2009 (5) TMI 662 - AT - Central Excise

Cenvat/Modvat - Capital goods - Res judicata - Same dispute and parties - Held that - it appears from subsequent Order dated 25-2-2008 that these items were used as part of sugar manufacturing system and credit are eligible under Rule 2(b) of the said Rules - Cenvat Credits are admissible on these items - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of credit on capital goods - Molasses mixture/Diluter Safety System and Aluminium Coils for the year 2004-05.
2. Denial of credit on the same capital goods for the year 2005-06.
3. Interpretation of Rule 2(b) of Cenvat Credit Rules, 2002 regarding classification of capital goods.
4. Admissibility of Cenvat Credits based on the use of items within the factory for production or processing.

Analysis:
1. The case involved the denial of credit on capital goods, namely Molasses mixture/Diluter Safety System and Aluminium Coils, by the original authority for the year 2004-05. The Commissioner (Appeals) upheld the denial, leading to the appeal filed by the assessee. The subsequent Order-in-Appeal dated 25-2-2008 examined the use of these items in detail. The Advocate argued that these items were essential parts of the distillery machine and cooling system, crucial for the manufacturing process. The Commissioner (Appeals) allowed the credit after considering the detailed use of the items within the factory for production purposes.

2. In the year 2005-06, the assessee again availed 50% credit on the same capital goods. The original authority once more denied the credit, but this time, the Commissioner (Appeals) set aside the denial and allowed the credit. The subsequent Order-in-Appeal dated 25-2-2008 reiterated the importance of these items in the production process, emphasizing their role in the distillation and cooling systems. The Commissioner (Appeals) acknowledged the essential nature of these items for proper functioning and maintenance of specific conditions necessary for manufacturing.

3. The interpretation of Rule 2(b) of the Cenvat Credit Rules, 2002 was crucial in determining the classification of the Molasses mixture/Diluter Safety System and Aluminium Coils as capital goods or accessories. The Commissioner (Appeals) in the earlier Order-in-Appeal highlighted that these items were integral components of the distillery machinery falling under the category of capital goods. The subsequent Order-in-Appeal reaffirmed this classification based on the detailed analysis of the items' use and significance in the manufacturing process.

4. The admissibility of Cenvat Credits hinged on the proper utilization of the items within the factory for production or processing of final products. The subsequent Order-in-Appeal emphasized that the items in question were indeed used within the factory for crucial processes like storage, dilution, fermentation, insulation, and maintenance of temperature and pressure. The Commissioner (Appeals) noted that the department did not dispute the purpose and place of use of these items, leading to the conclusion that the conditions for availing Cenvat Credits were met, thus justifying the allowance of the credits.

In conclusion, the appellate tribunal allowed the appeal filed by the assessee, rejecting the appeal filed by the Revenue and disposing of the cross objection. The detailed analysis of the use and significance of the capital goods within the manufacturing process played a pivotal role in determining the admissibility of Cenvat Credits, ultimately leading to the favorable judgment for the assessee.