2010 (4) TMI 133 - AT - Central Excise

Cenvat Credit - (a) Whether the term capital goods can include plant, structures embedded to earth? (b) Whether the goods like angles, joists, beam, channels, bars, flats which go into fabrication of such structures can be treated as inputs in relation to their final products as inputs for capital goods, or none of the above? (c) Whether the credit can be allowed in respect of goods like angles, joists, beam, channels, bars, flats which go into fabrication of such structures and plant? Held that The intention behind the 2009 amendment to Explanation 2 to Rule 2(k) was merely to clarify the coverage under the expression input used in the CENVAT Credit Rules, 2004. There was no indication whatsoever that the 2009 amendment was made to change the scope of the Rules or to introduce any new provision. - the clarificatory amendment made to Explanation 2 to Rule 2(k) in 2009 has to be held to be retrospectively applicable. The Section 37(2) refers to credit of duty paid on goods used in, or in relation to the manufacture of excisable goods. Hence, capital goods defined in the CENVAT Credit Rules in the context of providing credit of duty paid, have to be excisable goods. - Goods like cement and steel items used for laying foundation and for building supporting structures cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules for the impugned period.

Summary

Issues Involved:
1. Whether the term "capital goods" can include plant, structures embedded to earth?
2. Whether goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures can be treated as 'inputs' in relation to their final products or as inputs for capital goods?
3. Whether credit can be allowed in respect of goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures and plant?

Detailed Analysis:

Issue 1: Whether the term "capital goods" can include plant, structures embedded to earth?
The Tribunal examined whether structures embedded to earth can be considered "capital goods." The definition of "capital goods" under the CENVAT Credit Rules includes machinery items, components, spares, accessories, and certain specifically listed items like pollution control equipment, moulds, dies, refractories, tubes, pipes, and storage tanks. The Tribunal concluded that foundations and supporting structures embedded to earth may be categorized as capital assets but do not qualify as "capital goods" under the CENVAT Credit Rules. The Tribunal emphasized that the definition of "capital goods" must be adhered to strictly and cannot be expanded to include structures embedded to earth.

Issue 2: Whether goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures can be treated as 'inputs' in relation to their final products or as inputs for capital goods?
The Tribunal considered whether steel items used for laying foundations and building supporting structures could be treated as inputs. The Tribunal concluded that these items cannot be treated as inputs for capital goods or final products. The main definition of "input" under Rule 2(k) includes goods used in or in relation to the manufacture of final products, but the Tribunal clarified that this does not extend to goods used for laying foundations or building supporting structures. The Tribunal also rejected the argument that the value of these items contributes to the value of the final product, thereby entitling them to credit.

Issue 3: Whether credit can be allowed in respect of goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures and plant?
The Tribunal examined whether credit could be allowed for steel items used in the fabrication of structures and plants embedded to earth. The Tribunal concluded that such structures and plants, being immovable property, are not "goods" and therefore cannot be considered either as excisable goods or capital goods under the Central Excise Rules or the CENVAT Credit Rules. The Tribunal emphasized that the CENVAT scheme is designed to grant credit for excisable goods used in the manufacture of final products and not for immovable property.

Conclusion:
The Tribunal concluded that structures embedded to earth cannot be considered "capital goods," and goods like angles, joists, beams, channels, bars, flats used in the fabrication of such structures cannot be treated as inputs for capital goods or final products. Consequently, no credit of duty paid on these items can be allowed under the CENVAT Credit Rules for the impugned period. The Tribunal also held that the view taken by the Division Bench in the case of Bhushan Steel and Strips Ltd. was not correct in law. The individual appeals were directed to be returned to the jurisdictional Benches for final hearing and disposal.