2012 (12) TMI 940 - AT - Central Excise

Denial of CENVAT Credit - Whether Ring Rim is eligible for Cenvat credit either as capital goods or as input - Held that - Ring Rim which is a rubber item classifiable under Chapter 40 of the Central Excise Tariff, is an essential item for testing of the tyre and that it is also not disputed that every tyre prior to its clearance is required to be subjected to inflated dimension test for which Ring Rim is used. In view of this, I am of the prima facie view that Ring Rim is an item which is required in or in relation to the manufacture of rubber tyre, as a tyre without being tested cannot be marketed. In my prima facie view, the expression in or in relation to the manufacture of final product, whether directly, or indirectly, whether contained in final product or not, in the definition of input is very wide and would cover, in addition to the items which are directly used in the manufacture of final product, the items which are indirectly used - impugned order denying the Cenvat credit in respect of this item is not correct and as such the appellant have prima facie case in their favour. The requirement of pre-deposit of Cenvat credit demand, interest and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal - Stay granted.

Summary

Issues:
Classification of Ring Rim under Chapter 40 of Central Excise Tariff. Eligibility of Ring Rim for Cenvat credit as capital goods or input.

Analysis:
The appellant, a manufacturer of tyres and tubes, uses a process involving testing of tyres, specifically an inflated dimensions test, which necessitates the use of an item called Ring Rim for mounting the tyre on a standard rim and inflating it with air to measure dimensions. The Department contended that Ring Rim is not eligible for Cenvat credit, leading to a show cause notice for credit denial amounting to Rs. 2,85,150. The Asstt. Commissioner upheld this denial, confirmed the credit demand, and imposed penalties. This decision was affirmed by the Commissioner (Appeals).

During the hearing for a stay application, the appellant's counsel argued that Ring Rim is essential for tyre testing, a crucial part of the manufacturing process, even if not classified as capital goods, it should qualify as an 'input' under the broad definition covering items used directly or indirectly in manufacturing finished products. The counsel cited a judgment of the Hon'ble Calcutta High Court to support this argument. On the other hand, the Departmental Representative opposed the stay application, reiterating the previous findings that Ring Rim does not fall under the definitions of capital goods or input, justifying the denial of Cenvat credit.

After considering both sides' submissions and reviewing the records, the judge found that Ring Rim, a rubber item under Chapter 40 of the Central Excise Tariff, is indeed essential for tyre testing before clearance. The judge opined that Ring Rim is necessary for the manufacturing process as untested tyres cannot be marketed. Interpreting the definition of 'input' broadly, the judge concluded that Ring Rim qualifies as an item used in or in relation to the manufacture of rubber tyres, directly impacting the final product. Citing the Hon'ble Calcutta High Court's judgment, the judge emphasized that the definition of 'input' encompasses items commercially expedient for use, not solely based on what ought to be used. Consequently, the judge ruled in favor of the appellant, waiving the pre-deposit requirement for Cenvat credit demand, interest, and penalty, and stayed the recovery pending appeal disposal.

In summary, the judgment revolved around the classification of Ring Rim under the Central Excise Tariff and its eligibility for Cenvat credit as either capital goods or input. The decision favored the appellant, emphasizing the essential nature of Ring Rim in the manufacturing process and its direct relevance to the final product, leading to the allowance of the stay application and waiver of pre-deposit requirements.