2016 (9) TMI 1097 - AT - Central Excise

Cenvat credit - availed on 836.99 MT of steels used for fabrication of misc. structures - Rules 12 and 13 of erstwhile Cenvat Credit Rules, 2001/2002 read with Section 11 A of the Central Excise Act, 1944 - three main categories of items viz., M.S. Beams, Angles, Plates and Channels used to support the various ducts and cyclones in the appellant s factory, iron steel items used for fabricating, attending platforms, which are generally erected around a machinery and staircases and ladders and fabricated using the angles, plates, etc. Held that - the lower authorities denied the credit mainly on the ground that the M.S. items, on which credits have been taken are falling under Chapter 72, which is not covered under the category of capital goods . The second main objection is that these items were used for fabricating the structures, which become immovable upon fixing and hence, results in a non-excisable item. Hence, the credit is not eligible on any of them. We find that the denial of credit by the lower authorities is on the ground that the items are not used in the manufacture of capital goods as none of the items, as described above, arising after fabrication, can be considered as accessories of the capital goods. Further, they become immovable upon fabrication. We find both these arguments as un-sustainable. Much emphasis has been made on the requirement and necessity of emergence of excisable items after fabrication using the impugned goods. We do not find any such requirement specifically mentioned in the definition of either in the inputs or capital goods under Cenvat Credit Rules. In the present case, the lower authorities have not categorically established that upon fabrication, an immovable civil structure is emerged. Fabrication of structural as an accessory for necessary operation of capital machinery cannot be considered as creation of immovable property. It is relevant to note the Hon ble Supreme Court s observation in Rajasthan Spg. & Wvg. Mills Ltd. 2010 (7) TMI 12 - SUPREME COURT OF INDIA . The Hon ble Apex Court allowed the credit on steel plates and M.S. channels used in the fabrication of chimney applying user test . In other words, the usage of a particular item in the appellant s premises will determine the credit eligibility rather than its classification alone. Hence, we find no merit in the impugned order and accordingly set aside the same. - Decided in favour of appellant

Issues Involved:
1. Denial and recovery of Cenvat credit on steel items used for fabrication of structures.
2. Imposition of penalties under Rules 12 and 13 of Cenvat Credit Rules (CCR) 2001/2002.
3. Eligibility of steel items as capital goods or inputs under Cenvat Credit Rules.
4. Classification of fabricated structures as immovable property.
5. Bona fide belief and penalty imposition.
6. Interest recovery on Cenvat credit.

Detailed Analysis:

1. Denial and Recovery of Cenvat Credit:
The core matter concerns the denial and recovery of Cenvat credit amounting to ?17,19,091/- availed on 836.99 MT of steel used for fabricating miscellaneous structures. The Original Authority, followed by the Commissioner (Appeals), disallowed the credit and confirmed the demand along with interest and equivalent penalty. The Tribunal had previously remanded the case for a fresh decision on merits.

2. Imposition of Penalties:
The penalties were imposed under Rules 12 and 13 of the erstwhile Cenvat Credit Rules, 2001/2002. The appellant contended that the imposition of enhanced penalties in the de novo order was against the remand direction of the Tribunal and not sustainable. They argued that the issue was not free from doubt, and they had a bona fide belief, which should negate the penalty imposition.

3. Eligibility of Steel Items as Capital Goods or Inputs:
The appellant argued that the steel items used for fabricating ducts, chutes, hoppers, attending platforms, and support structures should be considered as capital goods or inputs under Rule 2(b) and 2(f) of the Cenvat Credit Rules, 2002. They emphasized that these items were essential for the installation and functioning of machinery and thus should be eligible for Cenvat credit.

4. Classification of Fabricated Structures as Immovable Property:
The Revenue contended that the fabricated structures, being immovable upon fixing, could not be considered excisable goods or capital goods. They cited various case laws, including Union of India Vs. Delhi Cloth and General Mills Co. Ltd. and Mittal Engineering Vs. CCE, to support their argument that immovable structures do not qualify for Cenvat credit.

5. Bona Fide Belief and Penalty Imposition:
The appellant maintained that the credit availment was as per law and sustainable. They argued that the penalties were unwarranted as the issue involved was complex and not free from doubt, thus justifying their bona fide belief.

6. Interest Recovery on Cenvat Credit:
The appellant contended that interest was not recoverable since the credit had not been taken or utilized wrongly. They argued that the credit availment was legitimate and within the legal framework.

Tribunal's Findings:
The Tribunal noted that the case involved three main categories of disputed items: support structures for ducts and cyclones, attending platforms around machinery, and staircases/ladders attached to capital goods. The Tribunal found that these items were integral to the manufacturing process and essential for the functioning of the capital goods.

The Tribunal rejected the lower authorities' argument that the items, being immovable upon fabrication, disqualified for Cenvat credit. They emphasized that the definition of inputs or capital goods under Cenvat Credit Rules does not specifically require the emergence of excisable items post-fabrication.

The Tribunal referred to various judicial precedents, including the Hon'ble Supreme Court's decision in Rajasthan Spinning & Weaving Mills Ltd., which allowed credit on steel items used in fabricating essential structures for machinery. They concluded that the usage of the items in the appellant's premises determined credit eligibility rather than their classification alone.

Conclusion:
The Tribunal found no merit in the impugned order, set it aside, and allowed the appeal. The appellant was granted relief accordingly, and the penalties and interest imposed were deemed unsustainable. The judgment emphasized the importance of the functional role of the fabricated items in the manufacturing process, thereby qualifying them for Cenvat credit.

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