2007 (8) TMI 340 - HC - Central Excise

Cenvat Credit - Cenvat credit to the tune of ₹ 37,29,625/- on cement, explosives and oil and lubricants used in the mining area inputs to be used within the factory premises Rule 2(g) of the cenvat credit rules, 2004 - held that - Tribunal has committed a substantial error of law in allowing the appeal of the respondents by holding that the cement used in the mines is eligible as inputs for the purpose of availment of Cenvat credit cenvat credit on cement used in mining area not to be allowed.

Issues Involved:
1. Eligibility of cement as input for Cenvat credit under the Cenvat Credit Rules, 2002.
2. Applicability of the Supreme Court decision in Vikram Cement's case.
3. Whether cement can be considered as capital goods for Cenvat credit purposes.

Detailed Analysis:

1. Eligibility of Cement as Input for Cenvat Credit:
The primary issue in this case was whether cement, used as construction/building material in the mines, is eligible as an input for the purpose of availing Cenvat credit under the Cenvat Credit Rules, 2002. The show cause notice issued by the Additional Commissioner, Central Excise Commissionerate, Jaipur-II, stated that the respondent-assessee had wrongly availed Cenvat credit on cement, explosives, and oil and lubricants used in the mining area, which should be used within the factory premises as per Rule 2(g) of the Rules of 2002. The cement was used for filling gaps and providing safety to the roof of the mining area, thus being a construction material and not eligible as an input for Cenvat credit.

The respondent-assessee argued that it is not necessary for inputs to be used within the factory premises and that mines should be considered part of the factory for Cenvat credit purposes. However, the Additional Commissioner concluded that the respondent-assessee had availed Cenvat credit by misinterpreting the law and disallowed the credit, ordering recovery with interest and imposing a penalty.

2. Applicability of the Supreme Court Decision in Vikram Cement's Case:
The Tribunal, in its final order, set aside the order passed by the Commissioner (Appeals) and allowed the appeal filed by the respondent-assessee, relying on the Supreme Court decision in Vikram Cement v. CCE. The Tribunal found that the issue was covered by this decision. However, the appellant-Union of India contended that the Tribunal erred in applying the Vikram Cement case, as it was not applicable to the present case. The Tribunal's reliance on Vikram Cement was challenged, arguing that the decision did not pertain to the facts of the current case.

3. Cement as Capital Goods:
During the proceedings, the respondent-assessee's counsel suggested that even if Cenvat credit is not available on cement as inputs, it could be considered as capital goods. The appellant's counsel countered that this argument was baseless according to the definition of capital goods in the Rules. The Tribunal had not considered this aspect, as the primary argument before it was whether cement used as building material in the mines is eligible as input for Cenvat credit.

The High Court noted that the real question was whether cement, used as building construction material, is eligible for Cenvat credit under Rule 2(g) of the Rules of 2002. The Court referred to the definition of cement and concluded that it is always used as building material, not integrally connected with the manufacturing process of the final product. Thus, it is not eligible for Cenvat credit. The Court also mentioned that the argument of treating cement as capital goods was not raised before the Tribunal and was not necessary to examine in this appeal.

Conclusion:
The High Court allowed the appeal, setting aside the Tribunal's order and restoring the order passed by the Commissioner (Appeals), Customs and Central Excise, Jaipur-II. The Court held that cement used in the mines as building/construction material is not eligible as input for availing Cenvat credit. The appeal was decided based on the substantial question of law formulated at the time of admitting the appeal, which focused on the eligibility of cement as input for Cenvat credit.

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