2016 (7) TMI 797 - AT - Central Excise

Denail of Cenvat Credit - whether bought out items are inputs - Held that - Since the boiler is the final product of the manufacturer, every component within it and every input that goes into the component manufactured in the factory would an input in so far as CENVAT Credit Rules, 2004 is concerned. It is certainly not a tenable claim that Revenue can distinguish between an input of an input and an input itself when there is no dispute that the components manufactured from inputs and the components that are inputs have gone into the final products; nor can Revenue presume to enter the commercial arena and dictate the manufacturing policy of an industry. In the context of the decision of the Tribunal in the appellant s own case cited supra which we respectfully follow, we find that the bought-out items are also inputs for the purpose of taking credit in accordance with the definition in rule 2(k)(i) as it stood then. The appellant is entitled to take CENVAT credit on the bought-out parts used in the installation of boilers. We notice that some of the boilers have been erected at the Special Economic Zone at Jamnagar while others have been exported from India. Considering the decision of the Tribunal in re Flat Products Equipments (I) Ltd (supra) the demand of credit cannot survive. Credit allowed - Decided against the revenue.

Issues Involved:
1. Disallowance of CENVAT credit on bought-out items.
2. Eligibility for rebate claim on inputs.
3. Classification and duty liability of boilers including bought-out parts.
4. Applicability of previous judicial decisions and statutory provisions.

Detailed Analysis:

1. Disallowance of CENVAT Credit on Bought-Out Items:

The primary issue in this case was whether M/s Thermax Limited could avail CENVAT credit on bought-out items used in the manufacture and erection of boilers. The Commissioner of Central Excise, Pune - I, disallowed the CENVAT credit amounting to ?5,90,83,654/- on the grounds that these bought-out items were not inputs for manufacture and thus ineligible for CENVAT credit. The appellant-assessee argued that these items were essential components for the final product (boilers) and should be considered inputs under the CENVAT Credit Rules, 2004. They contended that the final assembly of the boiler, which includes both manufactured and bought-out items, is classifiable under heading 8402.

The Tribunal found that the bought-out items are indeed inputs as they are essential for the functioning of the boiler, which is the final product. The Tribunal referred to the HSN Explanatory Notes and previous judgments, including Flat Products Equipments (I) Ltd v. Commissioner of Central Excise, which supported the view that bought-out items, if included in the value of the final product, qualify for CENVAT credit.

2. Eligibility for Rebate Claim on Inputs:

The Revenue challenged the impugned order to the extent that it allowed the appellant-assessee to file a rebate claim. The Tribunal dismissed this contention, stating that a show cause notice is intended to notify the tax-assessee of proposed detrimental action and the adjudication should be limited to that extent. The admission of a rebate claim by the noticee is not a detrimental outcome and does not exceed the scope of the show cause notice. The Tribunal observed that the impugned order merely acknowledged the admissibility of the rebate claim without granting it or directing its disposal in a specific manner.

3. Classification and Duty Liability of Boilers Including Bought-Out Parts:

The Tribunal examined whether the duty liability arises only on the pressure parts manufactured by the appellant or on the entire boiler, including bought-out parts. Referring to the decision in Commissioner of Central Excise, Pune I v. Thermax Bobcock & Wilcox Ltd, the Tribunal concluded that the boiler, in its complete form, is liable to duty, including the value of bought-out items. The Tribunal noted that for domestic clearances, bought-out items are generally not brought into the factory, and no credit is taken on them. However, for exports and supplies to special economic zones, these items are brought into the factory, tested, and dispatched along with manufactured parts, making them eligible for CENVAT credit.

4. Applicability of Previous Judicial Decisions and Statutory Provisions:

The Tribunal considered various judgments cited by both parties. The appellant-assessee cited cases like Flat Products Equipments (I) Ltd, Dicitex Dicor Pvt Ltd, and Finolex Cables Ltd, which supported the eligibility of CENVAT credit on bought-out items. The Revenue relied on the judgment in KCP Ltd v. Commissioner of Central Excise, which held that items not manufactured in the factory do not qualify for MODVAT credit. The Tribunal found that the bought-out items, being essential for the final product (boiler), qualify as inputs under rule 2(k)(i) of the CENVAT Credit Rules, 2004.

The Tribunal also referred to the decision in Flat Products Equipments (I) Ltd, which emphasized that bought-out parts exported on payment of duty under a rebate claim form part of the complete machinery and are eligible for CENVAT credit. The Tribunal noted that the policy of non-exportability of taxes supports the appellant's claim for CENVAT credit on bought-out items used in exported boilers.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal of M/s Thermax Ltd., granting them the right to avail CENVAT credit on bought-out items used in the installation of boilers. Consequently, the appeal of the Revenue was dismissed, and the cross-objection was disposed of. The judgment reinforces the principle that bought-out items, if essential for the final product and included in its value, qualify for CENVAT credit under the relevant rules and judicial precedents.

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