2016 (12) TMI 655 - AT - Central Excise

CENVAT credit - manufacture of Ordinary Portland cement, Pozzolana cement and clinker falling under Chapter 25 of the First Schedule to the Central Excise Tariff Act, 1985 - the appellant took Cenvat credit in respect of certain items in ready to use condition treating the same as capital goods under Rule 2(a) of the Credit Rules. These items were worked upon by the vendor according to specifications given by the appellant. Thereafter, the same were used as spares, accessories etc. of capital goods in the factory of the appellant - whether denial of credit justified? Held that - the issue is squarely covered by the decision of the Apex Court in the case of CCE, Jaipur Vs. Rajasthan Spinning & Weaving Mills Ltd., 2010 (7) TMI 12 - SUPREME COURT OF INDIA wherein the Hon ble Supreme Court has considered an identical issue of steel plates and MS channels used in the erection of chimney for diesel generating set. The credit stands allowed in the light of Rule 57Q of the erstwhile Central Excise Rules, 1944. In the said judgement, the Apex Court has referred to the user test evolved by the Apex Court in the case of CCE, Coimbatore Vs. Jawahar Mills Ltd. 2001 (7) TMI 118 - SUPREME COURT OF INDIA , which is required to be satisfied to find out whether or not particular goods could be said to be capital goods. When we apply the user test to the case in hand, we find that the structural steel items have been used for the fabrication of support structures for capital goods. The appellants have argued that the various capital goods, such as kiln, material handling conveyor system, furnace etc. cannot be suspended in mid air. They will need to be suitably supported to facilitate smooth functioning of such machines. It is obvious that the structural items have been suitably worked upon for this purpose. Accordingly, the goods fabricated, using such structural items, will have to be considered as parts of the relevant machines. The definition of capital goods includes, components, spares and accessories of such capital goods. Accordingly, 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. Appeal allowed - credit allowed - decided in favor of appellant-assessee.

Summary

Issues:
Appeal against Order-in-Original denying Cenvat credit for certain items used in cement manufacturing machinery as capital goods.

Analysis:
The appellant, engaged in cement manufacturing, claimed Cenvat credit for items treated as capital goods under Rule 2(a) of the Credit Rules. The department contended that these items did not qualify as capital goods under the Credit Rules and were not eligible for Cenvat credit, as they were used in cement manufacturing machinery ultimately fixed to the earth, becoming immovable property.

The Commissioner, relying on the Larger Bench decision in Vandana Global Ltd. Vs. CCE, denied Cenvat credit to the appellant. The appellant challenged this decision through the present appeal, arguing that the items in dispute should be considered as capital goods.

During the hearing, the issue was compared to the Apex Court's decision in CCE, Jaipur Vs. Rajasthan Spinning & Weaving Mills Ltd., where steel plates and MS channels used in the erection of a chimney were considered capital goods. The User Test, as established in previous judgments, was applied to determine if the structural items were indeed capital goods. It was found that the structural items were used in the fabrication of support structures for capital goods like kilns, conveyors, and furnaces, essential for their smooth functioning. Therefore, the structural items qualified as parts of the relevant machines, falling within the definition of capital goods under Rule 2(a) of the Cenvat Credit Rules.

Consequently, the impugned order denying Cenvat credit was set aside, and the appellant was granted relief, as the structural items used in the fabrication of support structures were deemed eligible for Cenvat credit as capital goods.