2019 (7) TMI 255 - AT - Central Excise

CENVAT Credit - inputs - MS plates which has been used in repair or maintenance of Heavy Earth Moving Machinery (HEMMs) used in the coal mines - denial on account of nexus with output - HELD THAT - There is no dispute that the subject goods MS plates has been used for repair or maintenance of HEMMs used in the coal mines of the appellant. The definition of term input as defined in the CCR, 2004, includes all goods used in the factory of production unless specifically excluded therefrom. Neither of the exclusion clauses provided in the definition of term input under Rule 2(k) is attracted in the instant case. In the instant case, the subject inputs have not been used for construction of any building or structure/foundation for support of capital goods, but for repair and maintenance of coal handling plant and HEMM s. The usage of subject goods is very integral to the mining activity itself without which mining cannot be done - the use of goods in question in the repair and maintenance of coal handling plant and HEMM s is indispensible, in absence of which mining activity cannot be undertaken. Therefore, usage of subject goods bears a direct nexus with the mining activity and by no stretch of imagination it can be said that they have no relation with production of coal, which is the final product. The appellant is legally entitled to avail the benefit of credit on goods used in the repair and maintenance of plant machinery which is used in the coal production process - Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Disallowance of CENVAT credit on inputs
- Eligibility of CENVAT credit on MS Plates used in repair and maintenance of capital goods

Analysis:
1. The appellant, a coalfields company, filed an appeal against the disallowance of CENVAT credit on inputs amounting to &8377;1,50,799 along with penalties and interest for the period 2011-2016. The dispute arose from the denial of credit on MS plates used in repair and maintenance of Heavy Earth Moving Machinery (HEMMs) in the coal mines. The original order disallowed the credit stating lack of relationship with the final product, coal production.

2. The appellant argued that the MS plates were essential for repair and maintenance of HEMMs crucial for coal production. They cited precedents where similar credits were allowed for sister concerns and other mining companies. The appellant contended that the denial lacked factual and legal basis, emphasizing the integral role of MS plates in mining activities.

3. The Departmental Representative opposed the appeal, asserting that the case laws cited were not applicable. However, the Tribunal found that the MS plates used for repair and maintenance of capital goods qualified as inputs under the CENVAT Credit Rules, 2004. The Tribunal analyzed the exclusion clauses under Rule 2(k) and concluded that none applied to the appellant's situation.

4. The Tribunal highlighted the CBEC Circular clarifying that goods used in the factory, even indirectly related to final product manufacture, are eligible for credit. Relying on judicial precedents affirming credit for similar repair and maintenance activities, the Tribunal ruled in favor of the appellant. The demand for duty, interest, and penalties was set aside, allowing the appeal with consequential benefits.

5. The judgment emphasized the direct nexus between the use of MS plates in repair and maintenance activities and the coal production process. By following established legal principles and precedents, the Tribunal upheld the appellant's right to avail CENVAT credit on goods essential for maintaining machinery crucial to the coal production process.