2015 (10) TMI 336 - AT - Central Excise

Benefit of CENVAT credit of duty paid on various capital goods - Subject items cannot be considered to be covered by the definition of capital goods inasmuch as they are classifiable under Chapters 29 35 and 38 - Held that - Traps in question are required to be used for avoiding the attack by the tobacco beetles. If the same are not used raw materials as also the final products are likely to be damaged in which case they would not be in a position to be cleared. The items in question may not be strictly covered by the definition of capital goods but admittedly they are required to be used for manufacture of final product and as such can be considered as inputs. The Hon ble Karnataka High court in the case of Rane (Madras) Ltd Vs CCE Bangalore 2007 (12) TMI 208 - KARNATAKA HIGH COURT has allowed the CENVAT credit on universal measuring machine used by the assessee for measurement of jigs fixtures and gauges which are intended for manufacture of intermediary products as well as measuring some of the final products. It is well settled law that where a particular process is integrally connected with the ultimate production of the goods but for that process manufacture of goods would be commercially inexpedient articles required in that process would be considered as having been used in the manufacture of goods. It is nobody s case that tobacco beetle is required to be managed and if not managed the production of cigarettes cannot take place commercially though theoretically it may be possible to do so. As such anything used for managing the tobacco beetle infestation is required to be considered as an input having been used in relation to manufacture of final products. Demand is also barred by limitation - Decided in favour of assessee.

Summary

Issues:
1. Admissibility of CENVAT credit on specific items used in manufacturing cigarettes.
2. Classification of items as capital goods or inputs.
3. Dispute regarding limitation period for availing credit.
4. Imposition of penalty and confiscation of goods.

Analysis:

Issue 1: Admissibility of CENVAT credit
The dispute in the appeal revolves around the admissibility of CENVAT credit amounting to Rs. 77,681 availed by the appellants during August 2005 to May 2009 on items like Lasiotrap Pheromone capsules, Insect Monitoring trap, and New Serrico Pheromone. The authorities denied the credit, arguing that these items were not covered under the definition of capital goods or inputs. The appellants contended that these items were essential for monitoring and preventing tobacco beetle infestation, crucial for preserving raw materials and final products in the tobacco and food processing industries.

Issue 2: Classification of items
The lower authorities rejected the appellant's plea to classify the items as inputs, stating that they did not enter the manufacturing process at any stage. However, the appellants argued that any item used in the manufacturing process, even if not part of the final product, should be considered an input. The Tribunal acknowledged the importance of the items in managing tobacco beetle infestation, crucial for commercial production of cigarettes. Referring to a previous court decision, the Tribunal concluded that items integral to the production process, like those used for managing the tobacco beetle, should be treated as eligible cenvatable inputs.

Issue 3: Limitation period
The Commissioner (Appeals) rejected the appellant's plea on limitation, alleging malafide intention in availing the credit. However, the Tribunal found no evidence of malafide intent, as the credit was duly reflected in statutory records. The Tribunal criticized the stereotypical reasoning of lower authorities and emphasized that mere availing of credit does not imply malafide intention. Given that the issue was a matter of interpreting credit provisions, not clandestine activities, the Tribunal deemed the longer period of limitation invoked by the authorities unjustified.

Issue 4: Penalty and confiscation
Since the demand for CENVAT credit was set aside, the Tribunal ruled to annul the penalties and confiscation of goods imposed on the appellants. The Tribunal's decision favored the appellants on both substantive and limitation grounds, allowing the appeal and quashing the penalties and confiscation orders.

In conclusion, the Tribunal upheld the appellants' right to claim CENVAT credit on the items in question, considering them essential inputs for manufacturing cigarettes. The decision also highlighted the importance of evidence and proper interpretation of legal provisions in tax disputes, emphasizing fair treatment for taxpayers in matters of credit availing and limitation periods.