2010 (9) TMI 439 - AT - Central Excise

Modvat Credit - The definition of input mentioned certain products, the same does not become input without satisfying expression used in or in relation to manufacture of final product As per the case of Maruti Suzuki Ltd. v. CCE 2009 -TMI - 34348 - SUPREME COURT , the judgment of Hon ble Supreme Court has referred to oils and lubricants mentioned in the definition required for smooth running of machines, as eligible input as they are used in the manufacture of final product - By applying the same criteria, the paint which are required for smooth running of machinery, by repeatedly painting them and the floor required for smooth movement of raw materials, semi-finished goods and final product by making floor dust-free, has nexus with the manufacture of final product - The appellants are entitled for the benefit of Modvat Credit Hence appeal is allowed.

Summary

Issues:
1. Eligibility of paint as an input for Modvat Credit under Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Eligibility of paint as an input for Modvat Credit under Cenvat Credit Rules, 2004:
The case involved the appellants, engaged in the manufacture of Bearing Cages, availing Cenvat Credit for paint used for painting machinery and workshop floor. The Revenue disputed the eligibility of the paint as an input under rule 2(k) of Cenvat Credit Rules, 2004, leading to a show-cause notice disallowing the credit. The original adjudicating authority upheld the disallowance, imposing penalties. The Commissioner (Appeals) also ruled against the appellants, leading to the present appeal.

The appellants argued that the paint was used for machinery protection and floor maintenance, emphasizing that it was Epoxy Paint, a specialized industrial paint. They cited various judgments supporting their position, including cases like CCE v. Nagarjuna Agrichem Ltd. and Ruchi Health Foods Ltd. The central question was whether the paint qualified as an eligible input for Modvat Credit.

The Commissioner (Appeals) held that while paint used on final products qualifies as an input, since the paint in question wasn't used on final products cleared from the factory, the credit was wrongly availed. However, the Tribunal in previous cases had allowed Modvat Credit for paint used for machinery upkeep and plant protection. The definition of input under Cenvat Credit Rules, 2004 was crucial, encompassing goods used for various purposes within the factory of production.

The Tribunal analyzed the definition of input, emphasizing that the paint need not be used directly on final products to qualify as an input. The use of paint for machinery protection and floor maintenance was deemed essential for effective manufacturing activity, aligning with the purpose of the Cenvat Credit Rules. Reference was made to the Hon'ble Supreme Court's judgment in Maruti Suzuki Ltd. v. CCE, highlighting the functional utility of the item in relation to the manufacture of final products as a key consideration for eligibility as an input.

Ultimately, the Tribunal ruled in favor of the appellants, allowing the Modvat Credit for the paint used on the floor of the production hall to make it dust-free and fire retardant. The decision was based on the nexus between the paint's use and the manufacturing process, in line with the inclusive definition of input under the relevant period. The impugned order disallowing the credit was set aside, and the appeal was allowed.