2017 (5) TMI 137 - AT - Central Excise

CENVAT credit - security service - capital goods - integrated units - The appellant did not register second unit under the Central Excise provisions since there was no manufacturing process undertaken but was only a supporting unit for first registered unit of the appellant - Held that - both the units belong to the appellant but due to shortage of space in Unit-I, the appellant has established Unit-II which is situated in the same area and fall under the same Range and Division of the Commissionerate and both the units are integrated units as some of the processes are being carried out in another unit and are returned back to the first unit and from there it is cleared on payment of duty and this arrangement has been informed to the department - CENVAT credit on security services received at Unit-II cannot be denied on the ground that the same is not used by the manufacturer, as both the units belong to the same manufacturer and both are connected and integrated units - Similarly, the other issue that capital goods were not used in the factory is also not sustainable. The denial of credit on capital goods on the ground that the appellant have taken the 100% credit in the first year itself instead of 50%, the denial of 100% credit is also not sustainable because in the subsequent financial year, the appellant is entitled to take credit and the appellant had sufficient CENVAT credit balance in their account which they have not utilized. Therefore, denial of CENVAT credit on this count is also wrong. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Denial of CENVAT credit on security service and capital goods.
- Applicability of Rule 4(5) regarding job work.
- Integration of multiple units under the same manufacturer.
- Correctness of availing 100% credit on capital goods.
- Entitlement to interest on credit availed.

Analysis:

The appellants filed appeals against the Commissioner's order dismissing their appeals and upholding the Order-in-Original, focusing on the denial of CENVAT credit on security services and capital goods. The case involved the manufacture of ferrous castings and patterns, with a main unit and a supporting unit undertaking intermediary processes. The appellants did not register the supporting unit under Central Excise provisions as it was integrated with the main unit. The dispute arose when the department objected to the CENVAT credit availed on security services and capital goods, leading to show-cause notices and subsequent confirmation of demand by the adjudicating authority. The Commissioner rejected the appeals, prompting the current appeals before the Tribunal.

The appellants argued that the denial of CENVAT credit was unjustified, emphasizing that the supporting unit was an extension of the main unit and not a separate entity. They contended that the security services and capital goods were used in an integrated manner across both units, making the denial of credit unsustainable. Additionally, they challenged the application of Rule 4(5) regarding job work, asserting that the supporting unit was not a job worker. The appellants also defended their decision to avail 100% credit on capital goods, stating that they had not fully utilized the credit in the first year and were entitled to claim it in subsequent years.

In contrast, the department supported the findings of the impugned orders, maintaining their stance on the denial of CENVAT credit. However, after evaluating the submissions, case records, and legal precedents cited by the appellants, the Tribunal found in favor of the appellants. The Tribunal noted that both units belonged to the same manufacturer and were integrated, with processes carried out in the supporting unit and goods returned to the main unit for clearance. The Tribunal deemed the denial of CENVAT credit on security services and capital goods as unsustainable, citing relevant judgments. It also rejected the argument against availing 100% credit on capital goods, emphasizing the appellants' entitlement to claim credit in subsequent financial years.

Consequently, the Tribunal set aside the impugned orders, allowing the appeals of the appellants and providing for any consequential relief. The judgment highlighted the integration of units, the permissible use of CENVAT credit, and the entitlement of manufacturers to claim credit in compliance with the law.