2016 (3) TMI 1186 - AT - Central Excise

CENVAT credit - welding electrodes - MS items - paint - repair and maintenance of plant and machinery - denial on account of nexus - Held that - the items like welding electrodes, MS items and paint were used for repair and maintenance. Without periodical repair and maintenance of plant and machinery which undergo wear and tear, the activity of manufacturing final products is not commercially feasible - credit allowed - appeal dismissed - decided against Revenue.

Summary

Issues:
- Eligibility of CENVAT credit on inputs used for repair and maintenance of plant and machinery.

Analysis:
1. Background: The appeals were filed by Revenue challenging the orders granting CENVAT credit on inputs like welding electrodes used for repair and maintenance of plant and machinery. The Assistant Commissioner confirmed the demand for irregularly availed credit, leading to the appeal before the Commissioner (Appeals).

2. Appellant's Argument: The learned AR for the appellant contended that repair and maintenance activities are not directly related to the manufacturing process of final products. The definition of 'inputs' excludes materials used for repair and maintenance, such as welding electrodes, MS items, and paints. Hence, the credit on these items should not be allowed.

3. Respondent's Argument: The respondent's counsel supported the findings of the impugned order and cited precedents like CCE&CUS, Visakhapatnam Vs Rashtriya Ispal Nigam Ltd. to argue that inputs used for repair of capital goods are admissible for credit. They emphasized the commercial feasibility of manufacturing processes dependent on periodic repair and maintenance.

4. Judicial Precedents: The judgment in M/s Rastriya Ispal Nigam Ltd case held that certain inputs used for repair of capital goods are eligible for credit. The Supreme Court's Larger Bench ruling in the case of Ramala Sahakari Chini Mills Ltd clarified that the term 'include' in the definition of 'inputs' expands rather than restricts the scope of eligible items. Various other judgments were cited to support the admissibility of credit on inputs used for repair and maintenance.

5. Court's Decision: After considering the arguments and precedents, the Tribunal concluded that the impugned order did not warrant interference. It was noted that without periodic repair and maintenance, the manufacturing activity would not be commercially viable. The judgment highlighted the nexus between repair and maintenance activities and the manufacturing process, emphasizing the essential nature of such activities for the production of final goods.

6. Final Verdict: The appeals filed by Revenue were dismissed, affirming the eligibility of CENVAT credit on inputs like welding electrodes, MS items, and paints used for repair and maintenance of plant and machinery. The judgment underscored the importance of periodic maintenance in ensuring the commercial feasibility of manufacturing operations.

7. Conclusion: The Tribunal's decision upheld the admissibility of CENVAT credit on inputs used for repair and maintenance, emphasizing the essential role of such activities in supporting the manufacturing process and the production of final goods.