2016 (11) TMI 470 - AT - Central Excise

Setting-up a new cement plant adjacent to existing plant and machinery - CENVAT credit - steel items used in the set-up activities - whether the denial of CENVAT credit on the ground that these steel items were used in the fabrication of supporting structures and also in creation of immovable assets and as such, is justified? - Held that - It has been held by the Tribunal consistently that the steel items when they were used in fabrication of capital goods and their accessories inside the manufacturing premises are eligible for credit. The principle of user test evolved by the Hon ble Supreme Court in Rajasthan Spinning and Weaving Mills 2010 (7) TMI 12 - SUPREME COURT OF INDIA has been applied in this regard. A reference can be made to the latest decision of the Tribunal in Singhal Enterprises 2016 (9) TMI 682 - CESTAT NEW DELHI where it was held that applying the User Test to the facts in hand, we have no hesitation in holding that the structural items used in the fabrication of support structures would fall within the ambit of Capital Goods as contemplated under Rule 2(a) of the Cenvat Credit Rules, hence will be entitled to the Cenvat Credit . It is not categorically established in the present case that all the steel items are used in creation of immovable assets only. On the contrary, the appellants submitted detailed certificate by a Chartered Engineer. We have perused the same. The said certificate records that upon physical examination, it was certified that the steel items have been used for fabrication of various equipments/accessories in various locations of the plant - The categorical assertion of facts by the appellant as supported by the Chartered Engineer Certificate should have been rebutted with evidences of such nature before making summary conclusion on the basis of the presumption. We find the original order is not legally sustainable. Denail of CCR not sustained - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Admissibility of CENVAT credit on steel items used in the fabrication of capital goods.
2. Retrospective application of the amendment to the definition of inputs under Rule 2(k) of CCR effective from 7.7.2009.
3. Classification of fabricated structures as capital goods or immovable assets.

Issue-wise Detailed Analysis:

1. Admissibility of CENVAT credit on steel items used in the fabrication of capital goods:
The appellants argued that the steel items used for fabricating capital goods and their accessories inside the manufacturing premises are eligible for CENVAT credit. They submitted a Chartered Engineer's certificate to substantiate that the steel items were used to fabricate and install capital goods. The Tribunal consistently held that steel items used in the fabrication of capital goods are eligible for credit, applying the user test evolved by the Hon'ble Supreme Court in Rajasthan Spinning & Weaving Mills Ltd. The Tribunal referenced the decision in Singhal Enterprises, affirming that structural items used in the fabrication of support structures for capital goods fall within the ambit of capital goods under Rule 2(a) of CCR, 2004.

2. Retrospective application of the amendment to the definition of inputs under Rule 2(k) of CCR effective from 7.7.2009:
The appellants contended that the amendment to the definition of inputs effective from 7.7.2009 should not be applied retrospectively. The Hon'ble Gujarat High Court in Mudra Ports and Special Economic Zone Ltd. held that the exclusion brought by the amendment cannot be given retrospective effect. The Tribunal's reliance on the decision in Vandana Global Ltd. for retrospective application of the exclusion was deemed legally untenable. The Hon'ble Madras High Court in Thiru Arooran Sugars also supported this view, distinguishing the facts from Saraswati Sugar Mills and confirming that steel plates and M.S. Channels used in fabrication fall within the ambit of "capital goods."

3. Classification of fabricated structures as capital goods or immovable assets:
The Revenue argued that steel items used in the fabrication of immovable structures could not be classified as capital goods. However, the Tribunal noted that the capital goods definition under Rule 2(a) of CCR, 2004 includes items such as storage tanks and pollution control equipment, which are often fabricated and integrated into the plant's machinery. The Tribunal emphasized that the categorical assertion by the appellant, supported by the Chartered Engineer's certificate, should have been rebutted with evidence rather than summary conclusions. The Tribunal found that the steel items were used in various manners closely interconnected to the capital goods, thus eligible for CENVAT credit.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal and confirming the eligibility of CENVAT credit on steel items used in the fabrication of capital goods. The order pronounced on 28.10.2016 concluded that the original order was not legally sustainable, and the consistent view of various High Courts and the Hon'ble Supreme Court regarding steel structures and their eligibility for CENVAT credit was upheld.