2016 (1) TMI 1245 - AT - Central Excise

CENVAT credit - Aluminium rolls/sheets - Aluminium Rolled High Tensile Steel sheets - whether Cenvat credit availed on Aluminium rolls/sheets and Aluminium Rolled High Tensile Steel sheets are eligible for credit as capital goods/components/spares/accessories? - Held that - There is no dispute that these goods have not been used in the factory. The items have been used as insulation to pipes and tubes, so as to enable the distribution of steam effectively from boiler and would necessarily be an accessory by adding to the usefulness and effectiveness of the main equipment. In view thereof, the denial of credit is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues: Denial of Cenvat credit on Aluminium rolls/sheets and Aluminium Rolled High Tensile Steel sheets as capital goods.

Analysis:
1. The appellants, a pharmaceutical manufacturer, availed Cenvat credit on certain items, including Aluminium rolls/sheets and Steel sheets, as capital goods. A show cause notice was issued proposing to deny credit on these items. The adjudicating authority allowed credit, but the Commissioner (Appeals) disallowed credit on some items, leading to the present appeal.

2. The appellants argued that the Aluminium and Steel sheets were used as insulation material in the factory for pipes carrying steam and water, enhancing the distribution of steam for manufacturing final products. They provided evidence to support this use, which the original authority verified. The Commissioner (Appeals) erred in denying credit by questioning the establishment of use, despite the show cause notice stating the manner of use. The demand was also argued to be time-barred.

3. The learned AR supported the Commissioner's decision, stating that the appellants failed to maintain proper records for the subject items' use, justifying the denial of credit.

4. The main issue was whether Cenvat credit on Aluminium and Steel sheets could be considered eligible as capital goods/components. The Commissioner allowed credit on GI Round Barrels but denied it on the other items, citing lack of proof of use within the factory for steam generation. However, evidence showed these items were used as insulation on pipes for steam distribution, enhancing the manufacturing process. The denial of credit was deemed unjustified as the items added to the main equipment's effectiveness, warranting credit allowance without entering the limitation issue.

5. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential reliefs.