2016 (7) TMI 1073 - HC - Central Excise

Cenvat credit on welding rods/electrodes and asbestos sheets - scope of definition of inputs , as contemplated by Rule 2(k) of Cenvat Credit Rules, 2004 - Held that - the term inputs , is wide enough to cover all the goods, except the goods specifically mentioned in the definition, inputs used in or in relation to the manufacture of the final product, whether directly or indirectly or whether it contained the final products or not. Judicial pronouncements extracted supra, makes it abundantly clear that welding electrodes used for repair and maintenance of machineries, in relation to manufacture of the final product, namely sugar, is eligible for Cenvat credit. - Decided in favor of assessee.

Issues Involved:
1. Disallowance of Cenvat credit on welding electrodes used by the appellant.
2. Definition and scope of 'inputs' under Rule 2(k) of Cenvat Credit Rules, 2004.
3. Interpretation of judicial precedents related to the eligibility of welding electrodes for Cenvat credit.
4. The relevance of the usage of welding electrodes in the manufacturing process.

Issue-wise Detailed Analysis:

1. Disallowance of Cenvat Credit on Welding Electrodes:
The Civil Miscellaneous Appeal was directed against the Final Order No.939/09 dated 07.08.2009 by the Customs, Excise, and Service Tax Tribunal, which confirmed the disallowance of Cenvat credit on welding electrodes used by the appellant. The Adjudicating Authority initially disallowed this credit, stating that welding rods/electrodes used for repair and maintenance purposes do not fall under the definition of 'inputs' as per Rule 2(k) of Cenvat Credit Rules, 2004. This decision was upheld by the Commissioner of Central Excise (Appeals) and subsequently by the Tribunal.

2. Definition and Scope of 'Inputs' under Rule 2(k):
The appellant argued that welding electrodes should be considered as 'inputs' under Rule 2(k) of the Cenvat Credit Rules, 2004, which defines 'input' as all goods used in or in relation to the manufacture of the final product, whether directly or indirectly. The appellant's counsel emphasized that welding electrodes are used at various stages of the sugar manufacturing process to repair and maintain machinery, which is essential for the production process. The counsel cited Rule 2(k) to argue that the definition of 'input' is broad enough to include welding electrodes as they are used in relation to the manufacture of the final product.

3. Interpretation of Judicial Precedents:
The appellant relied on several judicial precedents to support their claim. In Jawahar Mills Ltd. vs. Commissioner of Central Excise, Coimbatore, the Tribunal had allowed Modvat credit on welding electrodes, which was upheld by the Supreme Court. Similarly, in Commissioner of Central Excise, Coimbatore vs. Madras Aluminium Company Ltd., the Division Bench of the Madras High Court allowed Modvat credit on welding electrodes used for repairs and maintenance. The appellant also cited the decision in Ambuja Cements Eastern Ltd. vs. Commissioner of Central Excise, Raipur, where the Chhattisgarh High Court held that welding electrodes used for repair and maintenance are eligible for Cenvat credit as both capital goods and inputs.

4. Relevance of Usage in Manufacturing Process:
The appellant's counsel detailed the usage of welding electrodes at different stages of the sugar manufacturing process, such as the crushing, syrup, pan, centrifugal, and bagging stages. The welding electrodes are used to repair and maintain machinery, which is crucial for uninterrupted production. The counsel argued that this usage is integrally connected with the manufacturing process, making welding electrodes eligible for Cenvat credit. The court agreed with this interpretation, noting that the term 'inputs' is wide enough to cover goods used in relation to the manufacture of the final product.

Conclusion:
The court concluded that the welding electrodes used for the repair and maintenance of machinery in the sugar manufacturing process are eligible for Cenvat credit. The substantial question of law was answered in the affirmative, in favor of the appellant. The impugned Final Order No.939/09 dated 07.08.2009 by the Customs, Excise, and Service Tax Appellate Tribunal was set aside. The appeal was allowed without any order as to cost.

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