2011 (11) TMI 543 - AT - Central Excise

Denial of CENVAT Credit - Invoices of repaired capital goods and not new capital goods - Held that - The Cenvat credit, in question, had been taken by the respondent on the basis of an invoice issued by M/s. Jyoti Ltd. for repair of the rotor assembly. It is well settled that repair activity does not amount of manufacture and, as such, no duty should have been charged from M/s. Jyoti Ltd. on the repair of rotor assembly. But still when the department has collected duty from M/s. Jyoti Ltd. on the repair of rotor assembly and the payment of duty is evidenced by the invoice issued by M/s. Jyoti Ltd., its Cenvat credit cannot be denied to the respondent. The only way to deny the Cenvat credit in this case would be to revise the assessment at the end of M/s. Jyoti Ltd., refund the duty paid by them and only in that case the Cenvat credit could have been denied to the respondent, but this has not been done. Without revising the assessment at the end of manufacture of some inputs, the Cenvat credit cannot be denied at the end of the receiver of those inputs - Therefore, notwithstanding the fact that the repair activity of M/s. Jyoti Ltd. does not amount of manufacture, since the payment of duty by M/s. Jyoti Ltd. on this repair has not been reviewed by the department, the Cenvat credit cannot be denied to the respondent - Decided against Revenue.

Summary

Issues:
- Denial of Cenvat credit on repaired capital goods
- Interpretation of the definition of capital goods under Rule 57Q of Central Excise Rules

Analysis:
The case involved a dispute regarding the denial of Cenvat credit on repaired capital goods by the department. The respondent, a manufacturer of sugar, had sent a rotor assembly for repairs to another company. The repairing company billed the respondent for the repair work, including the replacement of some parts, and charged Central Excise duty on the total amount. The respondent claimed Cenvat credit on the duty paid for the repaired rotor assembly. The department denied the credit, arguing that the repaired capital goods did not fall under the definition of capital goods as per Rule 57Q of the Central Excise Rules.

The Jurisdictional Assistant Commissioner upheld the denial of Cenvat credit and imposed a penalty on the respondent. However, on appeal to the Commissioner (Appeals), the decision was overturned. The Revenue then filed an appeal before the Tribunal, which dismissed the appeal, stating that the respondent was entitled to take credit of duty paid by the repairing company based on valid invoices. The Department then appealed to the High Court, which remanded the matter back to the Tribunal for further consideration.

During the de novo consideration, the Department argued that repairing did not amount to manufacture, and therefore, no duty should have been paid. They contended that the Cenvat credit taken by the respondent was incorrect. On the other hand, the respondent's counsel argued that the repaired rotor assembly fell under the definition of capital goods and that the duty paid on repairs was evidenced by valid invoices, entitling the respondent to claim Cenvat credit.

The Tribunal carefully considered the submissions and records. It noted that while repair activities do not constitute manufacture, the duty collected by the department on the repair work, as evidenced by valid invoices, entitled the respondent to claim Cenvat credit. The Tribunal relied on previous judgments, including one by the Apex Court, to support its decision. It emphasized that without revising the assessment at the manufacturing end, the Cenvat credit could not be denied at the receiver's end. Therefore, the Tribunal found no infirmity in the impugned order and dismissed the Revenue's appeal, upholding the respondent's right to claim Cenvat credit on the repaired capital goods.