2022 (11) TMI 99 - AT - Central Excise

CENVAT Credit - Iron and Steel Materials - applicability of principles of user test - April 2008 to March 2009 - levy of penalty - extended period of limitation - HELD THAT - In the instant case the dispute relates to the period from April, 2008 to March, 2009 whereas the Show Cause Notice is issued on dated 25.07.2012 i.e. beyond normal period of limitation of one year. Therefore, as per Section 11Aof the Central Excise Act, 1944 the entire demand is barred by normal period of limitation. Hence, extended period of limitation cannot be invoked in the instant case in as much as none of the ingredients necessary for invoking extended period under proviso to Section 11A (1) exists. Levy of penalty - HELD THAT - In the facts and circumstances of the case there is no warrant in levying any penalty upon the Appellant. During the material period the position of law was not settled and there were divergent views expressed by the Courts / Tribunals leading to referral of the matter to Larger Bench in the case of Vandana Global Ltd., Vs. CCE 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) . Hon ble Chhattisgarh High Court has set aside the decision of the Tribunal s Larger Bench in the case of Vandana Global M/S VANDANA GLOBAL LIMITED AND OTHERS VERSUS COMMISSIONER, CENTRAL EXCISE AND CUSTOMS, CENTRAL EXCISE 2018 (5) TMI 305 - CHHATTISGARH, HIGH COURT . It is further observed that the principle of user test also need to be considered while deciding the entitlement of assessee to avail CENVAT Credit as laid down by the Hon ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, JAIPUR VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS LTD. 2010 (7) TMI 12 - SUPREME COURT . Following the said decision, the Hon ble Madras High Court in the case of Thiru Arooran Sugars 2017 (7) TMI 524 - MADRAS HIGH COURT , has held that iron and steel items and cement used for erection of foundation and support structures would also come within the ambit of the definition of input so long as it satisfies the user test . In the facts of the present case, it is not in dispute that various steel items have been used for the purpose of setting up of Sponge Iron Plant for manufacture of final products. Therefore, by applying the user test principle, the Appellant is entitled to avail credit on the steel items. The Appellant is entitled to avail credit - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against disallowance of CENVAT Credit on Iron and Steel materials used for manufacturing; Interpretation of Iron and Steel materials as supporting structures or spares/components/accessories; Application of user test principle for credit entitlement; Invocation of extended period of limitation for demand; Levy of penalty on the Appellant.

Analysis:
1. Disallowance of CENVAT Credit: The Appellant, engaged in Sponge Iron manufacturing, purchased Iron and Steel materials for their plant and claimed CENVAT Credit. The Audit Team verified the end use of goods, classifying them as spares/components. The Additional Commissioner disallowed part of the credit, labeling goods as support structures. The Appellant contested, arguing the Joint Verification report supported their claim. The Tribunal cited precedents where similar items were considered accessories, allowing CENVAT Credit.

2. User Test Principle: The Appellant emphasized the utilisation statement and user test principle to support their credit entitlement. They argued that the lower authorities erred in classifying certain items as supporting structures instead of spares/components. The Tribunal referred to judgments emphasizing the user test for determining credit availability on Iron and Steel materials used in manufacturing processes.

3. Extended Period of Limitation: The Show Cause Notice was issued beyond the normal limitation period, raising concerns about invoking the extended period. The Tribunal noted the absence of conditions justifying the extended period under the Central Excise Act, barring the demand based on the limitation period.

4. Penalty Imposition: Considering the unsettled legal position during the relevant period and divergent court views, the Tribunal found no basis for imposing a penalty on the Appellant. The Tribunal referenced the Chhattisgarh High Court's decision overturning a Tribunal's ruling, emphasizing the user test principle for credit eligibility.

5. Final Decision: After thorough analysis, the Tribunal allowed the Appellant's appeal, granting them the entitlement to avail credit on the Iron and Steel materials used for setting up the Sponge Iron Plant. The Tribunal's decision was based on the application of the user test principle and precedents supporting the classification of such materials as spares/components/accessories, thereby upholding the Appellant's claim for CENVAT Credit.

This detailed analysis of the legal judgment showcases the issues involved, the arguments presented by both parties, relevant legal principles, and the Tribunal's final decision in favor of the Appellant.