2019 (1) TMI 618 - AT - Central Excise

CENVAT Credit - capital goods and inputs were exclusively used in the manufacture of exempted grain base ENA/rectified spirit as also dutiable goods - Rule 6 of the Cenvat Credit Rules - Held that - The rectified spirit so manufactured, are captively used by the appellant for manufacture of dutiable product i.e. denatured spirit. The storage tanks installed in the factory to store Extra Natural Alcohol were used for denaturing process, as per the market requirement. Since denaturing process takes place, while Extra Natural Alcohol were stored in the storage tank, it cannot be concluded that those storage tanks were used exclusively for manufacture of the exempted/non-excisable goods. Further, Extra Natural Alcohol is an intermediate product, which is used for manufacture of the denatured alcohol - denial of Cenvat benefit of central excise duty paid on capital goods is not proper and justified. Further, DDHS and Barli are not the final product manufactured by the appellant. Since, those products emerged during the course of manufacture of alcohol i.e. both dutiable as well as exempted, it will not be appropriate to deny the benefit of Cenvat Credit availed of capital goods used in the manufacture of such waste product. CENVAT credit - input services - construction service - Held that - The Learned Commissioner (Appeals) vide paragraph 7 in the impugned order has held that the appellant had not extended any argument regarding availment of such credit. Also, from the appeal records that the appellant has not made any specific grounds in support of its claim that it is entitle for the benefit of input service credit used in the construction activities. Therefore, in absence of proper substantiation of the issue, the impugned order denying the Cenvat benefit on input service amounting to ₹ 7,51,900/- cannot be interfered with at this juncture - the appellant is liable to pay/reverse Cenvat Credit on the input services used for the construction services and original order confirming the adjudged demand on such count is sustainable. Appeal allowed in part.

Summary

Issues:
- Availment of Cenvat Credit on capital goods used for manufacturing exempted goods
- Availment of Cenvat Credit on input services used for construction activities

Analysis:

Issue 1: Availment of Cenvat Credit on capital goods used for manufacturing exempted goods

The appellant, engaged in manufacturing excisable goods, availed Cenvat Credit on capital goods used in the manufacture of exempted goods. The central excise officers observed this during an audit and initiated proceedings against the appellant. The appellant argued that the capital goods were used for both dutiable and exempted goods, and the denaturing process made the goods dutiable. The Tribunal noted that denatured spirit manufactured by the appellant is dutiable, while rectified spirit is non-excisable and used captively for dutiable products. The storage tanks storing Extra Natural Alcohol were used for denaturing, making them not exclusively for exempted goods. The Tribunal held that denial of Cenvat Credit on capital goods was unjustified as the goods were used for both dutiable and exempted products, such as DDHS and Barli, which emerged during alcohol manufacturing.

Issue 2: Availment of Cenvat Credit on input services used for construction activities

The appellant also availed Cenvat Credit on input services used for construction activities. The Tribunal noted that the appellant failed to provide sufficient arguments or grounds to support this claim. As a result, the impugned order denying the Cenvat benefit on input services was upheld. The Tribunal found the original order confirming the demand on this count to be sustainable. Therefore, the appellant was held liable to pay/reverse the Cenvat Credit on input services used for construction activities.

In conclusion, the Tribunal set aside the impugned order denying Cenvat Credit on capital goods but upheld the decision regarding Cenvat Credit on input services for construction activities. The appeal was allowed in favor of the appellant regarding the capital goods issue but not for the input services matter.