2016 (12) TMI 16 - AT - Central Excise

Irregular availment of credit - MS items - Held that - At the foremost, it has to be seen that the period involved is October 2008 to June 2009 which is prior to the insertion of the explanation w.e.f. 07/07/2009 to the definition of inputs. The MS items are contended to be used for fabrication of Mezannine floor which is between the ground floor and roofing and used for the purpose of storing the packing materials. The finished products being paint and varnishes, these have to be packed and only then can be cleared. Therefore the use of the MS items for fabrication of Mezannine floor can be considered to be connected with the manufacture of finai products. Further the period involved is prior to 07/07/2009. I therefore hold that the appellant is eligible for credit of ₹ 1,28,341/- availed on MS items. Imposition of penalty - Held that - I hold that the penalty imposed in respect of credit already reversed by the appellant accepting the liability is unsustainable. The impugned order to the extent of demand of ₹ 1,28,341/- along with interest is set aside. Demand of ₹ 62,418/- is sustained. The penalties imposed are set aside. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Irregular availment of CENVAT credit on MS items.
2. Whether Mezannine floor fabricated using MS items is integrally connected with the manufacturing process.
3. Imposition of penalty on reversed CENVAT credit.

Analysis:
1. The appellant, engaged in manufacturing paints and varnishes, availed CENVAT credit on MS angles, beams, and bars irregularly. The Department alleged irregular availment of credit amounting to ?1,90,759 for the period October 2008 to June 2009. The appellant reversed ?62,418 of the credit upon identification of the irregularity. A show-cause notice was issued, leading to adjudication where the demand, interest, and penalty were confirmed. The Commissioner(Appeals) upheld the decision, prompting the appellant to appeal.

2. The appellant argued that the Mezannine floor, fabricated using MS items, is integral to the manufacturing process as it is used for storing packing materials necessary for completing the final product. They contended that without packing, the finished product cannot be cleared. The Department, however, asserted that the Mezannine floor cannot be considered an integral part of manufacturing.

3. The Tribunal examined the records and noted that the period in question was before the insertion of an explanation to the definition of inputs on 07/07/2009. The Mezannine floor, made using MS items, was deemed connected to the manufacturing of final products as it facilitated the packing process essential for product clearance. Consequently, the Tribunal held that the appellant was eligible for the credit availed on MS items. Regarding the penalty imposed on the reversed credit, the Tribunal found it unjustified based on a precedent and set aside the penalties while sustaining the demand of ?62,418. The appeal was allowed partly with specified reliefs.