2009 (10) TMI 742 - AT - Central Excise

CENVAT credit - input - welding electrodes - interest - penalty - welding electrodes, whether inputs or capital goods?

Summary

Issues Involved:
1. Entitlement to Cenvat credit on welding electrodes as capital goods.
2. Entitlement to Cenvat credit on welding electrodes as inputs.

Issue-wise Detailed Analysis:

1. Entitlement to Cenvat credit on welding electrodes as capital goods:

The appellants claimed Cenvat credit on welding electrodes, asserting they are capital goods under Rule 2(b) of the Cenvat Credit Rules, 2002. The original authority and the Commissioner (Appeals) rejected this claim, stating that welding electrodes do not qualify as capital goods. The appellants argued that welding electrodes are accessories to welding machines, which fall under Chapter 84/85, and thus should be considered capital goods. They cited various precedents, including the Apex Court's decision in Mehra Brothers v. Joint Commercial Officer and the Tribunal's decisions in Wipro Infotech Ltd. v. Collector of Central Excise and Banco Products (India) Ltd. v. Commissioner of Central Excise.

The respondent countered that the argument regarding welding electrodes being accessories was not raised before the lower authorities and that welding electrodes are consumed in the welding process, thus not qualifying as accessories to capital goods. The Tribunal noted that the original and lower appellate authorities did not adequately consider the use and function of welding electrodes in the appellants' factory. The Tribunal emphasized that determining whether an item qualifies as capital goods requires ascertaining its use in the factory and its classification under the specified chapters.

The Tribunal concluded that the adjudicating authority failed to address this issue properly and remanded the matter for fresh adjudication, instructing the authority to analyze the materials on record to determine the use of welding electrodes in the factory.

2. Entitlement to Cenvat credit on welding electrodes as inputs:

The appellants alternatively argued that welding electrodes should be considered inputs used in the maintenance and repair of machinery, which is integral to the manufacturing process. They relied on the Apex Court's decision in M/s. Maruti Suzuki Ltd. v. Commissioner of Central Excise and other precedents. However, the respondent cited the Tribunal's decision in Vikram Cement, which held that welding electrodes used for maintenance and repair do not qualify as inputs under the Cenvat Credit Rules, 2002 or 2004.

The Tribunal reaffirmed its stance from Vikram Cement, stating that maintenance and repair are distinct from manufacturing and that welding electrodes used for these purposes do not qualify as inputs. The Tribunal referenced the Supreme Court's decision in Vijayawada Bottling Co. Ltd. v. CCE Guntur, which distinguished between maintenance and manufacturing processes.

The Tribunal also addressed the appellants' reliance on the Maruti Suzuki case, clarifying that the decision supported the view that inputs must be used in or in relation to the manufacturing process. It emphasized that the term "input" should encompass goods integrally connected with the manufacturing process, directly or indirectly contributing to the final product.

Given the final adjudication in Vikram Cement, the Tribunal held that the appellants could not claim welding electrodes as inputs for Cenvat credit. The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority to reconsider the issue of welding electrodes as capital goods based on the materials available and in accordance with the law.

Conclusion:

The appeal was allowed, the impugned order was set aside, and the matter was remanded to the adjudicating authority for fresh consideration of the welding electrodes as capital goods, with instructions to analyze the materials on record and determine their use in the factory. The Tribunal upheld the decision from Vikram Cement regarding welding electrodes not qualifying as inputs.