2016 (11) TMI 866 - AT - Central Excise

CENVAT credit - goods namely pre-fabricated building and building structures - user test - reliance placed in the decision in the case of Vandana Global Ltd. Vs. CCE 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) - Held that - the cenvat credit was denied to the respondent relying on the decision of Vandana Global Ltd. holding that the explanation 2 to Rule 2(k) of the CCR, 2004 is clarificatory in nature and retrospectively applicable. The decision of the Larger Bench of this Tribunal in the case of Vandana Global Ltd. has been examined of the various Hon ble High Courts and it has been held that it is not a good law. Further, in the case of Singhal Enterprises Pvt. Ltd. 2016 (9) TMI 682 - CESTAT NEW DELHI this Tribunal held that the user test is to be applied for structural items used in the fabrication of support structures. In this case, the respondent has explained the use of the steel items used for pre-fabricated building and building structures. Therefore, by applying the user test, the respondent is entitled to avail the cenvat credit up to the period 07.07.2009. As the issue of availment of credit was in dispute during the period, therefore, no penalty is imposable in the facts and circumstances of the case. In result, the respondent is entitled to avail cenvat credit on the steel items during the period 01.01.2009 to 07.07.2009 and no penalty Imposable - appeal dismissed - decided against Revenue.

Summary

Issues:
- Appeal against denial of cenvat credit
- Applicability of explanation 2 to Rule 2(k) of Cenvat Credit Rules, 2004
- Interpretation of user test for structural items
- Imposition of penalty

Analysis:
1. The case involved an appeal by the Revenue against the denial of cenvat credit to the respondent, a manufacturer of excisable goods. The show cause notice alleged wrongful availment of cenvat credit for pre-fabricated building and building structures. The initial order imposed penalties, which were later dropped by the Commissioner (A), leading to the appeal by the Revenue and a cross objection by the respondent.

2. The Revenue argued that the penalty was imposable based on a Larger Bench decision and the issuance of the show cause notice within the period of limitation. They relied on the clarificatory nature of explanation 2 to Rule 2(k) of the Cenvat Credit Rules, 2004.

3. The respondent, however, contested the Revenue's stance by citing contradictory judgments. They referred to decisions by the Gujarat High Court and the Calcutta High Court, which questioned the validity of the Larger Bench decision. Additionally, they highlighted a Tribunal case emphasizing the user test for structural items used in support structures, allowing cenvat credit on welding electrodes.

4. After hearing both parties, the Tribunal analyzed the case. They found that the decision in Vandana Global Ltd. regarding the retrospective applicability of explanation 2 to Rule 2(k) was not upheld by various High Courts. Moreover, they applied the user test to determine the eligibility of cenvat credit for steel items used in pre-fabricated building and building structures. Consequently, the respondent was deemed entitled to cenvat credit for the specified period without any penalty.

5. In conclusion, the Tribunal dismissed the Revenue's appeal and partially allowed the cross objection filed by the respondent. The judgment clarified the applicability of the user test and the retrospective nature of certain provisions, providing relief to the respondent in terms of cenvat credit and penalty imposition.