2017 (6) TMI 1067 - AT - Central Excise

CENVAT credit - AST Car Tyre and SV Car Ring Rims - imported capital goods - Held that - the subject item is essential tool/accessory for conducting technical testing on the tyres which are manufactured by the appellant. Unless this testing is done, quality of the tyre on the related parameter cannot be certified and the item cannot be sold in the market - the Hon ble Supreme Court in the case of Flex Engineering Ltd. Vs CCE, UP 2012 (1) TMI 17 - Supreme Court of India has observed that items which are used directly or indirectly in relation to manufacturing final product would be entitled to Modvat credit under Rule 57(A) of erstwhile C.Ex Rules, 1944, predecessor to CENVAT Credit Rules - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against denial of Cenvat credit on imported items "AST Car Tyre and SV Car Ring Rims" used for technical testing of tyres as capital goods.

Analysis:
1. Issue of Denial of Cenvat Credit: The appellant, a manufacturer, imported "Ring Rims" for technical testing of tyres before marketing. The Department denied Cenvat credit, stating the goods did not fall under the definition of capital goods. The appellant appealed against Order in Original denying credit, which was upheld by the Commissioner (Appeals).

2. Legal Interpretation: The Tribunal analyzed the essentiality of the subject item in conducting technical testing for certifying tyre quality before sales. Referring to the Supreme Court's decision in Flex Engineering Ltd. case, it emphasized that items used directly or indirectly in manufacturing the final product are eligible for credit. The Court highlighted that physical presence of an input in the final product is not necessary for claiming credit.

3. Marketability and Manufacturing Process: The Tribunal discussed the concept of marketability in relation to the completion of the manufacturing process. It cited precedents emphasizing that goods must be saleable to be considered marketable, and the process of manufacture is integrated with marketability. The burden of proving marketability lies on the department, and in the absence of evidence, goods cannot be presumed marketable.

4. Decision and Conclusion: Applying the Supreme Court's decision and considering the interconnection of testing with the manufacturing process, the Tribunal held that the subject item, Ring Rims, qualifies for Cenvat credit. Consequently, the impugned order denying credit was set aside, and the appeal was allowed. The judgment provides a detailed legal analysis supporting the admissibility of Cenvat credit on the imported items used for technical testing of tyres.