to manufacture. The Tribunal accepted the view that items used in fabrication, repair and maintenance of storage tanks are used 'in or in relation to manufacture' because maintenance and repair of plant/machinery are integrally connected with the manufacturing process. Ratio vs. Obiter: The finding that items used for repair and maintenance of storage tanks qualify as 'inputs' under Rule 2(k) is treated as ratio insofar as it determinatively resolves eligibility for credit in the appeal. Conclusion: HR plates, HR sheets and similar steel items used for fabrication, repair or maintenance of storage tanks are covered by the definition of 'input' under Rule 2(k) and are eligible for Cenvat credit. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Characterisation as Capital Goods under Rule 2(a) Legal framework: Rule 2(a) defines 'capital goods' to include goods used in the manufacture of other goods but excludes certain items; capital goods are distinct from inputs but both may attract credit under relevant rules. Precedent treatment: Earlier decisions of the Tribunal and coordinate benches have recognised storage tanks as capital goods for purposes of credit entitlement, permitting credit for items used in their fabrication or substantial repair. Interpretation and reasoning: The Tribunal observed that whether goods are inputs or capital goods depends on their use. Items used for fabrication or substantial assembly of a storage tank can be treated as used in the manufacture of a capital good. Even where the storage tank is integrated with site (embedded), its character as a capital good remains, and inputs used in its fabrication/repair support entitlement to credit. Ratio vs. Obiter: The determination that storage tanks qualify as capital goods and that items used in their fabrication/repair can be treated as used in manufacture of capital goods forms part of the operative ratio affecting credit eligibility. Conclusion: Steel items used in fabrication or substantial repair of storage tanks may be characterised in relation to capital goods under Rule 2(a), supporting credit entitlement; storage tanks are to be regarded as capital goods for Cenvat credit purposes. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Repair and Maintenance as 'Used in or in relation to manufacture' Legal framework: The statutory phrase 'used in or in relation to manufacture' has been interpreted broadly to include items that are used directly or indirectly in the manufacture process, including maintenance, repair and upkeep of plant and machinery. Precedent treatment: The Tribunal relied on a recent apex court pronouncement holding that items used for maintenance, repair and upkeep of plant and machinery are eligible for credit as they fall within the wide interpretation of 'used in or in relation to manufacture.' Coordinate and Bench decisions have applied the same principle to welding electrodes, plates and jointing materials used for tank maintenance. Interpretation and reasoning: The Court reasoned that repair and maintenance of storage tanks support the manufacturing process by ensuring plant operability and storage capacity; therefore, consumables and components employed in such activities are used 'in or in relation to manufacture.' The adjudicating authority's narrow view-that repair cannot be equated to manufacture-was rejected as inconsistent with the wider statutory interpretation and precedent. Ratio vs. Obiter: The acceptance that repair and maintenance activities bring consumables within the scope of 'used in or in relation to manufacture' is central to the decision and thus ratio. Conclusion: Goods used for repair, maintenance, upkeep or fabrication of storage tanks qualify as items used 'in or in relation to manufacture' and attract Cenvat credit entitlement. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Effect of Tanks Being Embedded in Earth on Capital-Goods Characterisation Legal framework: Determination of what constitutes a 'capital good' does not hinge solely on physical mobility but on the functional role and nature of the asset in the manufacturing process. Precedent treatment: Prior Tribunal and judicial decisions have recognised fixed or embedded plant/equipment as capital goods where they perform a manufacturing function; appellate and higher courts have not disallowed credit on that ground where the factual matrix supports capital-goods character. Interpretation and reasoning: The Tribunal held that the fact the storage tank is embedded in earth does not preclude its classification as a capital good. The functional consideration-storage tanks being integral to the manufacturing/storage process-outweighs the technicality of being affixed to site. Therefore, inputs used in their fabrication or repair remain eligible. Ratio vs. Obiter: The rejection of the embeddedness argument as a disqualification for capital-goods status is part of the operative ratio resolving entitlement to credit in the appeal. Conclusion: Embeddedness of storage tanks does not exclude them from being capital goods; inputs used in their fabrication, repair or maintenance remain eligible for Cenvat credit. CONSOLIDATED CONCLUSION The Tribunal, following its earlier orders, co-ordinate bench decisions and the Supreme Court's authoritative interpretation that items used for maintenance, repair and upkeep of plant and machinery are 'used in or in relation to manufacture,' concluded that HR plates, sheets and similar steel items used in fabrication, repair or maintenance of storage tanks are eligible for Cenvat credit as inputs (and in relation to capital goods). The impugned demand based on disallowance of such credit was set aside.