2007 (4) TMI 410 - AT - Central Excise

Summary

Issues:
Challenge to disallowance of Cenvat credit and reduced penalty imposed by the Appellate Authority.

Analysis:
The applicant contested the order disallowing Cenvat credit of Rs. 3,97,174 and the reduced penalty imposed by the Appellate Authority. The applicant argued that the goods in question were used in the manufacture of capital goods, which were further utilized in the factory. The Counsel highlighted that the Memo of Appeal explicitly mentioned this contention, citing Explanation 2 to Rule 2(k) defining 'Input'. However, the Commissioner (Appeals) did not consider this argument and upheld the disallowance based on the premise that the inputs were not directly used in the production of finished products.

The Department's representative countered by stating that steel plates, angles, and channels were general-use items, not components of capital goods. They asserted that the credit for these inputs, which were not directly involved in manufacturing the final product, was rightly disallowed by the Adjudicating Authorities.

The Tribunal analyzed Explanation 2 to Rule 2(k) of the Cenvat Credit Rules of 2004, emphasizing that the term 'input' encompasses goods used in manufacturing capital goods subsequently used in the manufacturer's factory. The Commissioner (Appeals) acknowledged that the steel items used by the applicant were tailor-made and not commercially available, fabricated within the plant. If these items were considered capital goods, the inputs used in their production would fall under Explanation 2. The Tribunal noted that the lower authorities focused on the definition of 'capital goods' as components or spares, which should not restrict the broader definition of 'inputs' under Explanation 2.

Regarding Clean Flo, the Counsel referenced a High Court decision where it was deemed an input eligible for credit in the manufacturing process. Consequently, the Tribunal found a prima facie case for waiving the pre-deposit of the duty and penalty amount under the impugned order. An interim stay was granted during the appeal's pendency, disposing of the application accordingly. The appeal was scheduled for final hearing in due course.