2016 (2) TMI 208 - AT - Central Excise

Entitlement to take Cenvat credit on rails - rails are fixed to the earth and EOT cranes are being run over them - Held that - Credit on capital goods is available only on items, which are excisable goods covered under the definition of capital goods under Cenvat Credit Rules, 2004 and used in the factory of the manufacturer. As regards inputs , they have to be covered under the definition of input under the Cenvat Credit Rules, 2004 and used in or integrally connected with the process of actual manufacture of the final product for admissibility of Cenvat credit. The credit on inputs used in the manufacture of capital goods, which are further used in the factory of the manufacturer is also available, except for items like cement, angles, channels, CTD or TMT bars and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. Further, credit shall also not be admissible on inputs used for repair and maintenance of capital goods. In the instant case revenue has also failed to bring the evidences on record to show that the Appellant had used such inputs for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. On the other hand the appellant has shown that the said inputs were used in the manufacture of Capital goods, under clause (i) of Rule 2(a) of Cenvat Credit Rules, 2004. - Decided in favour of assessee

Issues Involved:
1. Entitlement to Cenvat credit on rails embedded in the ground and used as fixed assets.
2. Admissibility of Cenvat credit on structural items used in manufacturing components of capital goods.
3. Application of precedents and circulars regarding Cenvat credit on structural items.

Issue-wise Detailed Analysis:

1. Entitlement to Cenvat Credit on Rails Embedded in the Ground:
The primary issue was whether the respondent could take Cenvat credit on rails embedded in the ground, used for EOT cranes, cooling beds, and chattals. The appellant argued that since these rails are fixed to the earth and serve as structures for EOT cranes, they should not qualify for Cenvat credit. The appellant relied on the precedent set in Nelvetha Cast Steels (P) Ltd. v. CCE, Madhurai, which held that supports do not automatically become part of the crane.

2. Admissibility of Cenvat Credit on Structural Items Used in Manufacturing Components of Capital Goods:
The Commissioner (A) examined the issue based on a Chartered Engineer's certificate, which confirmed that the rails were essential components of the EOT cranes, cooling beds, and chattals. The Commissioner observed that:
- EOT Cranes: Rails are used for the overhead track for EOT cranes, essential for their operation. Without these rails, the cranes cannot function, making them integral to the manufacturing process.
- Cooling Beds: Rails form the primary structure of cooling beds, essential for cooling finished products in the rolling mill.
- Chattals: Rails are used in chattals, which are crucial for quality checks and dispatch of finished products.

The Commissioner concluded that these rails are integral components of the manufacturing process and not merely supporting structures.

3. Application of Precedents and Circulars Regarding Cenvat Credit on Structural Items:
The Adjudicating Authority had disallowed the Cenvat credit based on the judgment in M/s. Vandana Global Ltd. v. CCE, Raipur, and Board's Circular No. 267/11/2010-CX, which stated that goods like cement and steel used for laying foundations or supporting structures are not eligible for Cenvat credit. However, the Commissioner (A) found that the rails were used to manufacture components of capital goods, not for construction or support purposes. The Commissioner cited the following precedents and circulars to support this view:
- Madras Cements Ltd. v. CCE: The Supreme Court held that capital goods used in the manufacturing process are eligible for Cenvat credit.
- Union of India v. ACC Ltd.: The High Court allowed credit on steel plates and channels used in manufacturing components of capital goods.
- CBEC Circular No. 267/11/2010-CX: Clarified that credit is available on inputs used in manufacturing capital goods, except for items used in construction or support structures.

The Commissioner concluded that the rails used by the appellant were components of capital goods and thus eligible for Cenvat credit under Rule 2(a) of the Cenvat Credit Rules, 2004.

Final Judgment:
The Tribunal upheld the Commissioner (A)'s order, stating that the appellant had provided sufficient evidence, including a Chartered Engineer's certificate, to show that the rails were used as components of capital goods. The Tribunal dismissed the revenue's appeal, finding no infirmity in the Commissioner's decision. The judgment emphasized that the structural items in question were integral to the manufacturing process and not merely supporting structures, thus qualifying for Cenvat credit.

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