2016 (1) TMI 475 - AT - Central Excise

Denial of CENVAT Credit - credit on steel items used in fabrication of capital goods - repair and maintenance of the old machines. - Held that - Assessee is a manufacturer of electrical insulators. To manufacture their final product, assessee is required to manufacture kilns, dryer, chimney, glazing machine etc. Admittedly all these machines are fabricated by the assessee in their factory by using the steel items in question. In assessees own case for the earlier period, same items used for same purpose on the same ground, this Tribunal held that assessee is entitled to take cenvat credit as per Final Order 2015 (12) TMI 844 - CESTAT NEW DELHI . Therefore, following the precedent decision of this Tribunal in assessees own case, I do not find any infirmity in the impugned order for allowing cenvat credit on steel items used in fabrication of Klins, dryers, storage tank, chimney, curing corusal glazing machines, racks etc. and repair and maintenance of the old machines. In these terms, appeal filed by the Revenue stand dismissed. Regarding imposition of penalty for steel items used in civil construction by the assessee - Held that - In the show cause notice modus operandi of the assessee is missing. Although the appellant has already reversed the cenvat credit which was taken earlier along with interest on pointing by the Departmental officer at the time of investigation. In these terms, it cannot be said that assessee has taken the cenvat credit with malafide intention. As mansarea is missing in the show cause notice, therefore, penalty on the assessee is not imposable - Decided in favour of assessee.

Summary

Issues:
- Cenvat credit eligibility for steel items used in fabrication
- Imposition of penalty on steel items used for civil construction

Cenvat Credit Eligibility for Steel Items Used in Fabrication:
The case involved an appeal where both the Revenue and the assessee challenged the impugned order regarding the cenvat credit availed by the assessee on various steel items used for construction purposes. The Revenue contended that since the steel items were embedded in the earth for constructing specific items, they did not qualify as goods, thus disentitling the assessee from cenvat credit. The adjudicating authority initially denied the credit, leading to penalty imposition. However, the Commissioner (Appeals) allowed the credit for steel items used in fabrication of capital goods but denied it for civil construction. The Tribunal analyzed the situation, considering the fabrication of machines like kilns, dryers, and chimneys, crucial for the manufacturing process. Referring to a previous decision in the assessee's favor, the Tribunal upheld the cenvat credit eligibility for steel items used in the fabrication process, dismissing the Revenue's appeal.

Imposition of Penalty on Steel Items Used for Civil Construction:
The appeal also addressed the imposition of a penalty on the assessee for using steel items in civil construction activities. The Revenue argued that the CBEC had clarified in 2002 that cenvat credit for items used in civil construction was not permissible. On the contrary, the assessee's counsel contended that all items were fabricated in-house, essential for manufacturing activities. Moreover, the assessee had reversed the credit and paid interest upon investigation, indicating no malicious intent. The Tribunal reviewed the show cause notice and found a lack of evidence regarding malafide intention or mens rea on the part of the assessee. Consequently, the penalty was deemed unjustifiable, leading to the allowance of the assessee's appeal against the penalty imposition.

In conclusion, the Tribunal dismissed the Revenue's appeal while allowing the appeal filed by the assessee. The decision upheld the cenvat credit eligibility for steel items used in fabrication processes and rejected the penalty imposition for steel items used in civil construction, emphasizing the absence of malicious intent on the part of the assessee.