2017 (1) TMI 18 - AT - Central Excise

CENVAT credit on inputs and capital goods - manufacture of sponge iron - capital goods and components thereof manufactured out of the said inputs were duly used for captive consumption under N/N. 67/95-CE dated 16.3.1995 - 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 , where 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 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 - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Appeal against the order passed by the Commissioner of Central Excise, Raipur regarding Cenvat credit on inputs and capital goods used in manufacturing.
2. Interpretation of whether certain structural items used in fabrication can be considered as capital goods under Cenvat Credit Rules, 2004.

Analysis:
Issue 1: The appellant, engaged in manufacturing sponge iron, appealed against the order passed by the Commissioner of Central Excise, Raipur regarding Cenvat credit on inputs and capital goods used in manufacturing. The appellant procured inputs during a specific period and used them for manufacturing capital goods and their components. The appellant maintained a Cenvat credit account for these inputs, and the capital goods manufactured were used for captive consumption under a relevant notification.

Issue 2: The Tribunal considered whether the structural items used in the fabrication of support structures could be classified as capital goods under the Cenvat Credit Rules, 2004. Referring to a Supreme Court decision, the Tribunal applied the 'user test' to determine if the goods could be considered capital goods. The 'user test' requires assessing whether the goods are essential for the smooth functioning of the relevant machines. In this case, the structural items were used in fabricating support structures for capital goods like kilns, conveyor systems, and furnaces. The Tribunal concluded that the structural items were integral parts of the machines and fell within the definition of capital goods under Rule 2(a) of the Cenvat Credit Rules. Therefore, the appellant was entitled to Cenvat credit for these structural items.

In conclusion, the Tribunal set aside the impugned order, granting relief to the appellant and disposing of cross-objections. The decision clarified the classification of certain structural items as capital goods under the Cenvat Credit Rules, providing guidance on the application of the 'user test' in determining eligibility for Cenvat credit.