2018 (7) TMI 165 - AT - Central Excise

CENVAT Credit - scope of Factory - capital goods - Whether the compressor used at the gas well to pump gas into tankers which is about 30 K.M. away from the manufacturer can also be considered as a part of the factory premises of the appellant? - Held that - The definition Capital goods under Rule 2(a) of CCR 2004 specifically requires the goods to be used in the factory of the manufacturer of the final products subject to some exceptions. The current case does not fall in those exceptions. Therefore, the capital goods in this case i.e. compressor must be used in the factory of the manufacturer of the final products if CENVAT credit must be allowed. The definition of Factory has been given in Central Excise Act and this clearly does not cover the gas well where the compressor has been installed - It is true that the goods are finally required for the manufacture and so are many other raw materials sourced from various places without which the manufacture cannot take place. All these places from where raw materials are sourced, cannot be treated as part of the factory of the manufacturer. There is nothing on record to show that the well is part of the registered premises of the factory of the manufacturer - CENVAT credit not admissible - demand upheld. Penalty - Held that - Appellant has enough reason to suspect that they were entitled to the credit and hence any malafide intent cannot be attributed - penalty not warranted. Appeal allowed in part.

Summary

Issues:
1. Eligibility of CENVAT credit on a compressor moved from the factory premises to a gas well located 30 KM away.
2. Interpretation of the definition of "capital goods" under Rule 2(a) of CENVAT Credit Rules 2004.
3. Determining whether the gas well can be considered an extension of the factory premises.
4. Applicability of case laws allowing CENVAT credit on capital goods used outside the factory premises.

Analysis:
1. The appellant, a manufacturer of ceramic glazed tiles, availed CENVAT credit on a compressor used to pump gas from a gas well located 30 KM away. The issue arose when the department alleged irregular availment of credit as the compressor was moved out of the factory. The appellant argued that the gas well should be considered an extension of the factory premises, citing cases where credit was allowed for capital goods used away from the factory but integral to the manufacturing process.

2. The definition of "capital goods" under Rule 2(a) of CCR 2004 requires goods to be used in the factory of the manufacturer, with exceptions. The Tribunal analyzed whether the compressor at the gas well could be deemed part of the factory premises. While acknowledging past cases where remote locations were considered part of the factory, the Tribunal concluded that the gas well did not fall under this definition. Therefore, the CENVAT credit on the compressor was deemed inadmissible and needed to be reversed along with interest.

3. The Tribunal emphasized that the gas well, although essential for the manufacturing process, could not be equated to the factory premises. It noted that sourcing raw materials from various locations, including the gas well, did not make those places part of the factory. Lack of evidence showing the well as part of the factory's registered premises supported the decision to disallow the credit on the compressor.

4. Despite disallowing the credit, the Tribunal acknowledged the appellant's reliance on case laws and lack of malafide intent. Consequently, the penalty imposed was set aside, and the appeal was allowed partially, only to the extent of overturning the penalties. The demand for reversing the credit along with interest was confirmed, highlighting the importance of adhering to the specific criteria for availing CENVAT credit on capital goods used in the factory of the manufacturer.