2007 (5) TMI 66 - AT - Central Excise

Cenvat/Modvat - Alleged that appellant is not entitle for cenvat credit on the goods falling under Chapter 72 didn t directly become part of paper making plant - Held that allegation was not correct and allowed appeal with consequential relief

Summary

Issues:
- Eligibility of Cenvat credit on parts and components falling under Chapter 72 used in setting up a power plant within the factory premises for manufacturing paper products.

Analysis:
The appeal before the Appellate Tribunal CESTAT, Ahmedabad involved a dispute regarding the eligibility of Cenvat credit on parts and components falling under Chapter 72 used in setting up a power plant within the factory premises for manufacturing paper products. The appellant, engaged in the manufacture of various paper products falling under Chapter 48, had received parts and components for setting up a power plant, some of which fell under Chapters 82, 84, 85, & 90, while others fell under Chapter 72. The original authority held that the parts and components falling under Chapter 72 were not used in sub-assemblies or assemblies directly related to the paper-making machinery, thus denying Cenvat credit and imposing duty, interest, and penalty. The Commissioner (Appeals) upheld this decision.

The appellant argued that even though the goods falling under Chapter 72 did not directly become part of the paper-making plant, they were used in the power plant set up within the factory premises, and the power generated was essential for manufacturing paper products. The appellant relied on precedents such as the Southern Iron Steel Co. Ltd. case and the India Cements Ltd. case, where Cenvat credit on capital goods used in power plants within factory premises was allowed. The learned advocate emphasized that the components used in the power plant were integral to the manufacturing process of paper products.

The Appellate Tribunal referred to the definition of "capital goods" under Rule 2(b) of the Cenvat Credit Rules, 2002, which includes components, spares, and accessories of goods specified under certain chapters. The Tribunal noted that there was no dispute regarding the eligibility of Cenvat credit for items falling under specific chapters, even if they were parts of power plants or diesel generator sets. The Tribunal emphasized that the components, parts, and accessories falling under Chapter 72 were used in the power plant within the factory premises and not in an office setting. Drawing from the precedent in the Southern Iron Steel Company Ltd. case, the Tribunal concluded that the components falling under Chapter 72, used in the power plant for generating electricity essential for manufacturing paper products, were eligible for Cenvat credit. Therefore, the appeal was allowed, granting consequential relief to the appellant.

In conclusion, the Tribunal's judgment clarified that components falling under Chapter 72, used in setting up a power plant within the factory premises for manufacturing paper products, were eligible for Cenvat credit under the Cenvat Credit Rules, 2002. The decision highlighted the importance of the direct connection between the components and the manufacturing process, emphasizing the relevance of precedents in similar cases to determine eligibility for Cenvat credit on capital goods.