2023 (12) TMI 112 - AT - Central Excise

Denial of CENVAT Credit - effect of amendment in Explanation 2 vide Notification No.16/2009-C.E. (N.T.), dated 07.07.2009 - retrospective or prospective effect - penalty - HELD THAT - The show cause notice has been issued mainly based on the decision of VANDANA GLOBAL LTD. VERSUS CCE 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) and the same has been categorically overruled by Hon'ble Chhattisgarh High Court in M/S VANDANA GLOBAL LIMITED AND OTHERS VERSUS COMMISSIONER, CENTRAL EXCISE AND CUSTOMS, CENTRAL EXCISE 2018 (5) TMI 305 - CHHATTISGARH, HIGH COURT . The Hon'ble High Court has given a specific finding against the finding of retrospective operation of the amendment to the explanation to Rule 2(k) of Cenvat Credit Rules holding that the said amendment will not be retrospectively applicable. Further, the said finding of the learned Adjudicating Authority is in violation of a catena of decisions of several High Courts and Supreme Court allowing the admissibility of credit on inputs used in the fabrication of support structures of capital goods. Similar issue came up for consideration before Hon ble Gujarat High Court in the case of MUNDRA PORTS AND SPECIAL ECONOMIC ZONE LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE CUSTOMS 2015 (5) TMI 663 - GUJARAT HIGH COURT and before Hon ble Madras High Court in the case of M/S. INDIA CEMENTS LTD. VERSUS THE CUSTOM, EXCISE AND SERVICE TAX THE COMMISSIONER OF CENTRAL EXCISE 2015 (3) TMI 661 - MADRAS HIGH COURT wherein it was held that the exclusion incorporated in Explanation 2 to Rule 2(k) of the Credit Rules w.e.f. 07.07.2009 cannot be given retrospective effect thereby effectively holding that the finding in Vandana Global is erroneous. 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 , by applying the user test, held that credit availed on steel items for fabrication of Chimney was admissible. The availment of credit on PSC poles is covered by the decision of Hon ble Rajasthan High Court in the case of ADITYA CEMENT VERSUS UNION OF INDIA 2007 (3) TMI 190 - HIGH COURT RAJASTHAN . It has been held that the railway track material used for transporting of coal and products of cements are eligible for credit as without supply of fuel the plant does not function. Thus, the railway track cannot be kept out of the consideration for availing credit, though, such material was not being used directly in the manufacture of cement. In such situation, imposition of penalty is also not sustainable on the main as well as the other Appellants. The impugned order cannot be sustained and is accordingly set aside - appeal allowed.

Summary

Issues Involved:
The issues involved in the judgment are denial of CENVAT credit on steel items used in the manufacture of support structures for capital goods and PSC Sleepers for laying railway line, recovery of interest, and imposition of penalties.

Denial of CENVAT Credit:
The Appellants filed appeals against the Order-in-Original confirming the denial of credit availed on steel items used in the manufacture of support structures for capital goods and PSC Sleepers. The Adjudicating Authority ordered recovery of the amount representing the inadmissible credit, along with interest and penalties. The denial was based on the amendment to Explanation 2 of the CENVAT Credit Rules, which excluded certain items used for construction of structures for support of capital goods. However, the High Court held that the amendment would not have retrospective effect, and various decisions supported the admissibility of credit on inputs used in the fabrication of support structures for capital goods.

Legal Precedents and Decisions:
The Tribunal and High Courts have consistently ruled in favor of allowing CENVAT credit on steel items used for fabrication of support structures for capital goods. The decision in the case of Vandana Global, which formed the basis of the denial of credit, was overruled by various High Courts. The "User Test" was applied to determine the admissibility of credit, and several cases supported the availment of credit on steel items used for fabrication purposes. Additionally, the decision regarding the availment of credit on PSC poles was supported by a ruling of the Rajasthan High Court.

Imposition of Penalties:
The Adjudicating Authority imposed penalties on the main Appellant and other individuals involved. However, in light of the discussions and legal precedents regarding the admissibility of CENVAT credit on steel items, the imposition of penalties was deemed unsustainable. Therefore, the impugned order was set aside, and the appeals filed by the Appellants were allowed with consequential relief.

Conclusion:
The judgment by the Appellate Tribunal CESTAT ALLAHABAD addressed the denial of CENVAT credit on steel items used in the manufacture of support structures for capital goods and PSC Sleepers. The decision was based on legal precedents, the interpretation of relevant rules, and the application of the "User Test" to determine the admissibility of credit. Ultimately, the impugned order was set aside, and the appeals were allowed in favor of the Appellants.