2026 (3) TMI 100 - AT - Central Excise

CENVAT credit admissibility for specialised internal transport equipment upheld where locomotives function as manufacturing accessories and inputs.

CENVAT credit on locomotive engines, parts and spares used to haul torpedo ladle cars within an integrated factory is admissible where those locomotives ... CENVAT credit on locomotive engines, locomotive parts and spare parts - definitions of 'capital goods' and 'input' under Rule 2(a)(A) and Rule 2(k) of the CENVAT Credit Rules, 2004 - scope of goods that are accessories or components of capital goods - Whether cenvat credit availed on the locomotive Engines, parts and it's spares which have been procured by the appellant for the purpose of hauling the 'torpedo ladle car' in the transportation of the molten metal from the blast furnace to the steel melting shop and other locations within the factory for further processing of the molten metal taken out from the blast furnace into different products is tenable. CENVAT credit on locomotives as capital goods or accessories - classification and place of use of the locomotive within factory premises - scope of 'inputs' and 'capital goods' used directly or indirectly in manufacture - HELD THAT: - The Tribunal found that the locomotives in question were special-purpose machines designed to haul torpedo ladle cars within the appellant's factory and were used directly or indirectly in relation to the manufacture of final products. The molten metal transported in torpedo ladle cars is extremely heavy and at very high temperature, making manual handling impracticable and requiring mechanical hauling on rails; the revenue did not place on record specifications showing the locomotives were main-line passenger/goods engines. The Tribunal applied the statutory definition of 'capital goods' and the wide definition of 'input' to hold that locomotives which function as accessories to capital machinery (the torpedo ladle car and associated plant) fall within the ambit of Rule 2(a)(A) and Rule 2(k) of the CENVAT Credit Rules, 2004. Reliance was placed on earlier decisions treating similar locomotives as accessories or inputs where they formed part of the chain of manufacturing operations, and the Tribunal concluded that classification under Chapter 86 did not preclude the locomotives from being capital goods or accessories when used as described. For these reasons the denial of CENVAT credit was held to be untenable. [Paras 13, 14, 15, 16, 17] Denial of CENVAT credit on the impugned locomotive engines, parts and spares is not tenable; the impugned order is set aside and the appeal is allowed with consequential relief. Final Conclusion: The Tribunal held that locomotives used to haul torpedo ladle cars within the factory are accessories/capital goods or inputs used directly or indirectly in manufacture; accordingly the impugned order denying CENVAT credit is set aside and the appeal is allowed with consequential relief. Issues: Whether CENVAT credit availed on locomotive engines, locomotive parts and spare parts used for hauling torpedo ladle cars within the factory for transportation of molten metal is admissible under the CENVAT Credit Rules, 2004.Analysis: The issue invokes the definitions of 'capital goods' and 'input' under Rule 2(a)(A) and Rule 2(k) of the CENVAT Credit Rules, 2004 and the scope of goods that are accessories or components of capital goods. The facts establish use of specialised locomotives within the factory to haul torpedo ladle cars carrying molten metal at very high temperatures and very large weights, on purpose-built rail tracks inside the factory. The impugned locomotives are described as specially designed for hauling torpedo ladle cars, not for main-line high-speed operations, and no contrary specifications were provided by the Revenue. Relevant tribunal and appellate authorities have treated locomotives used in such integrated plant internal transportation as accessories or inputs when they are used directly or indirectly in relation to manufacture of final products. The locomotive's role in transporting molten metal between processing units inside the factory is part of the manufacturing chain and cannot be effected manually because of weight and temperature constraints; hence the locomotives function as accessories or capital goods within the meaning of the Rules.Conclusion: CENVAT credit on locomotive engines, locomotive parts and spare parts used for hauling torpedo ladle cars within the factory for transportation of molten metal is admissible and the denial of credit is not tenable; the impugned order is set aside and the appeal is allowed with consequential reliefs in accordance with law.Ratio Decidendi: Where specialised machinery or equipment (including locomotives) is procured and used within an integrated factory as an accessory or component directly or indirectly in relation to the manufacture of final products and is specially designed for that internal purpose, it falls within the scope of 'capital goods' or 'input' under the CENVAT Credit Rules, 2004 and is eligible for CENVAT credit.