2020 (1) TMI 373 - AT - Central Excise

CENVAT credit - capital goods - various items of the machinery - credit denied on the ground that at the time of receipt of capital goods in the refinery where the same had been installed for setting up Nephtha Cracker Plant, the appellant were not owner of the goods, as the same had been brought by their contractor for setting up the plant; and that the goods after being installed had becomes fixed to earth structure which is not excisable and hence the Cenvat Credit of Central Excise duty involved these goods would not be available to the appellant. HELD THAT - For capital goods Cenvat Credit, the items must be among those mentioned in this Rule and should have been used in the factory of the manufacturer and how the items are not used relevant. The words used in Rule 2(a) are used in the factory of manufacturer of the final product not used in the manufacture of final product . Therefore, once any item received in the factory is capital goods in terms of Rule 2(a) of the Cenvat Credit Rules, and is used in the factory, the manufacturer would be entitled to Cenvat Credit of excise duty paid in respect of the same. If the logic of the commissioner in the impugned orders are accepted, no capital goods Cenvat Credit can be allowed in respect of any item of capital goods enumerated in Rule 2(a) of the Cenvat Credit Rules, as all the items various items of machinery covered under Chapter 84, 85 90 of the Tariff, pipes tubes, tanks, pollution control equipments refractors etc. have to be installed in the factory before being put to use and after installation, the same would become fixed to earth plant - Reading the impugned orders give an impression that the same has been passed without any application of mind. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Eligibility of the appellant for capital goods Cenvat Credit.
2. Ownership of goods at the time of receipt.
3. Denial of Cenvat Credit based on goods becoming fixed to earth structure.

Analysis:
Issue 1: The appellant, a Public Sector Undertaking engaged in manufacturing petroleum products, faced a dispute regarding the eligibility of Cenvat Credit for various capital goods received for setting up a Nephtha Cracker Plant. The Department alleged that the appellant was not eligible for Cenvat Credit as the goods received were fixed to earth structures and non-excisable. Show Cause Notices were issued for recovery of allegedly wrongly taken Cenvat Credit, interest, and penalties. The appellant argued that the goods fell under the definition of capital goods as per Rule 2(a) of the Cenvat Credit Rules, regardless of being fixed to earth structures. The Tribunal found that the appellant was entitled to Cenvat Credit as the goods were used in the factory, meeting the criteria under Rule 2(a), and dismissed the Department's argument.

Issue 2: The Department contended that the appellant was not the owner of the goods at the time of receipt, as they were brought by contractors for setting up the plant. The appellant refuted this claim, stating that they had paid for the goods and owned them as per the EPCC contracts. The Tribunal held that ownership at the time of receipt was not a relevant factor for claiming Cenvat Credit, especially when the goods were used in the factory as capital goods.

Issue 3: The Department also argued that since the goods became fixed to earth structures after installation, they were not excisable, and hence Cenvat Credit should be denied. The Tribunal disagreed, emphasizing that the definition of capital goods under Rule 2(a) did not impose such conditions. It was clarified that once an item qualified as capital goods and was used in the factory, the manufacturer was entitled to Cenvat Credit, irrespective of it becoming part of a fixed to earth plant. The Tribunal found the Department's reasoning flawed and set aside the impugned orders, allowing the appeals with consequential relief.

This judgment highlights the importance of adhering to the specific criteria outlined in the Cenvat Credit Rules for claiming credit on capital goods, irrespective of ownership or the subsequent use of the goods in manufacturing processes. The Tribunal's decision underscores the need for a clear understanding of legal provisions to determine eligibility for tax credits in such cases.