2013 (5) TMI 137 - AT - Central Excise

Cenvat credit denied - GI structures & catenary plate - Held that - There is no dispute that although the boiler as well as turbine fall under chapter heading 84 and are covered by the definition of capital goods, and that the definition of capital goods in addition to the goods falling under Chapter 82, 84, 85, 90 etc., also covers as the component, spares and accessories of these goods. It is settled law that components and accessories of the capital goods can be of any heading not necessary of the tariff headings specified in the definition of capital goods. Therefore, even if the items falling under Chapter 7308 are used as part of the machinery falling under chapter 84, the same would have to be treated as capital goods. Since in this case, the GI structure is used as part of the turbine, the denial of credit in respect of this item on the ground that the same is not covered by the definition of capital goods is not correct. Also denial of cenvat credit in respect of catenary plate which, admittedly, has been used as part of the boiler is also not correct.In favour of assessee. Structural part of the boiler - Held that - Same have been used as supporting structure for Boiler. The structural part to be used as support for Boiler had been fabricated in some other factory and had been brought to this factory where the same has been erected. Since in the facts of this case, the structural part, though supporting structure, is more like a component of the boiler, the denial of cenvat credit in respect of the same would not be correct. In favour of assessee.

Summary

Issues:
1. Whether certain items used in the manufacturing process qualify as capital goods for the purpose of availing cenvat credit.
2. Whether denial of cenvat credit by the Commissioner (Appeals) was justified.
3. Whether the show cause notice adequately covered the grounds for denying cenvat credit.

Analysis:

Issue 1:
The appellant, a manufacturer of sugar chargeable to central excise duty, brought in various items like GI structures, catenary plate, and structural parts into the factory. The appellant claimed cenvat credit for these items, arguing that they were essential components of the turbine and boiler used in the manufacturing process. The Department, however, issued a show cause notice for recovery of the cenvat credit claimed. The Assistant Commissioner confirmed the demand, which was upheld by the Commissioner (Appeals). The main contention was whether these items qualified as capital goods under the Cenvat Credit Rules, 2004.

Issue 2:
The appellant contended that the items in question, even though falling under a different tariff heading, should be considered as components of capital goods. The Tribunal noted that the definition of capital goods under Rule 2(a)(A) of the Cenvat Credit Rules includes components and accessories of capital goods, irrespective of their tariff headings. The Tribunal held that since the items were used in the machinery falling under the relevant chapter, they should be treated as capital goods. Therefore, the denial of cenvat credit by the Commissioner (Appeals) was deemed incorrect.

Issue 3:
The Tribunal also addressed the lack of evidence regarding the use of the items, which was not a ground mentioned in the show cause notice. It emphasized that the show cause notice forms the foundation of a case, and the adjudication authority cannot introduce new grounds beyond what is stated in the notice. As such, the Tribunal found that the denial of cenvat credit based on the absence of evidence regarding item usage was not justified. Consequently, the impugned order denying cenvat credit was set aside, and the appeal was allowed in favor of the appellant.

This judgment clarifies the interpretation of capital goods under the Cenvat Credit Rules and emphasizes the importance of adherence to the grounds specified in a show cause notice during adjudication.