2013 (11) TMI 981 - AT - Central Excise

Eligibility for Cenvat credit of the welding electrodes used for repair and machinery of the plant and machinery Following Hindustan Zinc Limited vs. Union of India 2008 (7) TMI 55 - HIGH COURT RAJASTHAN and Ambuja Cements Eastern Ltd. vs. CCE, Raipur 2010 (4) TMI 429 - CHHAITISGARH HIGH COURT - Repair and maintenance is an activity without which manufacturing activity would not be commercially feasible even though theoretically it may be possible to carry out manufacturing activity without repair of plant and machinery. In J.K. Cotton Spg. & Weaving Mills Co. Ltd. vs. Sales Tax Officer, Kanpur 1964 (10) TMI 2 - SUPREME COURT OF INDIA - while interpreting the scope of the expression used in the manufacture of in Section 8 (3) (b) of Central Sales Tax Act, 1956 has held that if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity, the manufacture may, even if theoretically possible, be commercially inexpedient, the goods intended in that process or activity would have to be treated as used in the manufacture - the scope of the expression used in or in relation to manufacture, whether directly or indirectly in the definition of input in Rule 2 (k) of the Cenvat Credit Rules, 2004 would be much wider. The question as to whether repair and maintenance is an activity distinct and separate from manufacture has nothing to do with the question as to whether repair and maintenance has nexus with manufacture - the activity of repair and maintenance has to be treated as having nexus with manufacture and hence any item used for repair and maintenance would be eligible for Cenvat credit - Once it is accepted that steel items have been used for fabrication of various items of sugar mill machinery as mentioned passed by the Assistant Commissioner or their repair and maintenance, these steel items would have to be treated as input used in the manufacture of capital goods thus, would be covered by the definition of input in Rule 2 (k) and would be eligible for Cenvat credit Decided in favor of assessee.

Summary

Issues:
Dispute over Cenvat credit for welding electrodes and steel items used in repair and maintenance of sugar mill machinery.

Analysis:

Issue 1: Cenvat credit for welding electrodes
The appellant, a sugar mill, claimed Cenvat credit for welding electrodes and steel items used for repair and maintenance of sugar machinery. The department disputed the eligibility of these items for credit, leading to penalties imposed by the Assistant Commissioner and upheld by the CCE (Appeals). The Commissioner (Appeals) denied the credit citing that welding electrodes used for repair are not eligible. However, the appellant argued citing judgments from multiple High Courts supporting the eligibility of such items for credit. The Tribunal noted the conflicting judgments but relied on the majority view favoring the appellant. The Tribunal also emphasized the integral nature of repair and maintenance activities in manufacturing, making them eligible for credit under the broad definition of 'input'. The judgment favored the appellant's claim for Cenvat credit on welding electrodes.

Issue 2: Cenvat credit for steel items
Regarding the steel items used for fabrication of sugar mill machinery, the Assistant Commissioner had identified specific components where these items were utilized. The Commissioner (Appeals) incorrectly mentioned structural support usage, which was not supported by the evidence. The Tribunal found that if the steel items were used for fabrication or repair of machinery, they qualify as inputs under the Cenvat Credit Rules. The judgment overturned the denial of credit for steel items, emphasizing their role in manufacturing capital goods. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellant.

In conclusion, the Tribunal's judgment favored the appellant's claim for Cenvat credit on welding electrodes and steel items used in repair and maintenance or fabrication of sugar mill machinery. The decision highlighted the nexus between repair activities and manufacturing processes, emphasizing the broad interpretation of 'input' under the Cenvat Credit Rules.