2008 (2) TMI 125 - AT - Central Excise

Whether steel and cement used in foundation of kiln, cooler and chimney are capital goods in terms of definition thereof in Rule 2(a) of the Cenvat Credit Rules whether they are eligible for credit as capital goods Held, yes - using steel and cement for providing the necessary foundation and support for the capital goods, are eligible to CG credit denial of capital goods credit on Helmets (for safety of their employees) is justified because this denial is not challenged by assessee

Summary

Issues: Disallowance of Cenvat credit on steel, cement, and safety helmets used in construction and safety, penalty imposition.

Analysis:

1. Cenvat Credit Disallowance: The appellants availed Cenvat Credit on steel, cement, and safety helmets used in construction and safety measures. The Revenue disallowed the credit, stating these items did not qualify as capital goods under Rule 2(a) of the Cenvat Credit Rules, 2004. The appellants argued that steel and cement were integral parts of the machinery and were essential for providing the necessary foundation and support for the capital goods. They cited various precedents to support their claim, emphasizing the technological requirement for placing capital goods in a specific manner. The Tribunal's decision in Ispat Industries Ltd. was referenced, which concluded that if steel and cement were linked with specified capital goods and used for production, they would qualify as capital goods. However, the Tribunal clarified that these items would not be eligible for credit when used for constructing factory buildings.

2. Legal Precedents: The appellants cited decisions such as Bellary Steel & Alloys vs. CCE, Mukund Ltd vs Commissioner, Ispat Industries Ltd. vs CCE, and Divi's Laboratories Ltd vs CCE to support their argument. They also referred to the Apex Court decision in Solaris Chemtech Ltd., interpreting the term "in or in relation to manufacture" to encompass all processes necessary for manufacturing activities. On the other hand, the Revenue relied on the decision of the Hon'ble Rajasthan High Court in the case of UOI vs Hindustan Zinc Ltd., which held that steel and cement were neither inputs nor capital goods. The Tribunal's decision in Madras Cement Ltd. vs. CCE was also cited by the Revenue to oppose the appellants' claim.

3. Judicial Interpretation: The Tribunal referred to the Aditya Cement case where the High Court emphasized that items like steel used as parts and components of machinery, essential for the machine's functioning, were eligible for availing credit. The Tribunal highlighted that the steel and cement in question were directly linked to the machinery and were crucial for the manufacturing process. The Tribunal differentiated between using these items for machinery support and for constructing factory buildings, indicating that the former qualified for capital goods credit.

4. Final Decision: In light of the Aditya Cement judgment and considering the essential role of steel and cement in machinery functioning, the Tribunal accepted the appellants' submission that the goods in question qualified for Cenvat credit as capital goods. The impugned order denying credit on these items was set aside. However, the denial of credit on safety helmets was upheld, with a reduced penalty imposed. The appeal was partly allowed based on the above findings.