2013 (9) TMI 416 - AT - Central Excise

Admissibility of CENVAT credit - Definition of Capital Goods under Rule 2(a) - MS bars, MS plates and Sections, HR Plates etc. - The department was of the view that these items were neither covered by the definition of capital goods as given in Rule 2 (a) of Cenvat Credit Rules, 2004 nor were covered by the definition of inputs as given in Rule 2 (k) of Cenvat Credit Rules 2004 and hence the Cenvat credit in respect of these items is not admissible - Held that - Prima facie the items used for repair and maintenance of the plant and machinery would be eligible for Cenvat credit - While the items used for repair and maintenance of the plant and machinery cannot be considered as raw material - The repair and maintenance of the plant and machinery was an activity integrally connected with the manufacture, as without regular repair and maintenance of the plant and machinery, smooth manufacturing process was not possible - In any case, scope of the term - used in or in relation to manufacture of goods, whether directly or indirectly was much wider than the scope of the term used in the manufacture . Following Singh Alloys & Steel Ltd. vs. Assistant Collector 1993 (1) TMI 97 - HIGH COURT AT CALCUTTA and Grasim Industries Ltd. vs. Union of India 2011 (10) TMI 2 - SUPREME COURT OF INDIA - the expression - in relation to in the definition of input had a wide connotation and the definition of input was not dependent in what ought to be used but what was commercially expedient to use and on this basis held that the ramming mass and dolomite mix used for preventing Corrosion of refractory lining of the furnace and sealing the crevices in the refractory walls so as to prevent leakage of molten metal are eligible for Modvat credit. Waiver of Pre-deposit - Prima facie the appellant had a strong prima facie case in their favour and as such the amount of Rs. 10,60,242/- already paid by them prior to adjudication was sufficient for hearing of the appeal - The requirement of pre-deposit of balance amount of Cenvat credit demand, interest and penalty was waived for hearing of the appeal and recovery was stayed till the disposal of the appeal - stay application was allowed.

Summary

Issues Involved:
1. Admissibility of Cenvat credit for items used in repair and maintenance of plant and machinery.
2. Invocation of extended period under proviso to Section 11A (1) of Central Excise Act, 1944.
3. Imposition of interest and penalty under Section 11AB and Section 11AC, respectively.

Issue-wise Detailed Analysis:

1. Admissibility of Cenvat Credit:
The appellant, engaged in the manufacture of sugar and molasses, took Cenvat credit for items under chapters 72 and 73 (MS bars, plates, sections, HR Plates, etc.) and chapter 383976 (jointing sheets) used for repair, maintenance, and modification of plant and machinery from March 2006 to March 2010. The department contended these items were not covered under the definition of capital goods (Rule 2(a)) or inputs (Rule 2(k)) of the Cenvat Credit Rules, 2004, thus making the credit inadmissible. The appellant argued that these items should be considered as used in or in relation to the manufacture of the final product, citing precedents from various High Courts (e.g., Ambuja Cements Eastern Ltd., Hindustan Zinc Ltd., Rashtriya Ispat Nigam Ltd.) supporting the eligibility of such items for Cenvat credit. The Tribunal acknowledged that while the items might not be capital goods, they could be considered inputs as defined broadly under Rule 2(k), encompassing goods used directly or indirectly in the manufacture of the final product.

2. Invocation of Extended Period:
The first show cause notice dated 06/09/2010 invoked the extended period under proviso to Section 11A (1) of the Central Excise Act, 1944, alleging suppression of facts by the appellant. The Tribunal noted that the extended period was correctly invoked due to the appellant's failure to disclose relevant information to the department.

3. Imposition of Interest and Penalty:
The show cause notices sought the recovery of allegedly wrongly taken Cenvat credit along with interest under Section 11AB and the imposition of penalties under Section 11AC. The Commissioner confirmed the demands and imposed penalties equal to the credit amount under Rule 15 (2) of Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act. The Tribunal, however, found the appellant had a strong prima facie case, referencing the broader interpretation of "used in or in relation to manufacture" from the Supreme Court's judgment in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. and other High Court decisions. Consequently, the Tribunal waived the requirement of pre-deposit of the balance amount of Cenvat credit demand, interest, and penalty, and stayed recovery until the appeal's disposal.

Conclusion:
The Tribunal concluded that the items used for repair and maintenance of plant and machinery are eligible for Cenvat credit, aligning with precedents from various High Courts and the Supreme Court's broader interpretation of "in or in relation to manufacture." The appellant's pre-deposit of Rs. 10,60,242/- was deemed sufficient, and the stay application was allowed, waiving the requirement for the balance pre-deposit and staying recovery till the appeal's disposal.