2016 (7) TMI 801 - AT - Central Excise

Cenvat Credit / MODVAT Credit - capital goods - diverting the steel items for non-manufacturing operations like fabrication, maintenance of structures, etc., and in manufacture of goods exempted from duty. - Held that - Undeniably steel pipes are an essential/integral part of T.G. set without which the T.G. set cannot be put into use. T.G. sets would fall under the category of capital goods as generating sets are expressly mentioned in the definition. - Credit allowed - Decided against the revenue.

Summary

Issues:
- Appeal against order allowing MODVAT Credit on steel plates and sheets used in pipe manufacturing.
- Eligibility of MODVAT Credit on steel plates and sheets as inputs.
- Interpretation of Central Excise Rules regarding capital goods and duty exemption.
- Admissibility of credit when no duty paid on final products.
- Consideration of steel pipes as intermediate products.
- Relevant case laws on MODVAT Credit eligibility.

Analysis:
1. The appeal was filed by Revenue against the Commissioner (Appeals) order allowing MODVAT Credit on steel plates and sheets used in manufacturing pipes. The Revenue contended that during the relevant period, steel pipes did not fall under the definition of capital goods, and as duty was not paid on the pipes, MODVAT Credit should not be allowed.

2. The Tribunal remanded the matter for fresh adjudication, where the original authority denied the credit and confirmed the demand along with penalties. The Commissioner (Appeals) later allowed the credit, leading to the Revenue appealing the decision.

3. The Revenue argued that steel pipes were not covered under relevant notifications and rules, making the respondents ineligible for credit. They contended that as the duty was not paid on the steel pipes manufactured from the plates and sheets, credit should not be granted.

4. The Tribunal examined whether steel plates and sheets used in manufacturing pipes qualified as inputs for MODVAT Credit under Rule 57A of the Central Excise Rules, 1944. The Revenue's stance was that since no duty was paid on the steel pipes, credit should not be allowed.

5. The discussion included the interpretation of Rule 57D regarding intermediate products and the exemption of duty on final products. The Tribunal considered the essentiality of steel pipes in the Turbo Generator Unit and referred to relevant case laws supporting the broader interpretation of intermediate goods for MODVAT Credit eligibility.

6. Citing judgments like Bharat Electric Steel Company Ltd. and Shalimar Paints Ltd., the Tribunal emphasized that intermediate products used in the manufacturing process should be eligible for MODVAT Credit, even if the final product is exempt from duty. The case law precedent supported the view that various manufacturing stages leading to the final product should be considered for credit eligibility.

7. The Tribunal concluded that steel pipes were integral to the Turbo Generator Unit and fell under the category of capital goods. Considering the importance of intermediate products in the manufacturing process, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals) decision to allow MODVAT Credit on steel plates and sheets used in pipe manufacturing.