2014 (9) TMI 683 - AT - Central Excise

Waiver of pre deposit - Eligibility for cenvat credit of various items parts and accessories, components etc. used for maintenance of the captive power plant - Held that - For being covered by the definition of capital goods eligible for cenvat credit, the only points which are relevant are that the goods must be those mentioned in Rule 2(a) of CCR 2004 and should have been used in the factory of manufacture of final product and how the goods are used and whether the goods after being installed become fixed to the earth and together constitute a manufacturing plant, is not relevant. It is absolutely wrong to mix the issue of eligibility for capital goods cenvat credit of the items mentioned in Rule 2(a) of CCR, 2004 with the issue of excitability of the manufacturing plant. Therefore, just because the various items of machinery covered by Chapter 82, 84, 85 and 90 of the Tariff, pipes and tubes, tanks etc., all of which are covered by the definition of capital goods , have been installed and after installation have become fixed to the earth power plant, the same would not cease to be the capital goods . If a process or activity is so integrally connected to the ultimate manufacture of goods so that without that process or activity, manufacture may, even if theoretically possible, be commercially inexpedient, the goods intended for use in such process or activity would be treated as used in the manufacture of goods. The expression used in Rule 2(k) of CCR, 2004 in the definition of input is used in or in relation to the manufacture of final product whether directly or indirectly , whose scope is much wider than the scope of the expression used in the manufacture . Therefore, in our view, any activity without which the manufacture of final product, though theoretically possible, is not commercially feasible, would have to be treated as having nexus with the manufacture of final product and the inputs used in such activity would be eligible for cenvat credit. impugned order is prima facie contrary to the provisions of the law and the appellant have a strong prima facie case in their favour and the requirement of pre-deposit under section 35F in these circumstances would cause undue hardship to the appellant. Therefore, the requirement of predeposit of cenvat credit demand, interest thereon and penalty is waived for hearing of the appeal and recovery thereof is stayed during pendency of appeal - Stay granted.

Summary

Issues Involved:
1. Eligibility of cenvat credit on goods used for maintenance of a captive power plant.
2. Interpretation of the term "capital goods" under Rule 2(a) of the Cenvat Credit Rules, 2004.
3. Applicability of judicial precedents on cenvat credit eligibility for repair and maintenance items.

Detailed Analysis:

1. Eligibility of cenvat credit on goods used for maintenance of a captive power plant:
The appellant manufactures cement and clinkers and operates a captive power plant within their factory premises. They availed cenvat credit on various items used for maintenance of this captive power plant. The department contended that since the captive power plant is not excisable and the electricity generated is not an excisable product, the goods used for its maintenance do not qualify for cenvat credit. A show cause notice was issued demanding recovery of the allegedly wrongly availed cenvat credit amounting to Rs. 4,65,89,435/- along with interest and penalty.

2. Interpretation of the term "capital goods" under Rule 2(a) of the Cenvat Credit Rules, 2004:
The appellant argued that the items used for maintenance of the captive power plant should be treated as "capital goods" as defined in Rule 2(a) of the Cenvat Credit Rules, 2004. They cited several judicial precedents where it was held that goods used for repair and maintenance of machinery directly involved in the manufacture of the final product are eligible for cenvat credit. The Tribunal agreed with the appellant, stating that the definition of "capital goods" covers components, spares, and accessories of machinery, and the fact that the machinery is fixed to the earth does not negate its eligibility for cenvat credit.

3. Applicability of judicial precedents on cenvat credit eligibility for repair and maintenance items:
The appellant cited multiple judgments, including those from the Rajasthan High Court, Chhattisgarh High Court, and Karnataka High Court, which held that goods used for repair and maintenance of plant and machinery are eligible for cenvat credit. The Tribunal found these judgments persuasive and noted that the contrary view taken by the Andhra Pradesh High Court in the case of Sree Rayalseema Hi-Strength Hypo Ltd. was not binding. The Tribunal emphasized that any activity integrally connected to the manufacture of goods, even if not directly manufacturing, qualifies for cenvat credit if it is commercially necessary for the manufacturing process.

Conclusion:
The Tribunal concluded that the appellant had a strong prima facie case for eligibility of cenvat credit on goods used for maintenance of the captive power plant. The impugned order was found to be contrary to the provisions of the law, and the requirement of pre-deposit of the cenvat credit demand, interest, and penalty was waived. The stay application was allowed, and recovery was stayed during the pendency of the appeal.