2011 (11) TMI 544 - AT - Central Excise

Disallowance of CENVAT Credit - Storage tanks - Goods used for non-manufacturing purposes - Held that - So far as the eligibility of Cenvat credit in respect of the M.S. Beams, M.S. Joist and Channels used as supporting structure/or for sheds is concerned, since these items had been used for making structures fixed to the earth, in view of the judgement of the Tribunal in the case of Vandana Global Ltd. (2010 (4) TMI 133 - CESTAT, NEW DELHI (LB)) the same would not be eligible for Cenvat credit as the supporting structures cannot be treated as capital goods. As regards water tanks, the definition of capital goods specifically covers the tanks. However, it is the Department s case that these tanks are used for storage of water for non-manufacturing purposes. From the definition of capital goods in Rule 2(a) of Cenvat Credit Rules, 2004, it is clear that the items covered by the definition are required to be used in the factory and the purpose of their use is not relevant. Therefore, so long as the tanks are used within the factory, the same would be covered by the definition of capital goods irrespective of their uses. Therefore, the Commissioner (Appeals) s order permitting the Cenvat credit in respect of the storage tanks is correct and is accordingly upheld - while the Commissioner (Appeals) s order upholding allowing of Cenvat credit in respect of the storage tanks is upheld, the portion of the order allowing Cenvat credit in respect of M.S. Beams, M.S. Joists and Channels used for supporting structures is set aside - Decided in favour of Revenue.

Summary

Issues:
Disallowance of Cenvat credit on specific goods used for non-manufacturing purposes.

Analysis:
The case involved the disallowance of Cenvat credit amounting to Rs. 53,974/- on specific goods used for construction/repair of civil structures, sheds, and water tanks for non-manufacturing purposes. The Department issued a show cause notice for this disallowance, which was upheld by the Asstt. Commissioner along with interest and penalty. However, on appeal to the Commissioner (Appeals), the order-in-original was set aside, and the appeal was allowed. This led to the Revenue filing an appeal against the Commissioner (Appeals) order.

The matter was decided ex parte as the respondent did not appear despite receiving a notice for the hearing. The Department argued that the issue of eligibility for Cenvat credit on the goods in question had been decided against the respondent by the Larger Bench of the Tribunal in a previous case. It was contended that the goods used for fabrication/repair of civil structures/sheds were not eligible for Cenvat credit, and the storage tanks used for non-manufacturing purposes were also ineligible.

Upon careful consideration of the submissions and the records, it was determined that the M.S. Beams, M.S. Joist, and Channels used as supporting structures or for sheds were not eligible for Cenvat credit as they were used for making structures fixed to the earth. However, regarding the water tanks, it was noted that the definition of capital goods included tanks, and as long as they were used within the factory, they would be covered by the definition of capital goods regardless of their specific use.

Therefore, the Commissioner (Appeals) order allowing Cenvat credit in respect of the storage tanks was upheld, while the portion of the order permitting Cenvat credit for the supporting structures was set aside. It was highlighted that conflicting decisions had been present on the issue of eligibility of Cenvat credit for steel items used for supporting structures, which was finally settled by the Larger Bench of the Tribunal in a specific case. Consequently, the penalty was deemed unwarranted and set aside.

The appeal was disposed of with directions for the Original Adjudicating Authority to re-quantify the Cenvat credit demand based on the above decisions.