2019 (2) TMI 1173 - AT - Central Excise

CENVAT Credit - inputs or capital goods - grinding wheels, cutting tools, inserts, etc. - refractory or refractory material - case of Revenue is that the goods are capital goods and not inputs and hence appellant is entitled to only 50% credit in the first year - Held that - It is observed from the SCN as well as the Order under challenge that there is no denial to the aforesaid fact that three of these items are used by the appellant in the machines manufacturing the final product. As per Cenvat Credit Rules, capital goods, as well as input are defined under Rule 2(a) and 2(k) respectively. Perusal of both these provisions makes it clear that both the terms are relative to the use they are put to. No doubt, grinding wheels are specifically mentioned in the definition of capital goods to be known as capital goods but they can acquire the relative character of being the input. The Hon ble Apex Court in the case of Collector of Central Excise and others Vs. Solaris Chemical Ltd. 2007 (7) TMI 2 - SUPREME COURT OF INDIA has held that when the article is captively consumed in the manner that without the use of the said article it was not possible to manufacture the final product. The article will come within the ambit of expression, use in relation to the manufacture occurring in Rule 57a of Central Excise Rules, 1944 - The Hon ble Apex Court has further held that any operation in the course of manufacture if so integrally connected with the operation involved in the emergence of manufactured goods it would come within the term of manufacture and the utilisation of the articles for production of final products will clothe it with the character of being an input which shall be available to cenvat in accordance of Rule 57(a) - thus, three of the goods are held as inputs as such being eligible for the cenvat credit with the 100% utilisation thereof in the same financial year. Hence, the demand with respect to these articles for the interest and the penalty is held not sustainable. Imposition of penalty - Refractory or refractory material - Held that - The SCN dated 17.09.2010 should not have been issued as being beyond the date of deposit of the proposed liability of the interest. This perusal makes it clear that adjudicating authority has failed to observe the mandate of the statute for no adjudication where the payment has been made even prior the issuance of SCN. Once the payment stands made, the question of any malafide intent to evade the duty has no more relevance. Thus, the Order of imposition of penalty in Appeal No. E/53182/2018 is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Determination of whether grinding wheels, cutting tools, and inserts qualify as inputs or capital goods for availing cenvat credit.
- Assessment of whether refractory items qualify as inputs or capital goods for availing cenvat credit.

Analysis:

Issue 1: Grinding wheels, cutting tools, and inserts
The appellants, engaged in manufacturing, availed cenvat credit on grinding wheels, cutting tools, and inserts. The Department contended these items were capital goods, not inputs, disallowing 100% credit in the same financial year. The Tribunal analyzed the definitions of capital goods and inputs under Cenvat Credit Rules, noting the relative use of the terms. Despite grinding wheels being mentioned as capital goods, they could acquire the character of inputs based on their use in the manufacturing process. Referring to legal precedents, the Tribunal emphasized the integral connection of these items in the manufacturing process, qualifying them as inputs eligible for cenvat credit with 100% utilization in the same financial year. Consequently, the demand for interest and penalty on these items was deemed unsustainable.

Issue 2: Refractory items
Regarding refractory items, the appellant conceded they qualified as capital goods, not inputs. The liability for interest was acknowledged, with payment made before the issuance of the show cause notice (SCN). The Order-in-Original confirmed the interest payment, rendering the subsequent SCN dated after the payment irrelevant. The adjudicating authority's failure to adhere to statutory provisions by issuing the SCN post-payment indicated a lack of grounds for penalty imposition. Consequently, the penalty in this regard was deemed unsustainable. As a result of the comprehensive analysis, the Tribunal set aside the challenged Order, allowing both appeals.

This judgment provides a detailed examination of the classification of specific items as inputs or capital goods for cenvat credit eligibility, emphasizing the importance of the items' use in the manufacturing process. Legal precedents and statutory provisions were crucial in determining the eligibility of items for cenvat credit, ensuring a fair and thorough evaluation of the appellants' claims.