2013 (3) TMI 345 - HC - Central Excise

Eligibility for CENVAT Credit - Plastic Crates - Capital goods or inputs - appellants had taken Cenvat credit on the goods Plastic Crates falling under Chapter 3923.90 during the months of September 2001 to May 2002 - Held that - As decided in BANGO PRODUCTS (INDIA) LTD. VS. COMMISSIONER OF C. EX., VADODARA-1 2009 (2) TMI 101 - CESTAT AHMEDABAD Plastic crates which is used in handling of material inside the factory for internal transportation of goods, acts a accessory as they help in increasing effectiveness of machinery so credit is admissible as Capital goods Proper storage of inputs is essential for efficient manufacturing process and in absence of proper facilities for storage and transportation; the same will affect the manufacturing process, therefore crates used for transportation of finished goods in to bonded store room, are eligible for credit as input. As against the above judgment of the Larger Bench of the Tribunal, no appeal has been preferred by the Department and it is submitted that the Department has accepted the said judgment and acted upon the same - in favour of assessee.

Summary

Issues:
1. Eligibility of 'Plastic Crates' for credit under 'capital goods'.
2. Entitlement of appellant to cenvat credit for 'Plastic Crates'.

Issue 1: Eligibility of 'Plastic Crates' for credit under 'capital goods'

The appellant, engaged in manufacturing yarn, claimed Cenvat credit on 'Plastic Crates', contending they were essential in the manufacturing process. However, a show cause notice was issued questioning the eligibility of 'Plastic Crates' as capital goods. The adjudicating authority held that 'Plastic Crates' do not contribute to manufacturing and cannot be considered as eligible 'capital goods'. Consequently, the authority disallowed the credit and imposed a penalty. On appeal, the Appellate Authority reversed the decision, stating that 'Plastic Crates' have a role in manufacturing finished goods and qualify as essential input goods. However, the Tribunal overturned this decision, asserting that 'Plastic Crates' used for material handling cannot be classified as "input" under the Cenvat Credit Rules. The appellant challenged this decision before the High Court, arguing that precedents had recognized 'Plastic Crates' as eligible capital goods. The High Court, referring to the judgment in BANGO PRODUCTS (INDIA) LTD. VS. COMMISSIONER OF C. EX., VADODARA-1, concluded that 'Plastic Crates' are indeed eligible for credit under capital goods. As the Department did not appeal the aforementioned judgment, the High Court allowed the appeal.

Issue 2: Entitlement of appellant to cenvat credit for 'Plastic Crates'

The dispute revolved around whether the 'Plastic Crates' could be considered as input goods for the appellant's manufacturing process. The appellant argued that the 'Plastic Crates' were necessary for efficient transportation of goods within the factory, thereby aiding in the manufacturing process. The Larger Bench of the Tribunal in the BANGO PRODUCTS case had previously held that 'Plastic Crates' used for internal transportation of goods qualified as accessories aiding machinery effectiveness. The Tribunal, however, rejected this argument, stating that 'Plastic Crates' could not be classified as input goods under the Cenvat Credit Rules. The High Court, relying on the BANGO PRODUCTS judgment, determined that 'Plastic Crates' were indeed eligible for cenvat credit as input goods. As the Department had accepted and acted upon the BANGO PRODUCTS judgment, the High Court set aside the Tribunal's decision and allowed the appeal filed by the appellant.

In conclusion, the High Court of Madras held that 'Plastic Crates' are eligible for credit under 'capital goods' and allowed the appellant's claim for cenvat credit on 'Plastic Crates'. The judgment emphasized the importance of precedents and interpretations of the term "accessory" in determining the eligibility of goods for credit under the Cenvat Credit Rules.