2017 (1) TMI 372 - AT - Central Excise

Denial of cenvat credit - various steel items used for fabrication / manufacture of various capital goods installed in the factory - April, 2008 to September, 2008 - denial on the ground that the same are not confirming to the definition of either capital goods or input for availment of the cenvat benefit - Held that - Explanation 2 appended to the definition of inputs in Rule 2 (k) ibid provided that the goods used in the manufacture of capital goods which are further used in the factory of the manufacture, should fall within the ambit of input for the purpose of availment of cenvat credit. However, the said explanation was amended vide N/N. 16/09-C.E.(N.T.) dated 07.07.2009, which are to the effect that cement, angles, channels, CTD Bars, TMT and other items used for construction of factory shed, building or laying foundation or making of structure for support of capital goods were excluded from the purview of the definition of input. The issue as to whether the amendment of the definition w.e.f. 07.07.2009 will apply prospectively or will have retrospective application, was the subject matter of dispute before various judicial forums. The Hon ble Gujarat High Court in the case of Mundra Port and Special Economic Zone Ltd. 2015 (5) TMI 663 - GUJARAT HIGH COURT have held that the explanation inserted in Rule 2 (k) is not clarificatory in nature and the same is effective from the date, when the same was brought in to the statute book. The disputed goods were procured prior to the date of amendment of Rule 2 (k) ibid, cenvat benefit on the disputed goods cannot be denied to the appellant - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Denial of cenvat credit on steel items used for fabrication of capital goods.

Analysis:
The case involved the denial of cenvat credit on steel items used for the fabrication of various capital goods installed in the factory. The appellant, engaged in the manufacture of cement and clinker, purchased steel items for this purpose. The authorities denied cenvat credit, stating that the goods did not meet the definition of capital goods or input for availing cenvat benefit. The appellant argued that the disputed goods were used for the fabrication of eligible capital goods, making them eligible for cenvat credit. Additionally, they contended that the goods were used for the manufacture of excisable goods, thus qualifying as inputs under Rule 2 (k) of the Cenvat Credit Rules, 2004. The appellant also cited a judgment by the Hon'ble Gujarat High Court regarding the retrospective application of an explanation appended to the definition of input.

The dispute centered around the retrospective or prospective application of an amendment to the definition of inputs in Rule 2 (k) of the Cenvat Credit Rules, 2004. The period in question was from April 2008 to September 2008. An explanation inserted in Rule 2 (k) specified that certain goods used for construction purposes were excluded from the definition of input. The issue of whether this amendment applied prospectively or retrospectively was a point of contention. The Hon'ble Gujarat High Court's judgment in another case clarified that the explanation was not clarificatory and should be effective from the date it was introduced. Given that the disputed goods were procured before the rule amendment, the cenvat benefit on those goods could not be denied to the appellant. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant with any consequential relief as per the law.