2017 (8) TMI 1272 - AT - Central Excise

CENVAT credit - iron & steel items such as Chequered Plate, G.P. Sheet, H.R. Plate, G.P. Coil cut into sheet, H.R. Sheet, Cobble Plate etc. and on welding electrodes, used for manufacturing of Sponge Iron - Held that - whether iron and steel item is to be considered as part or component or accessory of capital goods can be decided by applying user test as decided in Jawahar Mills Ltd. 2001 (7) TMI 118 - SUPREME COURT OF INDIA and elaborated in CCE Vs.Rajasthan Spinning & Weaving Mills Ltd. 2010 (7) TMI 12 - SUPREME COURT OF INDIA , where it was held that Applying the user test on the facts in hand, we have no hesitation in holding that the steel plates and M.S. Channels, used in the fabrication of chimney would fall within the ambit of capital goods as contemplated in Rule 57Q - credit allowed. Penalty - Held that - Reliance placed in the decision of Hon ble Madras High Court in CCE, Salem Vs. Madras Aluminium Co. Ltd. 2016 (12) TMI 1374 - MADRAS HIGH COURT which also deals with the scope of credit on similar items and also application of the concept of support structure while deciding the dispute, where it was held that there is no willful intent to evade duty and hence the question of invoking the penalty under section 11AC would not arise - penalty set aside. Credit allowed - penalty set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
Eligibility of CENVAT credit on iron and steel items used for manufacturing capital goods for sponge iron production.

Analysis:
The case involved a dispute regarding the eligibility of CENVAT credit on iron and steel items used in the manufacturing of capital goods for sponge iron production. The respondents, engaged in sponge iron manufacturing, availed CENVAT credit on various iron and steel items, which the Revenue contended were not covered under the CENVAT Credit Rules. The adjudicating authority disallowed the credit, leading to an appeal by the Revenue. The Commissioner(Appeals) overturned the decision, prompting the Revenue to appeal before the Tribunal.

The main point of contention was whether the iron and steel items used in manufacturing capital goods for sponge iron production qualified for CENVAT credit. The lower appellate authority examined the usage of these items in capital goods and their components, as certified by a chartered engineer. The Revenue argued that these items were primarily used in support structures and did not meet the criteria of parts or components of machinery. However, the Tribunal noted that the user test, as established by the Supreme Court in previous cases, needed to be applied. Various judgments by the Tribunal and High Courts supported allowing credit in similar circumstances.

The Tribunal, in its analysis, referenced previous decisions and the application of the user test to determine whether the iron and steel items were integral parts of the capital goods. It highlighted that the structural items were essential for supporting various capital goods like kilns and conveyors, ensuring their smooth functioning. By applying the user test, the Tribunal concluded that the structural items used in fabricating support structures were indeed parts of the relevant machines, falling within the ambit of Capital Goods as defined in the CENVAT Credit Rules.

Additionally, the Tribunal cited relevant case laws, including a decision by the Madras High Court, to support its conclusion. The Revenue's reliance on certain Supreme Court and High Court decisions was also addressed, emphasizing the consistency in applying the user test to determine CENVAT credit eligibility. Ultimately, the Tribunal found that the impugned order had appropriately analyzed the issues and aligned with established legal principles, leading to the dismissal of the appeal by the Revenue.