2018 (12) TMI 776 - AT - Central Excise

CENVAT Credit - inputs/capital goods - M.S Angle, M.S. Channel, Joist, Plate, H.R. Sheet, Mill Plate etc. classifiable under Chapter 72 - M.S. Rounds, Lancing Pipes classifiable under Chapter 73 - Aluminum Balls classifiable under Chapter 76 of the first schedule - period of dispute is from 2003-2004 to 2007-2008. Held that - The amendment of the definition of Rule 2(k) of Cenvat Credit Rules, 2004 made w.e.f. 07.07.2009 is not applicable to the facts and the present case since all the goods have been purchased and used before the amendment. The exclusion made is to the effect that the inputs used in the manufacture of capital goods eligible for credit shall not include cement, angles, channels, CTD bar, TMT bars and other items used for construction of factory shed, building or laying foundation for support of capital goods. The applicability of such exclusion for the period prior to 07.07.2009 has been exempted by the Hon ble Gujarat High Court in the case of Mundra Ports & Special Economic Zone Ltd. 2015 (5) TMI 663 - GUJARAT HIGH COURT . In the above case the Hon ble High Court held that exclusion brought in by the amendment cannot be given retrospective effect. The eligibility of steel items for cenvat credit has been a subject matter of decision by the Tribunal, Hon ble High Courts and the Hon ble Supreme Court in various cases. It has been held by the Tribunal consistently that the steel items when they were used in fabrication of capital goods and their accessories inside the manufacturing premises are eligible for credit. Credit allowed - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Eligibility of cenvat credit on various steel items used in the fabrication of capital goods.
2. Applicability of the amendment to Rule 2(k) of the Cenvat Credit Rules, 2004.
3. Retrospective application of exclusions for inputs used in construction.
4. Legal precedents and their applicability to the case.

Issue-wise Detailed Analysis:

1. Eligibility of Cenvat Credit on Steel Items:
The appellant utilized various steel items such as M.S. Angle, M.S. Channel, Joist, Plate, H.R. Sheet, Mill Plate, M.S. Rounds, Lancing Pipes, and Aluminum Balls in the fabrication of capital goods within their factory premises. These items were used for manufacturing Storage Tanks, Pipes and Tubes, cooling towers, and other capital goods integral to the plant's operations. The appellant argued that these items should be eligible for cenvat credit as they were used exclusively for manufacturing capital goods and their accessories, which are essential for the production process. The Chartered Engineer's certificate dated 09.02.2009 supported this claim, certifying that the inputs were used in manufacturing various capital goods and their accessories.

2. Applicability of the Amendment to Rule 2(k) of the Cenvat Credit Rules, 2004:
The amendment to Rule 2(k) made on 07.07.2009 excluded certain items such as cement, angles, channels, CTD bars, TMT bars, and other items used for construction of factory sheds, buildings, or laying foundations from being eligible for cenvat credit. However, this amendment was not applicable to the present case as the goods were purchased and used before the amendment. The Tribunal referred to the Hon'ble Gujarat High Court's decision in Mundra Ports & Special Economic Zone Ltd., which held that the exclusion brought by the amendment could not be given retrospective effect.

3. Retrospective Application of Exclusions for Inputs Used in Construction:
The reliance on the Tribunal's decision in Vandana Global Ltd., which suggested retrospective application of exclusions, was deemed not legally tenable. The Hon'ble Madras High Court in Thiru Arooran Sugars and other cases consistently held that such exclusions could not be applied retrospectively. The Tribunal emphasized that the principle of user test, evolved by the Hon'ble Supreme Court in Rajasthan Spinning and Weaving Mills, should be applied to determine the eligibility of steel items for cenvat credit.

4. Legal Precedents and Their Applicability to the Case:
The Tribunal referred to various decisions by the Hon'ble High Courts and the Hon'ble Supreme Court, which consistently held that steel items used in the fabrication of capital goods and their accessories within the manufacturing premises are eligible for cenvat credit. The Tribunal specifically mentioned the decision in Singhal Enterprises, where it was held that structural steel items used in the fabrication of support structures for capital goods are eligible for cenvat credit. The Tribunal also noted that the original order failed to categorically establish that all steel items were used to create immovable assets only and did not adequately rebut the appellant's claims supported by the Chartered Engineer's certificate.

Conclusion:
The Tribunal concluded that the impugned order was not legally sustainable and set it aside. The appeal was allowed, and the eligibility of the steel items for cenvat credit was upheld based on the consistent view taken by various High Courts and the Hon'ble Supreme Court regarding such items. The Tribunal emphasized the importance of the user test and the necessity of detailed evidence to support any contrary conclusions.

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