2016 (12) TMI 914 - AT - Central Excise

Whether they are entitled to Cenvat credit on the cement used in the foundation of machineries erected which have been further used for manufacture of taxable or dutiable products? - reliance placed in the case of Union of India Versus Hindustan Zinc Limited 2007 (8) TMI 127 - HIGH COURT, RAJASTHAN by ld. Commissioner (Appeals), where it was held that Revenue plea that the cement being a building material used the purpose of building construction can t be said as input used for manufacturing of final product and that no Cenvat credit is available so far as cement as concerned - Held that - I find that the ld. Commissioner (Appeals) have erred in relying on the ruling of Hon ble Rajasthan High Court in the case of Union of India Versus Hindustan Zinc Limited as the said ruling was in respect of Cenvat Credit Rules, 2002 which have been replaced by Cenvat Credit Rules, 2004. Under the new rules the scope of input have been enlarged. That Cement and Iron & Steel used in supporting structure for erection of plant & machinery are eligible as inputs. It is further held that inputs are not necessarily to be used in the manufacture of final products. An input may be used even in relation to manufacture of final product. In the facts and circumstances of this case, cement has been admittedly used in the erection of capital goods, being machinery, without which manufacture of dutiable goods is not possible. Accordingly, both the appeals are allowed with consequential benefits, if any, in accordance with law. The impugned orders are set aside - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
1. Entitlement to Cenvat credit on cement used in the foundation of machineries for the manufacture of taxable products.

Detailed Analysis:
The appellant, a sugar mill engaged in manufacturing, filed appeals against Orders-in-Appeal by the Commissioner of Central Excise & Customs, Lucknow, regarding the entitlement to Cenvat credit on cement used in machinery foundations. The dispute revolved around whether the cement used in the foundation work qualifies for Cenvat credit as inputs for manufacturing taxable products. The appellant argued that the cement was essential for the erection of machinery, without which the production of dutiable goods would not be possible. The Show Cause Notices were issued to disallow the credit on cement, leading to penalties imposed under the Cenvat Credit Rules, 2004.

The appellant contended that under the Cenvat Credit Rules, 2004, they were eligible for Cenvat credit on cement used in the factory for the manufacture of final products. They highlighted Rule 2(k) which defines credit as all goods used in the factory for manufacturing final products, directly or indirectly. The appellant cited relevant case laws, such as the ruling of the Hon'ble Karnataka High Court in Commissioner of Central Excise, Bangalore-II v. SLR Steels Ltd., supporting the eligibility of Cenvat credit on inputs like steel and cement used in the fabrication of capital goods. They emphasized that the cement was a crucial input for the erection of machinery, as established by the Hon'ble Madras High Court in India Cements Ltd. v. Customs, Excise & Service Tax Appellate Tribunal, Chennai.

The Tribunal, after considering the arguments, held that the Commissioner (Appeals) erred in relying on a previous ruling under different rules. It emphasized that under the Cenvat Credit Rules, 2004, the scope of inputs had expanded, allowing for the inclusion of cement and iron & steel used in supporting structures for machinery erection as eligible inputs. The Tribunal concluded that the cement used in the erection of machinery was essential for manufacturing dutiable goods, thus entitling the appellant to Cenvat credit. Consequently, both appeals were allowed, and the impugned orders were set aside, granting the appellant consequential benefits as per the law.