2014 (7) TMI 233 - AT - Central Excise

Waiver of pre deposit - CENVAT Credit - capital goods - denial of credit on the ground that appellant were not owner of the goods - denial of credit on another ground that, goods after being installed had become fixed to earth structure which is not excisable and hence the Cenvat Credit of Central Excise duty involved these goods would not be available to the appellant. - Held that - There is absolutely no requirement that the capital goods at the time of receipt must be owned by manufacturer or that the same would cease to be capital goods, if they are installed in the factory and become fixed to earth. The words used in Rule 2(a) are used in the factory of manufacturer of the final product not used in the manufacture of final product . Therefore, once any item received in the factory is capital goods in terms of Rule 2(a) of the Cenvat Credit Rules, and is used in the factory, the manufacturer would be entitled to Cenvat Credit of excise duty paid in respect of the same. If the logic of the commissioner in the impugned order is accepted, no capital goods Cenvat Credit can be allowed in respect of any item of capital goods enumerated in Rule 2(a) of the Cenvat Credit Rules, as all the items - various items of machinery covered under Chapter 84, 85 & 90 of the Tariff, pipes & tubes, tanks, pollution control equipments refractories etc. have to be installed in the factory before being put to use and after installation, the same would become fixed to earth plant. - prima facie case is in favor of assessee - Stay granted.

Summary

Issues:
1. Eligibility of Cenvat Credit for capital goods received for the Nephtha Cracker Plant.
2. Ownership of goods at the time of receipt and its relevance for Cenvat Credit.
3. Denial of Cenvat Credit based on goods being fixed to earth structure.

Analysis:

Issue 1: Eligibility of Cenvat Credit for capital goods
The appellant, a Public Sector Undertaking, took Cenvat Credit for capital goods received for setting up a Nephtha Cracker Plant. The dispute arose when investigating officers alleged that the appellant was not eligible for Cenvat Credit for machinery and equipment installed by contractors as they were non-excisable fixed-to-earth structures. The Commissioner upheld the denial of Cenvat Credit, stating that the plant was immovable and not excisable. However, the Tribunal disagreed, emphasizing that as per Rule 2(a) of the Cenvat Credit Rules, capital goods covered under Chapter 84, 85, and 90, when used in the factory, qualify for Cenvat Credit. The Tribunal asserted that the nature of the goods after installation, becoming a fixed-to-earth structure, does not negate their eligibility for Cenvat Credit. The Tribunal found the Commissioner's reasoning flawed and allowed the appeal, waiving the pre-deposit requirement and staying recovery pending appeal disposal.

Issue 2: Ownership of goods at the time of receipt
The Department contended that since the appellant did not own the goods at the time of receipt, they were not eligible for Cenvat Credit. The appellant argued that ownership at receipt was irrelevant as long as the goods were used in the factory, citing legal precedents. The Tribunal agreed with the appellant, emphasizing that Rule 2(a) does not mandate ownership at receipt for claiming Cenvat Credit. The Tribunal held that the appellant had a strong prima facie case in their favor and waived the pre-deposit requirement for the appeal.

Issue 3: Denial of Cenvat Credit based on fixed-to-earth structure
The Department argued that the appellant, despite receiving machinery and equipment, was not eligible for Cenvat Credit as the items formed a fixed-to-earth plant. The Department invoked the extended period for alleging suppression of facts by the appellant. However, the Tribunal rejected this argument, stating that the nature of the goods after installation did not affect their eligibility for Cenvat Credit under Rule 2(a). The Tribunal found the Department's reasoning absurd and allowed the appeal, granting a stay on recovery.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that adherence to Rule 2(a) of the Cenvat Credit Rules is crucial for determining eligibility for Cenvat Credit, irrespective of ownership at receipt or the nature of goods after installation.