2016 (10) TMI 649 - AT - Central Excise

CENVAT credit - capital goods - manufacturing of health products - installation of bulk milk coolers (BMC) and DG sets at milk collection centres to store the milk collected at a specific temperature - whether denial of CENVAT credit justified on the ground that BMC and DG sets installed at milk collection centers have not been used in the factory of the appellant? - Held that - bulk milk coolers and DG sets have been installed by the appellant in the premises which has been leased out to the appellant and which is ultimately use by the appellant for manufacturing their final product which has been cleared on payment of duty - the appellant has correctly availed the credit on capital goods i.e. bulk milk coolers and DG sets - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is entitled to avail credit on bulk milk cooler installed at milk collection center and DG sets away from the factory or not.

Analysis:
The appellant, engaged in manufacturing health products, procures milk from nearby villages for production. To facilitate this, the appellant sets up milk collection centers in neighboring villages, installing bulk milk coolers (BMC) and DG sets. The appellant availed credit on these capital goods. However, a show cause notice was issued, denying the credit on the grounds that the goods were not used in the factory. Both lower authorities upheld the denial of credit, imposing penalties and interest. The appellant contended that the milk collection centers are integral to their manufacturing process, referring to various legal precedents supporting their position. The appellant argued that the ownership of milk is transferred at the collection centers, making them part of the manufacturing unit.

The opposing argument highlighted that the BMC and DG sets were installed far from the factory premises, challenging the eligibility for credit based on the definition of capital goods and factory premises. The definition of factory premises was emphasized, stating that the goods must be used within the precincts where manufacturing processes occur. Legal precedents were cited to support the denial of credit to the appellant.

After considering the submissions, the judge analyzed relevant legal judgments. The decision in the case of Bharat Oman Refineries was discussed regarding the interpretation of premises and precincts. Legal precedents such as South Eastern Coalfields and Vikash Industrial Gases were reviewed, with a comparison to the decision in Vikram Cement. The judge referenced the Hindalco Industries Ltd. case, emphasizing the concept of an integrated unit for availing credit on capital goods. The judgment in Birla Corporation Ltd. was also discussed, highlighting the availability of Modvat credit in similar circumstances.

Ultimately, the judge ruled in favor of the appellant, allowing the credit on bulk milk coolers and DG sets. The decision was based on the installation of these goods in premises leased by the appellant and used for manufacturing their final products. The judgment set aside the impugned order, allowing the appeals with any consequential relief.