2019 (11) TMI 1579 - AT - Central Excise

CENVAT Credit - nylon ropes - capital goods - period of dispute in the present appeals is from 1st July, 2014 to 31st October, 2015 - principles of natural justice - HELD THAT - For the period from 2008 to 2014, the First Appellate Authority had decided the very same issue, as in the present case, in favour of the Appellant. The orders passed by the First Appellate Authority were not challenged before this Tribunal and therefore, it seems that the Department had accepted such orders. Therefore, the impugned order passed by the First Appellate Authority in the present case is hit by the Doctrine of Res Judicata. The First Appellate Authority ought to have followed the previous orders, as the issue was identical and even otherwise, there is no reason cited by the First Appellate Authority for not following the earlier orders. The Appellant has furnished a certificate from the Chartered Engineer which certifies that nylon ropes are threaded through grooves located on the anterior portion of the dryer cylinders in the paper machine. It further states that nylon ropes are used to move the paper tail from the Press section to the Pope Reel section of the paper machine. Therefore, it is found that without the use of such nylon ropes, the paper tail cannot travel through the paper machine in the desired manner - The Appellant has also drawn my attention to relevant pictures to establish that nylon ropes are a vital component of the paper machine. Further, it is found that the Department has not furnished any inspection report or report of any other kind to substantiate their claim in respect of the operation of the paper machine. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Classification of nylon ropes and Flat Galvanised IR Strips as capital goods for availing Cenvat credit.
2. Adjudication on whether nylon ropes qualify as essential components of the paper machine.

Analysis:
1. The Appellant, engaged in manufacturing paper products, availed Cenvat credit for nylon ropes and Flat Galvanised IR Strips, considering them as capital goods under Rule 2(a) of the Cenvat Credit Rules, 2004. Departmental officers issued Show Cause Notices disputing this classification, proposing reversal of credit and penalties under relevant provisions.

2. The Adjudicating Authority ruled that nylon ropes and Flat Galvanised IR Strips are not constituent parts of the machine, thus not qualifying as capital goods. The First Appellate Authority upheld this decision, stating that nylon ropes are not essential components, spare parts, or accessories of the paper manufacturing machine, affirming the reversal of Cenvat credit.

3. The Tribunal noted the previous decision in favor of the Appellant for the period 2008 to 2014, invoking the Doctrine of Res Judicata. It highlighted the lack of reasons for deviating from the earlier orders. Additionally, a certificate from a Chartered Engineer confirmed the necessity of nylon ropes in facilitating the movement of paper tail in the paper machine.

4. The Tribunal considered evidence presented by the Appellant, including pictures demonstrating the importance of nylon ropes in the paper machine. In contrast, the Department failed to provide any substantial reports supporting their argument against the essentiality of nylon ropes in the machine's operation.

5. Conclusively, the Tribunal found that the paper machine's functionality relied on nylon ropes, deeming them essential components. Consequently, the appeals filed by the Appellant were allowed, emphasizing the critical role of nylon ropes in the paper manufacturing process.