2023 (11) TMI 368 - AT - Central Excise

CENVAT Credit - capital goods - under erstwhile Rule 57Q/57AA of Central Excise Rules, 1944 - period March and April 2001 - HELD THAT - There is no dispute of the fact that the capital goods have been received in the premises of the appellants during the period 1997 to 2000 and installed. Their final products are dutiable all along. They had availed 50% of the total credit in March 2001 i.e. Financial year 2000-01 and balance 50% in April 2001 i.e Financial year 2001-02 as per the procedure prescribed under the relevant Rule of Central Excise Rules,1944. Out of the total credit disallowed an amount of Rs.61,85,230/- at Sl. No. 10 items used in construction of the storage tanks , specifically covered under the aforesaid definition of capital goods. Also, the issue of admissibility of Cenvat credit on the items used in fabrication has been settled in favour of the assessee by Karnataka High Court in SLR Steel Ltd. s case 2012 (9) TMI 169 - KARNATAKA HIGH COURT . The said judgment has been followed by this Tribunal in the Appellant s own case vide Final Order No. 20701/2023 dated 06.07.2023 2023 (8) TMI 696 - CESTAT BANGALORE . The scope of the definition of capital goods under erstwhile Rule 57Q has been examined by the Hon ble Supreme Court in Rajasthan Spinning Weaving Mills Ltd s case 2010 (7) TMI 12 - SUPREME COURT . The issue involved in the said case was regarding admissibility of Modvat credit in respect of steel plates and MS channels used in the fabrication of chimney installed in the factory premises. It was argued by the Revenue that steel plates and MS channels classifiable under Chapter 7208.11 and 7216.10 of CETA,1985 cannot be considered as capital goods, hence, credit is inadmissible on the said items - The Hon ble Supreme Court analysing Rule 57Q and following the user test laid down in Jawahar Mills s case 2001 (7) TMI 118 - SUPREME COURT , held that MS channels, steel plates and angles used in fabrication of chimney would fall within the definition of capital goods. Also, a major amount of Cenvat Credit denied to the appellants are on fire extinguisher and inputs/parts mentioned at Sl. Nos. 2, 3, 4, 51, 52, and 66 amounting to Rs.4,20,109/- - the Fire extinguishers and its parts are classified under Chapter 84 of CETA,1985 and hence fall under the scope of the definition of capital goods as defined under amended Rule 57AA of the Central Excise Rules, 1944. The consumables used in the fire extinguishers are also admissible to credit as inputs. Further, this Tribunal in the case of Mylan Laboratories Ltd vs. CCE 2017 (6) TMI 669 - CESTAT HYDERABAD held that Cenvat Credit on fire extinguishers and parts thereof are admissible. All the items, which have been disallowed as discussed are admissible to Cenvat credit. Accordingly, the impugned orders are modified to the extent of setting aside the orders disallowing Cenvat credit of Rs. 80,02,643/- in each of the appeals - Appeal disposed off.

Summary

Issues Involved:
1. Admissibility of CENVAT Credit on various items declared as 'capital goods' under erstwhile Rule 57Q/57AA of Central Excise Rules, 1944.
2. Interpretation and application of relevant case laws and statutory provisions.
3. Determination of whether specific items qualify as capital goods or inputs.
4. Application of the 'user test' for determining capital goods.
5. Validity of interest and penalties imposed.

Summary:

1. Admissibility of CENVAT Credit on Various Items:
The appellants availed CENVAT Credit on items such as steel plates, TMT bars, MS CTD bars, angles, channels, and other materials used for manufacturing storage tanks and structural supports. The Commissioner (Appeals) disallowed a significant portion of this credit, relying on the Larger Bench decision in *Vandana Global Ltd.* However, this decision was overruled by the Hon'ble High Court of Chhattisgarh, making it no longer good law. The Tribunal found that the items used in the construction of storage tanks and support structures qualify as capital goods under Rule 57Q/57AA, following the Supreme Court's 'user test' in *Rajasthan Spinning & Weaving Mills Ltd.*

2. Interpretation and Application of Case Laws:
The Tribunal referenced several case laws, including the Supreme Court's decision in *Rajasthan Spinning & Weaving Mills Ltd.*, which held that steel plates and MS channels used in fabricating chimneys are capital goods. This principle was applied to the present case, confirming that items used in constructing storage tanks and supporting structures are eligible for CENVAT Credit.

3. Determination of Specific Items as Capital Goods or Inputs:
Items such as fire extinguishers, parts of air conditioners, and lighting fittings were also contested. The Tribunal held that these items qualify as capital goods or inputs, as they are essential for the operation of the manufacturing plant. The credit on these items was deemed admissible, following precedents like *Mylan Laboratories Ltd. vs. CCE*.

4. Application of the 'User Test':
The Tribunal applied the 'user test' established by the Supreme Court, which considers whether the items are used for producing or processing goods or bringing about any change in the substance for manufacturing the final product. The Tribunal concluded that the disputed items met this test and thus qualified as capital goods.

5. Validity of Interest and Penalties:
The Tribunal did not find sufficient evidence of suppression of facts by the appellants. Therefore, the imposition of interest and penalties was deemed incorrect and was set aside.

Conclusion:
The Tribunal modified the impugned orders, allowing the CENVAT Credit of Rs. 80,02,643/- in each appeal and setting aside the disallowance. The appeals were disposed of accordingly.

(Order pronounced in the court on 07/11/2023)