2015 (10) TMI 621 - AT - Central Excise

Denial of CENVAT Credit - Capital goods - whether the welding electrodes used in the maintenance of machine etc., the CENVAT Credit on the same is allowable or not - Held that - From very plain reading of the definition of input as given under Rule 2(k), it is evident that even goods used in relation to, directly or indirectly, in the process of manufacture like, lubricating oils, greases, cutting oils, coolants, accessories of the final products, qualify as input for the purpose of manufacture of the end product. It is undisputed fact that without the use of machinery, there cannot be manufacture, unless the machinery is in ready condition i.e. ready for use, no manufacture of cement can take place. Accordingly, the welding electrodes used for repair and maintenance of plant and machinery are indirectly used in manufacture of cement. Accordingly, I hold that the same qualifies for definition of input and the assessee is entitled to take CENVAT Credit on the same. - Manufacture of the capital goods and their repair and maintenance are synonymous terms which are required for manufacture of the end product. It is evident from the definition of input that whatever is used and assists in the process of manufacture, qualify as inputs within the meaning of input under Rule 2(k). - Impugned order is set aside - Decided In favour of assessee.

Summary

Issues:
- Allowability of CENVAT Credit on welding electrodes used in the maintenance of machinery

Analysis:
1. Issue of CENVAT Credit Eligibility:
The main issue in this case was whether the welding electrodes used in the maintenance of machinery qualify for CENVAT Credit. The appellant, a cement manufacturer, challenged the decision of the Commissioner (Appeals) disallowing the CENVAT Credit based on previous rulings. The appellant argued that the definition of 'input' under Rule 2(k) of the Cenvat Credit Rules includes goods used directly or indirectly in the manufacture of final products. They cited examples like lubricating oils, greases, and accessories, stating that welding electrodes used in maintenance indirectly contribute to the manufacturing process.

2. Judicial Precedents and Interpretation:
The appellant referred to the overruling of the JaypeeRewa Plant case by the Rajasthan High Court in the Hindustan Zinc Ltd. case. The High Court emphasized that items assisting in the manufacturing process, even if not directly involved, should be considered inputs. The appellant also relied on a similar decision by the Chhattisgarh High Court supporting the eligibility of CENVAT Credit on welding electrodes used in machinery maintenance.

3. Contrasting Views and Legal Interpretation:
The Revenue, however, supported the impugned order, citing judgments like Lloyd Metals & Engineers Ltd. and Sree Rayalaseema Hi-Strength Hypo Ltd. The Andhra Pradesh High Court's ruling emphasized that goods used for repair and maintenance do not qualify as inputs unless they are used in the manufacture of capital goods. The AR argued against allowing CENVAT Credit for welding electrodes used in repair and maintenance activities.

4. Decision and Rationale:
After considering the arguments, the Tribunal allowed the appeal, holding that welding electrodes used for maintenance indirectly contribute to the manufacturing process and thus qualify as inputs for CENVAT Credit. The Tribunal relied on the Rajasthan High Court's decision in the Hindustan Zinc Ltd. case, which was affirmed by the Supreme Court. The Tribunal disagreed with the Andhra Pradesh High Court's view, emphasizing that items aiding in the manufacturing process should be considered inputs. The Tribunal set aside the impugned order and granted consequential relief to the appellant.