2016 (2) TMI 287 - AT - Central Excise

Ineligible CENVAT Credit availed on capital goods - various machinery and items purchased and used in setting up of thermal power plant in their factory.- Held that - The appellants purchased capital goods, paid for the same and received under due documents in their premises. The supplier had another set of contracts for designing, erection, commissioning and civil/structural works. On all these service contracts, the contractor has paid service tax as applicable on full value. The question of examining the valuation of service contracts for the purpose of determining the eligibility of CENVAT Credit on capital goods for the appellant does not arise. There is no composite contract in the construction of thermal power plant. This has no capital goods which were purchased by the appellant were used by the contractor in the construction of thermal power plant has no consequence to the appellant s eligibility to the CENVAT Credit. As discussed earlier the impugned order proceeded on propositions not even contemplated in the demand. On Careful analysis of the facts relevant to the case, we find that the impugned order is not legally sustainable and accordingly set aside the same - Decided in favour of assessee.

Summary

Issues Involved:
- Eligibility of the appellant for CENVAT Credit on capital goods used in setting up a thermal power plant.
- Allegations in the show cause notice and the subsequent order disallowing credit and imposing penalties.
- Arguments regarding the denial of credit based on new propositions not mentioned in the notice.
- Consideration of irrelevant issues in the impugned order.
- The relevance of various contracts entered into by the appellant with the Chinese company.
- Interpretation of the contracts and the possession of capital goods by the contractor affecting the appellant's eligibility for credit.

Analysis:

1. The appeal challenged the order-in-original by the Commissioner Central Excise-Indore disallowing CENVAT Credit on capital goods used in the manufacture of cement. The notice sought recovery of an amount towards ineligible credit based on two main grounds: the use of capital goods in the exempted generation of electricity and possession by the contractor. The appellant contended compliance with CENVAT Credit Rules and argued against the denial of credit based on new propositions not part of the original notice.

2. The appellant's counsel highlighted that the order-in-original strayed beyond the scope of the show cause notice, considering irrelevant issues and different contracts with the Chinese company. The impugned order discussed the combined reading of contracts and the possession of capital goods by the contractor, leading to the denial of credit. The counsel argued that the order failed to consider essential facts and misdirected the decision-making process.

3. The Tribunal found the show cause notice lacking in legal analysis and raised issues unrelated to the appellant's eligibility for CENVAT Credit. It noted the specific clause in the contract regarding the transfer of title to the capital goods, emphasizing that the appellant had paid for and received the goods in their premises. The Tribunal concluded that the denial of credit based on the contractor's possession was fallacious and without merit, as the appellant's compliance with duty payment and contractual terms supported their eligibility for credit.

4. After careful analysis, the Tribunal set aside the impugned order, finding it legally unsustainable. The decision highlighted the misdirection in the original order and the importance of focusing on relevant facts and legal provisions. The appeal was allowed, and a miscellaneous application for an extension of stay was disposed of accordingly.