2010 (10) TMI 788 - AT - Central Excise

Whether the welding electrodes used for fabrication or installation of capital goods which are further used for manufacture of final product, qualify as input or capital goods or not Penalty Held that - It is no doubt that the appellants are entitled for availment of Cenvat credit on welding electrodes which have been used for fabrication/installation of the plant and machinery which are capital goods as per Rule 2(k) of Cenvat Credit Rules, 2004, Explanation 2, as held by the Hon ble High Court of Rajasthan in the case of Hindustan Zinc Ltd. (2008 -TMI - 30617 - HIGH COURT RAJASTHAN) but the appellants are not entitled for the Cenvat credit on welding electrodes which are used for fabrication of structural supports to the machinery as held by the Larger Bench of this Tribunal in the case of Vandana Global (2010 -TMI - 76147 - CESTAT, NEW DELHI (LB)) wherein it was held that structures do not qualify as capita goods. Hence the demand on welding electrodes which are being used for fabrication of supporting structures is confirmed and the demand on welding electrodes used for fabricating of plant and machinery is dropped, penalty is not leviable in these cases. Accordingly, the penalties are not liable to be imposed, interest is leviable for delayed payment as held by the Hon ble Supreme Court in the case of SKF Ltd. - Accordingly, the appellants are liable for payment of interest on demand confirmed for the use of welding electrodes for fabrication of supporting structures, matter remanded back to the original authority to quantify the demand as discussed above and the appeals of the Revenue are disposed of holding that interest is payable but penalty is not leviable, all the four appeals are disposed of

Summary

Issues:
- Confirmation of demand by the lower authority
- Dropping of penalty by the lower authority
- Interpretation of Rules regarding Cenvat credit on welding electrodes

Confirmation of Demand:
The appellants, engaged in manufacturing V.P. sugar and molasses, availed Cenvat credit on welding electrodes used for maintenance and repair of plant machinery. The adjudicating authority disallowed the credit, imposing penalties. The lower appellate authority confirmed the demand but dropped the penalty, citing an interpretation issue. The appellants argued that welding electrodes used in fabrication of capital goods qualify for Cenvat credit, citing Hindustan Zinc Ltd. case. The Revenue contended that structures do not qualify as capital goods, referencing Vandana Global Ltd. case. The judge ruled that welding electrodes for plant machinery are eligible for credit, but not for supporting structures, confirming demand on the latter.

Dropping of Penalty:
The judge concurred with the lower appellate authority that penalties were not justified due to the interpretation issue, as confirmed in the Statute. Hence, penalties were not imposed, aligning with the interpretation of the law.

Interest Liability:
Regarding interest, the judge held that interest was leviable for delayed payment based on the SKF Ltd. case. The appellants were held liable for interest on the demand confirmed for welding electrodes used in fabricating supporting structures.

Judgment:
Appeal No. 472/09 was allowed in full, while Appeal No. 473/09 was remanded to quantify the demand. The Revenue's appeals were disposed of, stating that interest was payable, but penalties were not leviable. All four appeals were concluded with consequential relief, if any.