2019 (5) TMI 867 - AT - Central Excise

CENVAT Credit - inputs/capital goods - staging structure falling under chapter heading No.73089090 - HELD THAT - In the present case from the purchase order, it is apparent that a purchase order was placed as per the technical specifications. Keeping in view the scope of work required for the Energy Efficient Expansion of the Sugar Mill of the appellant. It stands clarified from the purchase order itself that existing sugar mill was proposed to be modified and for the said modification, the apparatus was purchased - Technological structures and staging are part of the machineries, in the sense that different equipment and plant like Pans, Crystallizers, Tank etc. are erected at a given height, and base which is provided by these technological structures and staging. The plant and machineries will be incomplete without these structures and staging. Keeping in view the same, the principal of user test as has been held by Hon ble Apex Court in the case of COMMISSIONER OF CENTRAL EXCISE, JAIPUR VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS LTD. 2010 (7) TMI 12 - SUPREME COURT , wherein the Hon ble Supreme Court has considered an identical issue of steel plates and MS channels used in the fabrication of chimney for diesel generating set. The credit stands allowed in the light of Rule 57Q of the erstwhile Central Excise Rules, 1944. In addition, the Department s own Circular No. 964/07-2012 dated 2nd April 2012 supports the appellant s case and also the Circular No. 966/2009 dated 18 May, 2012 come to the rescue of the appellant which contained clarification regarding classification of structural components and admissibility of Cenvat credit Cenvat Credit there upon. It was clarified in the said Circular that Cenvat Credit is available in support of such structural components, which though are used for laying foundation or for making structural support, but if the machine cannot work without such support, these become the accessories / components thereof and as such, classified to be called as capital goods. In the present case, the impugned articles were required to suitably support and facilitate the smooth functioning of the machines of the sugar mill and as such, while applying the above principle of user test such structures have to be considered as the part of the relevant machines. Since the definition of capital goods includes components, spares accessories of such capital goods, we have no hesitation in holding that the impugned structural items would fall within the ambit of capital goods as contemplated under Rule 2 (a) of the Cenvat Credit Rules. Hence, appellant is held entitled to avail the Cenvat Credit. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availment of Cenvat Credit on staging structures under Chapter 73.
2. Interpretation of definition of "Capital Goods" under Cenvat Credit Rules.

Issue 1: Availment of Cenvat Credit on staging structures under Chapter 73

The appellants, engaged in manufacturing "Cane Sugar and molasses," availed Cenvat Credit on staging structures purchased from M/s. Uttam Industrial Engineering Ltd. The Department objected to this, stating that the goods fell under Chapter 73 and were not covered as capital goods or inputs for the appellant. A show cause notice was issued proposing recovery of the Cenvat Credit amount. The appeal against the confirmation of this proposal was dismissed by the Order-in-Appeal. The appellant argued that the structures were part of sugar machinery and thus were rightly availed Cenvat Credit. The Department cited a previous case where it was held that such structures do not qualify as capital goods. After hearing both parties, the Tribunal analyzed the technical specifications of the purchase order and the Chartered Engineers Certificate. It was concluded that the structures were essential components of the sugar machinery and fell within the definition of capital goods. The Tribunal referred to the "user test" principle established by the Supreme Court, allowing the Cenvat Credit. The Tribunal also highlighted relevant Circulars supporting the appellant's case and set aside the order under challenge, allowing the appeal.

Issue 2: Interpretation of definition of "Capital Goods" under Cenvat Credit Rules

The Tribunal delved into the definitions of "inputs" and "capital goods" under the Cenvat Credit Rules. It noted that the term "Capital Goods" includes various goods falling under specific chapters, components, spares, and accessories of such goods. The Tribunal emphasized the importance of the user test principle as established by the Supreme Court in determining whether certain goods can be classified as capital goods. Applying this principle to the case at hand, the Tribunal found that the structural items in question were integral to the functioning of the sugar mill machinery and thus qualified as capital goods. The Tribunal also referenced relevant Circulars that supported the appellant's argument and highlighted the significance of the Chartered Engineers Certificate in determining the applicability of the user test principle. Additionally, the Tribunal noted a decision by the High Court of Chhattisgarh overturning a previous decision cited by the Department. Considering all these factors, the Tribunal set aside the previous order and allowed the appeal.

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