2018 (7) TMI 517 - AT - Central Excise

CENVAT credit - inputs/capital goods - rails and rail sleeper - Held that - The impugned goods have been used for laying of railway line for transportation of inputs inside the factory for manufacture of the final products. Therefore, the impugned goods seem to have nexus with the manufacture of final goods and are covered under the definition of inputs as per the Cenvat Credit Rules. In the case of Aditya Cement 2007 (3) TMI 190 - HIGH COURT RAJASTHAN , the Hon ble Rajasthan High Court had held that the railway track along with locomotive used by a cement factory for the purpose of transporting its material is a conveyor system and accordingly, the assessee was entitled to benefit of credit. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Whether cenvat credit on rails and rail sleeper is available under the category of capital goods or inputs.

Analysis:
The case involved a dispute regarding the eligibility of cenvat credit on rails and railway sleepers used for laying railway tracks within the factory premises. The appellant, engaged in the manufacture of sponge iron and MS Billets, claimed cenvat credit on these items as inputs under Rule 2(k) read with Rule 3 of the Cenvat Credit Rules, 2004. The Department contended that these goods did not qualify as inputs as they were not used in the manufacture of finished goods and were also not eligible as capital goods since the railway track extended from outside to inside the factory. A show cause notice was issued, disallowing the cenvat credit and imposing penalties. The adjudicating authority and Commissioner (Appeals) upheld the disallowance, leading to the appeal before the Tribunal.

The main issue revolved around determining whether the rails and rail sleeper could be classified as capital goods or inputs for availing cenvat credit. The appellant argued that the transportation and handling activities of raw materials were integral to the manufacturing process, justifying the claim for cenvat credit. They also refuted the Department's allegation of deliberate suppression of facts, citing compliance with reporting requirements. Reference was made to the case of Aditya Cement v. UoI to support their position.

In its analysis, the Tribunal referred to precedents to establish the eligibility of cenvat credit on railway tracks within the factory premises. Citing the case of Aditya Cement, where the High Court held that railway tracks used for essential activities related to manufacturing were eligible for credit, the Tribunal emphasized the integral role of transportation in the production process. Additionally, the Tribunal cited the case of Tata Steel Ltd. v. CCE, Jamshedpur, where the Supreme Court's principles were applied to justify the use of railway tracks as an integral part of the manufacturing process. The Tribunal concluded that the impugned goods, used for laying the railway line to transport inputs within the factory, were indeed covered under the definition of inputs as per the Cenvat Credit Rules. Consequently, the impugned order disallowing the cenvat credit was set aside, and the appeal was allowed in favor of the appellant.