2012 (10) TMI 417 - AT - Central Excise

Disallowance of cenvat credit CENVAT credit in question had been availed on MS Flats and MS Angles - alleged that the above items could not be treated as parts, components or accessories of any capital goods defined under Rule 2(a) of the CENVAT Credit Rules Held that - Officer inspect the said equipments to ascertain whether the flats and angles could be considered as capital goods or Inputs - respondent filed a declaration as to how flats and angles were used and also filed certain photographs in support of such declaration. If this submission is factually true, it shall be open to the original authority to consider such materials also in de novo proceedings - appeal is allowed by way of remand

Issues:
1. Admissibility of CENVAT credit on MS Flats and MS Angles used for manufacturing material handling equipments.
2. Classification of MS Flats and MS Angles as capital goods or inputs.
3. Disallowance of CENVAT credit and imposition of penalty by the adjudicating authority.
4. Appeal against the order of the appellate Commissioner.
5. Consideration of alternative plea for input duty credit.
6. Necessity for remand to the original authority for reconsideration.

Analysis:
1. The appeal was filed by the Revenue against the appellate Commissioner's order setting aside the disallowance of CENVAT credit on MS Flats and MS Angles amounting to Rs. 62,964/- for the period June 2005 to January 2007. The dispute revolved around whether these items could be considered as parts or components of capital goods under the CENVAT Credit Rules, 2004. The show-cause notice alleged irregular availment of credit based on the definition of capital goods and sought to impose penalties and interest on the respondent.

2. The Department contended that MS Flats and MS Angles were general purpose items not falling under the definition of capital goods. They argued that these items were not identifiable as capital goods and therefore not eligible for CENVAT credit as inputs. The Department relied on previous decisions, including the Supreme Court's judgment in the Vikram Cements case, to support their position.

3. The adjudicating authority denied the CENVAT credit, demanded the equivalent amount of duty and education cess, imposed penalties, and demanded interest on duty/cess from the respondent. The original authority's decision was challenged by the respondent, leading to an appeal before the Commissioner (Appeals).

4. The appellate Commissioner set aside the Order-in-Original based on precedents from the Tribunal, such as the Dalmia Cements case, which held similar items as capital goods when used for manufacturing machinery. The Department appealed this decision, arguing that the items in question did not meet the criteria for capital goods classification.

5. The respondent's counsel supported the appellate Commissioner's order and alternatively claimed input duty credit for the same items under Rule 2(k) of the CENVAT Credit Rules, 2004. They argued that the MS Flats and MS Angles, used in manufacturing material-handling equipments classified as capital goods, should be considered as inputs. The original authority had shown inclination towards accepting this alternative plea.

6. The Tribunal found discrepancies in the submissions made by the respondent during the adjudication process. The respondent's varying claims regarding the use of MS Flats and MS Angles for manufacturing capital goods or for repairs and maintenance led to confusion. The Tribunal decided to remand the case to the original authority for reconsideration, emphasizing the need for a fresh adjudication to determine the eligibility of CENVAT credit on the items in question. The respondent agreed to allow inspection of their factory to verify the usage of the materials, providing additional evidence for the reconsideration process.

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