2016 (12) TMI 526 - AT - Central Excise

CENVAT credit - denial of credit on the ground that items are not covered under the definition of Capital Goods / inputs as provided under CENVAT Credit Rules, 2004 - Held that - The Aqueous Film Forming Foam(AFFF) is used in Diesel Hydro Treator (DHT) and Hydrogen Generation Unit, Fire Fighting system. The credit is denied on AFFF, stating that pre-commissioning and commissioning of DHT is not integrally connected with manufacture. The equipments in DHT project, is set up by appellant to manufacture Euro III/IV HSD and is part of manufacturing process. Hence any item used in pre-commissioning or commissioning activity for the subject project is very much part of the manufacturing process. The Diesel Hydro Treator plant /project is intended for meeting the new BIS specifications and is a part of manufacturing activity. Therefore, the denial of credit is unjustified. The credit on umbrella structure is denied for the reason that it is a composite structure. This is not sufficient ground for denial of credit. It is not disputed that Umbrella structure is part of the high mast lighting where high inflammable products are manufactured. Therefore the denial of credit is unjustified. The credit availed on Aluminium coil used for insulation of pipes is held to be admissible in various judgments viz; CCE, Trichy Vs National Oxygen Ltd. 2006 (7) TMI 84 - CESTAT, CHENNAI as without such insulation, heat in pipes and tanks cannot be controlled. The credit availed on caustic soda lye is denied on the ground that it does not fall within the definition of capital goods. The appellants have raised the contention that credit is eligible under the category of inputs. In the case of Tamil Nadu Petro Products V CCE, Chennai 2001 (3) TMI 226 - CEGAT, CHENNAI the credit on this item was held to be admissible. Again, credit availed on paint thinner, Hydrazine hydrate, chemicals used for cleaning, liquid nitrogen, and transformer oil etc, has been held to be admissible in the judgments relied by the appellant. However, I cannot agree with the credit availed on Aviation fuel. It is submitted by appellant that this item is used to conduct quality test based on which certificate is renewed periodically. As rightly pointed out by the Ld AR, the definition of inputs expressly excludes Light diesel oil, HSD and motor spirit. In that case the credit on Aviation turbine fuel cannot be allowed. Appeal disposed off - decided partly in favor of appellant-assessee.

Summary

Issues:
1. Eligibility of CENVAT Credit on various items categorized as capital goods and inputs.

Analysis:
The Appellant, engaged in manufacturing petroleum products, availed CENVAT Credit amounting to ?93,50,780/- during April to December 2013. A Show Cause Notice challenged the eligibility of certain items under the category of capital goods and inputs. The Ld. Commissioner allowed credit on HR plates and sheets but denied credit on items like Aluminum coil, umbrella structures, and liquid nitrogen. The appeal was filed against the denial of credit on specific items.

The Appellant's Counsel argued that the disputed items should qualify as capital goods, their accessories, components, or spares, or fall within the definition of inputs. Referring to legal precedents, it was contended that if items claimed as capital goods could qualify as inputs, credit should not be denied. On the other hand, the Respondent's representative contended that the disallowed items did not meet the criteria for capital goods. Specifically, credit on Aviation Turbine Fuel was deemed ineligible due to its exclusion under the definition of inputs.

After considering both arguments, the Tribunal examined the usage and relevance of each disputed item. The Tribunal found that items like Aqueous Film Forming Foam, umbrella structures, and Aluminum coil were integral to the manufacturing process and thus eligible for credit. However, credit on Aviation Turbine Fuel was rightly disallowed due to its exclusion under the definition of inputs. The Tribunal set aside the demand raised for all items except Aviation Turbine Fuel, sustaining the demand, interest, and penalty related to it.

In conclusion, the appeal was partly allowed, granting credit on items except Aviation Turbine Fuel. The judgment was pronounced on 26/10/2016 in open court by Ms. Sulekha Beevi, C.S., Member (Judicial) of the Appellate Tribunal CESTAT Hyderabad.