2015 (6) TMI 690 - AT - Central Excise

Cenvat credit - Runner Mass in the nature of input or capital goods - whether it is to be treated as an input for manufacture of the final product and eligible for 100% credit or it is a part of the capital goods and not eligible for 100% credit, whether the appellants are liable for penalty and whether the demand is hit by limitation or otherwise - Held that - runner mass is not even used inside the furnace but it is used in the runner path which allows smooth flow of the molten metal therefore, the credit availed by the appellants as inputs is valid. Show cause notice was issued on 20.03.2009 demanding reversal of credit availed for the period from April,2005 to August, 2007, invoking the extended period. They have correctly declared the item as input to the department and availed 100% credit and also filed regular returns. As seen from the grounds of appeal at para-36, CERA carried out Audit in July 2004, August, 2008, and October, 2007, and internal audit of the department carried out audit in November,2003, March, 2005 and February, 2007 and February, 2008, no objection was raised either by CERA or by the internal audit. Considering it is only a question of interpretation and there is no suppression involved in this case. Therefore, the demand is also hit by limitation. - Appellants are eligible to avail 100% credit on the runner mass as inputs. Accordingly, the impugned order is set aside - Decided in favour of assessee.

Summary

Issues involved:
- Availment of credit on the item 'runner mass'
- Classification of 'runner mass' as input or capital goods
- Eligibility for 100% credit
- Liability for penalty
- Limitation period for demand

Analysis:

1. Availment of credit on the item 'runner mass':
The appellant, a manufacturer of "Iron and Steel," availed 100% modvat credit on 'runner mass' classified under Chapter 38 of the Central Excise Tariff. The Department contended that 'runner mass' is not an input for final product manufacture but a part of capital goods. The adjudicating authority disallowed credit in excess of 50%, imposing a penalty. However, the appellant argued that 'runner mass' aids in the flow of molten metal from the blast furnace and is not part of the furnace, justifying 100% credit.

2. Classification of 'runner mass' as input or capital goods:
The tribunal analyzed the usage of 'runner mass' outside the blast furnace in the runner path for smooth molten metal flow. It was established that 'runner mass' is not part of the blast furnace but a coating on the runner path. Citing precedent cases and the definition of parts and accessories, the tribunal concluded that 'runner mass' is an input, not a capital good, making the appellant eligible for 100% credit.

3. Eligibility for 100% credit:
Relying on the Supreme Court decision regarding essential chemicals in steel manufacturing, the tribunal affirmed that 'runner mass' usage aligns with the manufacturing process, entitling the appellant to modvat credit. The tribunal emphasized that 'runner mass' being used in the runner path, not inside the furnace, validates the appellant's credit availed as inputs.

4. Liability for penalty:
No specific discussion on the liability for penalty was presented in the judgment. The focus remained on the classification of 'runner mass' and the eligibility for credit.

5. Limitation period for demand:
Regarding the limitation period, the tribunal noted that the show cause notice was issued in 2009 for the period from 2005 to 2007, invoking the extended period. However, as the appellant had correctly declared 'runner mass' as an input, filed regular returns, and undergone audits without objections, the tribunal concluded that no suppression was involved, rendering the demand hit by limitation.

In conclusion, the tribunal set aside the impugned order, allowing the appeal based on the eligibility of the appellant to avail 100% credit on 'runner mass' as inputs, in line with legal precedents and the manufacturing process specifics.