2017 (12) TMI 271 - AT - Central Excise

CENVAT credit - capital goods - angles, channels, beams, nut-bolts, guides, etc, used to manufacture the storage racks for use in their factory - Held that - storage racks or crate would qualify as accessories to the capital goods as defined under the clause (1A) of the definition of capital goods but angles, channels, etc. are not by themselves storage systems and therefore, they are only parts of such accessories. The definition does not cover parts of the accessories of capital goods and therefore, the appellants are not entitled to the credit on angles, channels, nuts and bolts used for manufacture of storage racks, which in turn are accessories of the capital goods. Penalty u/r 15 (1) of the CCR - Held that - there is no ground for sufficient justification for imposition of such penalty and the same is set aside. Appeal allowed in part.

Summary

Issues:
- Denial of Cenvat Credit on articles used to manufacture storage racks.

Analysis:
The appellants were denied Cenvat Credit on articles used to manufacture storage racks for their factory. The appellants argued that the items used in assembling the "vertical storage racking system" are accessories to the manufacturing system and thus, credit should be allowed. They relied on various decisions, including the Tribunal's decision in Sree Ramicides Chemicals Pvt. Ltd., which held that racks imported for storage of raw materials and finished goods are accessories to manufacturing systems. The appellants also cited the decision in Banco Products (India) Ltd., where credit for plastic crates used for material handling was allowed. Furthermore, they referenced the decision in Rajasthan State Chemical Works, emphasizing that handling of raw materials is integral to the manufacturing process. The appellants also relied on the decision in Parle Products Pvt. Ltd. to support their claim for Cenvat Credit on steel racks used for storing inputs and finished goods.

The Assistant Commissioner relied on the impugned order, which led to the denial of Cenvat Credit. Upon reviewing the submissions, the Tribunal found that the appellants claimed credit on items like angles, channels, beams, nuts, bolts, etc., under the description of capital goods. The definition of capital goods under Rule 2(a)(i) of the Cenvat Credit Rules, 2004, includes specific goods falling under certain chapters. However, steel racks, when manufactured, fall under Chapter 73, which is not covered under the specified chapters in the definition of capital goods. The Tribunal noted that while storage racks or crates qualify as accessories to capital goods, items like angles, channels, nuts, and bolts used for manufacturing storage racks are only parts of such accessories and not covered under the definition of capital goods. The decisions cited by the appellants were deemed inapplicable as they related to complete storage racks or crates, not parts of such storage systems.

The Tribunal also addressed a decision cited by the appellants in the case of ITC Ltd., where steel items used for manufacturing storage racks were allowed. However, the Tribunal clarified that the decision did not consider whether complete storage racks are treated as accessories or the inputs/raw materials used for their manufacture. Consequently, the Tribunal ruled that the appellants were not entitled to credit on items used for manufacturing storage racks. The penalty imposed on the appellants under Rule 15(1) of the Cenvat Credit Rules, equal to the demand, was set aside, and the appeal was partly allowed.