2016 (12) TMI 659 - AT - Central Excise

Denial of CENVAT credit - denial on the ground that the appellant had availed irregular credit of duty paid on items namely Ms channel, MS beams, MS joist, HR coils, HR plates, Woven Wiremesh etc., which were used in the fabrication of capital goods - fabrication of structure fall under the definition of capital goods or not? - Held that - The issue whether the subject items are eligible for credit, when used for the fabrication of parts/component /accessories of capital goods has been settled by the decision of the case of CCE, Tiruchirapally vs India Cement Ltd 2011 (8) TMI 399 - MADRAS HIGH COURT . The Hon ble Apex Court in the Rajasthan Spinning & Weaving Mills Ltd case 2010 (7) TMI 12 - SUPREME COURT OF INDIA has laid down the user test. The appellants have been able to establish that without fabrication of such parts, accessories, components of capital goods it is not able to carry out the process of manufacture as these capital goods are integral for carrying out the manufacturing activity. In view of the facts of the present case being similar to the cases already decided by this Tribunal, applying the ratio in the above judgment, I hold that the credit is admissible - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Admissibility of Cenvat credit on MS items used in fabrication of capital goods.

Analysis:
The case involved the appellant, engaged in manufacturing sponge iron, availing Cenvat credit on excise duty paid on inputs/capital goods and service tax paid on input services. The issue arose when irregular credit was availed on items like MS channel, MS beams, etc., used in capital goods fabrication, which the department contended did not fall under the definition of capital goods. A show cause notice was issued, leading to confirmation of duty, interest, and penalty by the adjudicating authority and Commissioner (Appeals).

The appellant argued that the subject items were used for fabricating parts/components of capital goods, supported by a Chartered Engineer Certificate. They cited various legal precedents, including judgments from different cases and tribunals, to support their claim. On the other hand, the department reiterated that MS items did not qualify as capital goods, upholding the findings of the impugned order.

The crucial issue was whether Cenvat credit was permissible on MS items like MS beams when used in fabricating parts/components of capital goods. The appellant demonstrated through the Chartered Engineer Certificate that these items were essential for various structures within the factory, integral to the manufacturing process. The appellant's shift from claiming credit under capital goods to inputs category was justified based on legal precedents like CCE, Meerut Vs Modi Rubber Ltd and Sanghvi Forging & Engineering Ltd. The appellant successfully argued that the subject items qualified as inputs used in fabricating capital goods.

The judgment relied on the user test established by the Hon'ble Apex Court in the Rajasthan Spinning & Weaving Mills Ltd case, emphasizing the necessity of fabricated parts for carrying out manufacturing activities. Drawing parallels with previous tribunal decisions and legal precedents, the Tribunal concluded that the credit on subject items used in fabricating capital goods was admissible. The impugned order was set aside, and the appeal was allowed with any consequential reliefs.

In conclusion, the judgment clarified the admissibility of Cenvat credit on MS items when used in fabricating parts/components of capital goods, highlighting the importance of legal precedents, Chartered Engineer Certificates, and established user tests in determining credit eligibility.