2026 (2) TMI 6 - AT - Central Excise

Cenvat credit on capital goods handed to contractors affirmed where purchaser retained ownership and used goods in manufacture.

Cenvat credit on capital goods handed to a contractor for erection and commissioning is allowable where the purchaser retained ownership and ultimately ... Cenvat credit on capital goods handed to works contractor - Invoice showing recipient as consignee and admissibility of credit - Effect of works contract valuation on availment of credit - Invocation of extended period of limitation for suppression or fraud - Whether the appellant is entitled to take Cenvat Credit on the capital goods purchased by the appellant and handed over to the works contractor for erection commissioning in its factory and same has been used by the appellant post installation and manufacture of dutiable goods or not. - HELD THAT:- In the instant case, the Appellant is inter alia engaged in manufacture of various iron and steel products. Further, the items on which credit has been availed by the Appellant pertained to the Purchase Order/ Work Order placed for supply of goods which were either plant and machinery or their auxiliaries falling under the definition of ‘capital goods’ in as much as the same were used for Design, manufacture and Supply of Indigenous Plant, Machinery and Equipment with Auxiliaries for Coke Oven Battery. Thus, the goods supplied under the Purchase Order/Work Order qualify as ‘capital goods’ under Rule 2(a) of CCR. In view of the decision in the case of M/s. Larsen & Toubro Limited [2024 (8) TMI 395 - CESTAT KOLKATA], where in under similar factual scenario, the department had denied credit to the Appellant (Tata Steel Ltd.) on the ground that the capital goods on which the Appellant availed Cenvat Credit becomes inputs for L&T, who is restricted from availing Cenvat Credit, therefore, the Appellant was not permitted to avail credit on such goods. This Hon’ble Bench allowed the Appellant to avail credit on those capital goods observing that the capital goods procured by the Appellant were the Appellant’s property and the same were handed over to L&T for installation and commissioning. Thus, the goods remained the property of the Appellant during the impugned period. Thus, we hold that appellant M/s. Steel Authority of India has correctly taken the Cenvat Credit on the capitals goods required by them which has been handed over to the job workers of M/s Mecon Ltd. for installation, erection and commissioning of plant and have ultimately used in the manufacture of final product. Therefore, Cenvat Credit cannot be denied. In view of this we hold that Cenvat Credit has taken by the appellant namely M/s Steel Authority of India Ltd. is correct and no penalty is imposable on the appellant. Therefore, penalty imposed on the appellant are set aside. In view of this the impugned orders are set aside and appeals are allowed with consequential relief, if any. Issues: Whether the appellant is entitled to avail Cenvat credit on capital goods procured and received in its factory premises and handed over to the works contractor for erection and commissioning, and whether the demand based on extended period of limitation is invocable.Analysis: The issue was examined under the Cenvat Credit Rules, 2004, including the definition of capital goods (Rule 2(a)) and entitlement to credit of duty paid on capital goods received in the factory (Rule 3(1)). The legal effect of the works contract valuation scheme and Rule 2A(i) of the Service Tax (Determination of Value) Rules, 2006 was considered to determine whether restriction on credit for the works contractor prevents the recipient-manufacturer from availing credit on capital goods. The factual matrix establishes that capital goods were purchased by the appellant under duty-paid invoices, received at the appellant's factory, and remained the appellant's property while being handed to the contractor for installation; certain goods used by the contractor as inputs were not credited by the contractor. Prior decisions treating capital goods received and used in manufacture as admissible for credit were applied to the facts. On limitation, authorities showing that extended period cannot be invoked in absence of fraud, suppression or willful misstatement and where the dispute arises from an interpretation of law were relied upon; periodic audits and statutory returns filed by the appellant were noted.Conclusion: Cenvat credit on the capital goods so procured and used is admissible to the appellant and the demand raised by invoking extended period is not sustainable; penalty imposed on the appellant is set aside (decision in favour of the assessee).