2010 (7) TMI 858 - AT - Central Excise

CENVAT credit - shapes and sections falling under chapter sub-heading 7216.10 - capital goods or not? - Held that - the components, spares and accessories of the goods which are meant for Serial No. (i) and (ii) of definition of capital goods, RULE 2(a), are only covered as capital goods as per the definition. Therefore, while it is true that moulds are to be considered as capital goods, because of nature of definition, the shapes and sections which have been used for fabrication of moulds cannot be treated as capital goods - denial of credit upheld. Extended period of limitation - Held that - the demand is time barred also cannot be accepted as department was not privy to appellants using the inputs for manufacture of moulds as they have not claimed any exemption in respect of the moulds specifically in their ER I returns - the amount of penalty also reduced to ₹ 2,000/-. Appeal disposed off - decided partly in favor of assessee.

Issues:
1. Classification of shapes and sections as capital goods.
2. Interpretation of the definition of capital goods under Cenvat Credit Rules 2004.
3. Time bar for demand of duty.
4. Imposition of penalty under Rule 15 of the Cenvat Credit Rules.

Issue 1: Classification of shapes and sections as capital goods
The appellants received shapes and sections falling under a specific chapter sub-heading and claimed credit for them as capital goods. They used these shapes and sections to fabricate moulds, which were exempted under a notification as they were used within the factory of production. The original authority denied the credit, leading to recovery orders and penalties. The advocate argued that moulds are included in the definition of capital goods, which also covers parts, components, and accessories used for capital goods. As the shapes and sections were used to fabricate moulds used in manufacturing final products within the factory, the advocate contended that they should be considered capital goods. The Tribunal, however, held that while moulds are considered capital goods, the shapes and sections used to make them cannot be classified as capital goods based on the specific definition provided in the rules.

Issue 2: Interpretation of the definition of capital goods under Cenvat Credit Rules 2004
The Tribunal referred to the definition of capital goods under the Cenvat Credit Rules 2004, which includes various categories of goods like pollution control equipment, components, spares, and accessories of specified goods, moulds and dies, among others. The Tribunal noted that while moulds are explicitly mentioned as capital goods, the definition limits components, spares, and accessories to goods specified under certain categories. Therefore, the shapes and sections used for making moulds cannot be considered capital goods under this definition. Consequently, the denial of credit and the order for recovery of the credit amount were upheld.

Issue 3: Time bar for demand of duty
The appellants argued that the demand was time-barred as they did not claim any exemption for the moulds specifically in their returns. However, the Tribunal rejected this argument, stating that the department was not informed about the use of inputs for manufacturing moulds. While the credit denial was justified, the Tribunal found that it was not a suitable case for imposing the full penalty amount. Therefore, the penalty under Rule 15 of the Cenvat Credit Rules was reduced significantly.

Issue 4: Imposition of penalty under Rule 15 of the Cenvat Credit Rules
The penalty imposed on the appellants under Rule 15 of the Cenvat Credit Rules was reduced from the original amount to a significantly lower sum. The Tribunal found that while the denial of credit was warranted, the penalty amount needed to be adjusted considering the circumstances of the case. As a result, the penalty was reduced from the initial amount to a much lower figure.

In conclusion, the Tribunal upheld the denial of credit for shapes and sections used to fabricate moulds, based on the specific definition of capital goods under the Cenvat Credit Rules 2004. The demand for duty along with interest was upheld, although the penalty amount was significantly reduced due to the circumstances of the case.

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