2023 (3) TMI 635 - AT - Central Excise

Recovery of CENVAT Credit - Inputs - cement - welding electrode - MS plate - MS angle - channel - penalty in terms of Rule 15(2) of CENVAT Credit Rules, 2004 read with Secion 11AC of the Central Excise Act, 1944 - HELD THAT - The issue is no more res integra since the period of dispute is 2007-08 and 2008-09 and the amendment to the definition of input was made on 07.07.2009 and which was made to be not retrospective. It is the case of the Appellant that the disputed items of iron and steel, cement, welding electrodes etc. were used in the factory in the manufacture of storage tank and also for pollution control system and thus are eligible as inputs and are squarely covered by the definition of input . Reliance has been made on the decision of the Tribunal in the case of M/S. SINGHAL ENTERPRISES PRIVATE LIMITED VERSUS THE COMMISSIONER CUSTOMS CENTRAL EXCISE, RAIPUR 2016 (9) TMI 682 - CESTAT NEW DELHI where it was held that applying the User Test to the facts in hand, we have no hesitation in holding that the structural items used in the fabrication of support structures would fall within the ambit of Capital Goods as contemplated under Rule 2(a) of the Cenvat Credit Rules, hence will be entitled to the Cenvat credit. The impugned orders cannot be sustained and are therefore set aside - Appeal allowed - decided in favor of apellant.

Summary

Issues involved:
The issues involved in this case are the denial and recovery of CENVAT Credit, imposition of penalty under Rule 15(2) of CENVAT Credit Rules, 2004, and the eligibility of certain items as inputs for availing credit.

Denial of CENVAT Credit and Penalty Imposition:
The Appellant, engaged in manufacturing Kraft Paper and Duplex Paper, received a Show Cause Notice proposing to deny and recover CENVAT Credit amounting to Rs.4,23,399 for the period 2007-08 and 2008-09. The Adjudicating authority disallowed the CENVAT Credit as proposed and imposed a penalty of an equal amount. On appeal, the Ld. Commissioner(Appeals) upheld the decision, leading to the present Appeal before the Tribunal.

Eligibility of Items as Inputs for CENVAT Credit:
The Appellant contended that disputed items like iron, steel, cement, welding electrodes used in the manufacture of storage tanks and pollution control systems qualify as inputs and are covered by the definition of 'input'. Reference was made to the decision in Singhal Enterprises Pvt. Ltd. v. Commr. Of Cus. & C.Ex., Raipur, where the Tribunal held that welding electrodes and structural items like MS Angles, Channels, TMT bar used in support structures of capital goods are eligible for CENVAT credit.

Judicial Interpretations and Precedents:
The Tribunal cited various judicial pronouncements supporting the allowance of CENVAT credit on welding electrodes and structural steel items. It was noted that while the Larger Bench decision in Vandana Global Ltd.'s case initially denied credit for iron and articles used as supporting structures, subsequent interpretations by High Courts allowed such credit within the definition of 'Input'. The 'user test' principle was applied to determine the eligibility of structural items as parts of relevant machines, falling under the ambit of 'Capital Goods'.

Legal Precedents Supporting CENVAT Credit:
The decision of the Hon'ble High Court of Karnataka in Commissioner of Central Excise, Bangalore-II v. SLR Steels Ltd. clarified that inputs used in the manufacture or construction of capital goods qualify for CENVAT credit. The amendment to Explanation-II to Rule 2(a) excluded certain items like cement, angles, channels from being considered as inputs, but clarified that duty paid on raw materials used for construction of capital goods is eligible for credit.

Final Decision:
Considering the precedents and legal interpretations, the Tribunal concluded that the impugned orders denying CENVAT credit and imposing penalties cannot be sustained. Therefore, the Appeal by the Appellant was allowed with consequential relief, in accordance with the law.