2014 (10) TMI 763 - HC - Central Excise

Denial of CENVAT Credit - Capital goods - Credit taken on MS tanks - Held that - By no stretch of imagination one can deny that MS Tank used in the manufacturing process is not a plant, machinery, apparatus, equipment etc. items in question were used in the erection of various machineries such as, - new additional Electrostatic Precipitator for raw mill project, additional fly ash handling system, MMD crusher etc., for the Dry Process Cement Manufacturing Plant. It is evident that MS Angles, MS Beams,MS Channels etc., were used in the erection of machineries it become component of the same, which are integral part of Dry Process Cement Manufacturing Plant. It is noted that Fly Ash handlish system is a pollution control equipment and particularly mentioned in 2(A)(A)(ii) of Rules, 2004. The allegation in the above show-cause notice that the Chapter Heading of these items were not covered under Rule 2(a) of the Rules, 2004, is not sustainable, in respect of Pollution control equipments because the rule does not specify the tariff headings under which pollution control equipment should be falling. The appellant established that these items were used for erection of capital goods namely Dry Process Cement Manufacturing Plant, which falls under Chapter 84, as mentioned in Serial No.(i) of Rules 2(a)(A). Thus, the items in question are covered in serial No.(iii) of Rules 2(a)(A) of the Rules, CBEC has clarified that all parts, components, accessories which are to be used with capital goods in serial (i) and (ii) of Rules 2(a)(A) and classifiable under any chapter heading are eligible for availment of CENVAT credit. A plain reading of serial (iii) cannot lead to a different conclusion either. The keyword is that such goods must be used in the factory for the manufacture of the final products and it is relatable to plant, equipment, machinery set out in Explanation (1)(a) to Sec.57Q and which is used for producing or processing any goods or bringing about any change in any substance for the manufacture of final product. The intent is wide enough to accept MS Tank as capital goods. Following decision of The Commissioner of Central Excise & Service Tax Versus M/s. India Cements Ltd. 2014 (7) TMI 881 - MADRAS HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Eligibility of Modvat credit on MS Tanks under Rule 57Q.
2. Interpretation of Rule 57Q regarding capital goods.
3. Applicability of Modvat credit for MS Tanks before 01.03.2001.
4. Clarification on MS Tanks as part of plant or machinery for final product manufacturing.

Issue 1: Eligibility of Modvat credit on MS Tanks under Rule 57Q:
The case involved a dispute over the eligibility of Modvat credit on MS Tanks under Rule 57Q of the Central Excise Rules, 1944. The Commissioner (Appeal) and the Tribunal concluded that MS Tanks qualified as capital goods for Modvat credit, citing precedents where storage tanks were considered eligible for credit. The Tribunal rejected the Revenue's argument that MS Tanks were eligible only from 01.03.2001, emphasizing the interpretation of Rule 57Q during the relevant period. The Tribunal's decision was based on the classification of MS Tanks as part of the manufacturing plant, making them eligible for Modvat credit.

Issue 2: Interpretation of Rule 57Q regarding capital goods:
The Tribunal relied on the Explanation 1 to Rule 57Q, defining capital goods as machinery, equipment, or apparatus used in producing or processing goods for manufacturing final products. It determined that MS Tanks fell under this definition as integral components of the manufacturing process. The Tribunal's interpretation aligned with the prevailing law during the dispute period, emphasizing the importance of considering the specific use of goods in the manufacturing process.

Issue 3: Applicability of Modvat credit for MS Tanks before 01.03.2001:
The Tribunal dismissed the Revenue's argument that MS Tanks were eligible for Modvat credit only post 01.03.2001, citing the provisions of Rule 57Q as they stood when the credit was taken. By referring to relevant precedents and the Larger Bench decision, the Tribunal concluded that MS Tanks qualified as capital goods for Modvat credit during the period in question, rejecting the Revenue's contention based on the effective date of eligibility.

Issue 4: Clarification on MS Tanks as part of plant or machinery for final product manufacturing:
The Tribunal analyzed the role of MS Tanks in the manufacturing process, emphasizing their use as plant or machinery for producing final products. It referenced previous judgments and clarified that MS Tanks were integral to the manufacturing setup, making them eligible for Modvat credit under Rule 57Q. The Tribunal's decision highlighted the broad interpretation of capital goods under the rule, emphasizing the relevance of MS Tanks in the manufacturing context.

In conclusion, the judgment confirmed the eligibility of MS Tanks for Modvat credit under Rule 57Q, emphasizing their role as capital goods integral to the manufacturing process. The decision aligned with precedents and the interpretation of relevant provisions during the dispute period, ultimately ruling in favor of the assessee and dismissing the Revenue's appeal.