2008 (5) TMI 202 - AT - Central Excise

Steel plates and strips used in mfg. of capital goods (steel tanks) in view of Explanation 2 in Rule 2(k) of the Cenvat Credit Rules, impugned goods can be treated as inputs because these goods are used in the manufacture of tanks falling under Chapter 84, which is specifically mentioned in the definition of capital goods credit cannot be denied merely for the fact that steel tank are exempted under Notification No. 67/95

Summary

Issues:
- Availment of Cenvat credit on Steel plates and strips as accessories to capital goods.

Analysis:
The appeal was filed against an Order-in-Appeal passed by the Commissioner of Central Excise (Appeals) relating to the availment of Cenvat credit on Steel plates and strips. The dispute arose when the Revenue disallowed the credit availed by the appellants, arguing that the steel plates and strips cannot be considered as accessories to capital goods. The Original Authority disallowed the credit amount and imposed a penalty under Rule 15(2) of the Cenvat Credit Rules, 2002/2004. The Original Authority's decision was based on the interpretation of the term "capital goods" as per the Cenvat Credit Rules and relied on previous court decisions to support the denial of credit.

The appellants contended that steel plates and strips used in the manufacturing process of capital goods, which are further used in the factory for producing final products, should be considered as capital goods entitled to credit. The learned Advocate cited various case laws supporting this argument. However, the Revenue argued against allowing the credit based on the observations of the Supreme Court in a specific case.

The key contention revolved around the definition of capital goods under Rule 2 of the Cenvat Credit Rules. The Revenue maintained that the steel plates and strips used for fabricating tanks, even though the tanks fall under Chapter 84, cannot be classified as components or accessories of the tanks without further processing. The Original Authority also argued that the items cannot be treated as inputs. However, the Tribunal analyzed the issue in detail, considering the definition of inputs under Rule 2(k) and Explanation 2, which includes goods used in the manufacture of capital goods further used in the factory. The Tribunal concluded that even if the steel plates and strips did not qualify as capital goods, they should be treated as inputs, making them eligible for credit. The Tribunal disagreed with the Assistant Commissioner's observation regarding the admissibility of input credit based on an exemption notification, stating that the steel plates and strips should be considered as inputs regardless of the final product's exemption status. Consequently, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.