2016 (10) TMI 479 - AT - Central Excise

Denial of CENVAT credit - cenvat credit on iron and steel items (structural steels) used for fabrication of various structures of plants and machineries at site and /or in manufacture of structures supporting capital goods like boiler, coal handling mill, rolling mill, furnaces, conveyors, chimneys etc - inputs under Rule 2(k) of Cenvat Credit Rules, 2004 - Held that - the decision in the case of C.C.E., Jaipur vs. Rajasthan Spinning & Weaving Mills 2010 (7) TMI 12 - SUPREME COURT OF INDIA relied upon where it was held that the subject items namely, angles, channels, beams etc. would be eligible for the cenvat credit after applying the user test. Demand of duty on angles, channels, etc. manufactured and captively consumed in fabrication of structures of capital goods - imposition of penalty - Denial of exemption under N/N. No.67/95-CE - Held that - When the details submitted by the appellant was not examined by the Commissioner then the matter needs fresh adjudication - matter remanded to the original adjudicating authority who will decide the issue de novo after examining all the records of evidence of use and consumption of subject items, if not already produced, the same are to be produced by the appellant before the original adjudicating authority within one month and thereafter within next two months, the original adjudicating authority shall pass appropriate orders. Appeal disposed off - decided partly in favor of appellant.

Issues Involved:
1. Admissibility of Cenvat Credit on iron and steel items used for fabrication of structures supporting capital goods.
2. Duty demand on angles, channels, beams manufactured and captively consumed, and denial of benefit under Notification No. 67/95-CE.

Detailed Analysis:

Issue 1: Admissibility of Cenvat Credit on Iron and Steel Items
The appellant, a manufacturer of iron and steel products, utilized iron and steel items like angles, channels, beams, etc., for fabricating structures supporting capital goods such as boilers and coal handling mills. The Commissioner disallowed the Cenvat credit amounting to ?11,45,87,210 and imposed an equivalent penalty. The appellant argued that they maintained detailed records and provided certificates from Chartered Accountants and Engineers, which were enclosed with the appeal.

The legal basis for the appellant’s claim lies in Rule 2(k) of the Cenvat Credit Rules, 2004, which includes goods used in the manufacture of capital goods further used in the factory. The appellant contended that the structural items were essential for making the capital goods operational, without which the machinery could not function.

The Tribunal referred to multiple precedents, including the Supreme Court's decision in Rajasthan Spinning & Weaving Mills Ltd. (2010) and the High Court's decision in C.C.E., Tiruchirapalli vs. India Cements Ltd. (2012, 2014), which supported the view that structural steel items used for essential supporting structures are eligible for Cenvat credit. The Tribunal emphasized the "user test" from these decisions, which focuses on the necessity and usage of the items within the manufacturing process.

The Tribunal concluded that the structural steel items used for supporting capital goods are indeed eligible for Cenvat credit, as they are integral to the operation of the machinery within the factory. Thus, the appeal on this issue was allowed with consequential relief.

Issue 2: Duty Demand and Denial of Benefit under Notification No. 67/95-CE
The Commissioner also confirmed a duty demand of ?60,27,728 and imposed an equivalent penalty, denying the benefit of Notification No. 67/95-CE. The denial was based on the appellant's alleged failure to maintain stock accounts and submit ER-1 returns detailing the manufacture and captive consumption of the items.

The appellant argued that they had submitted all necessary details and maintained records, but these were not considered by the authorities. The Tribunal noted that the language of the Notification prima facie indicated the appellant's entitlement to the benefit, provided the items were indeed captively consumed in the fabrication of capital goods.

Given that the Commissioner did not examine the submitted details, the Tribunal remanded the matter for fresh adjudication. The original adjudicating authority was directed to re-examine all records and evidence of use and consumption of the items, with the appellant required to produce any additional evidence within one month. The authority was instructed to pass appropriate orders within the following two months.

Conclusion
The appeal was partly allowed. The Tribunal upheld the admissibility of Cenvat credit on the structural steel items used for supporting capital goods but remanded the issue of duty demand and denial of benefit under Notification No. 67/95-CE for fresh adjudication.

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