2017 (1) TMI 1180 - AT - Central Excise

CENVAT credit - MS items - denial on two grounds, firstly, that the MS items do not fall within the definition of capital goods and secondly, for the reason that the capital goods when fixed to the earth by support structures fabricated by MS items become immovable property - Held that - The credit seems to be disallowed stating the reason that the appellant has not produced issue slips, work orders etc. for fabrication of capital goods. When the appellant has disclosed the detail in each of the ER1 returns, the Department was under obligation to scrutinise and call for information within the normal period. The Department has not been able to identify or substantiate with any evidence that the appellant has used the MS items for fabrication of foundations / civil works / sheds. The reason for disallowing credit is that the support structures when embedded to the earth will become immovable property and therefore not eligible for credit. In a recent decision in the case of Ultra Tech Ltd. Vs. CCE Indore 2016 (9) TMI 1097 - CESTAT NEW DELHI , the Tribunal has made a detailed discussion that capital goods when fixed to the earth using support structures cannot be considered to be immovable property and that credit cannot be disallowed - there is no evidence to show that the appellant has used the MS items for fabrication of civil structures or laying of foundations. The MS items having been used for fabrication of capital goods which fall within the definition of capital goods viz. Pollution control equipment, energy tank, chimney etc. and also parts of capital goods. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Disallowance of CENVAT credit on MS items used for fabrication of capital goods.

Analysis:
1. Disclosure of Credit and Limitation: The appellant availed CENVAT credit on MS items used for fabrication of capital goods. The appellant contended that the demand would be time-barred as they had disclosed the credit availed in statements filed with ER1 returns, including details of the MS items used for each capital good. The appellant argued that there was no suppression of facts, as alleged in the show-cause notice.

2. Merits of Credit: The appellant argued that the MS items were used for fabricating various capital goods like chimney, pollution hood, wet scrubber, ladles, conveyors, etc. The appellant explained how these items were integral to the manufacturing process and should be considered as parts/components of capital goods. The appellant cited relevant case laws to support their claim that when MS items are used for fabrication of support structures of capital goods, they do not become immovable property, making them eligible for credit.

3. Suppression of Facts: The respondent contended that the appellant failed to disclose details of the credit availed in the ER1 returns, leading to suppression of facts. The respondent argued that the show-cause notice invoking the extended period was legal due to this suppression. The respondent maintained that the authorities rightly disallowed the credit, emphasizing the importance of supporting documents to prove the utilization of MS items for fabrication of capital goods.

4. Character of Capital Goods: The main contention revolved around whether MS items used for support structures of capital goods, when fixed to the earth, should be considered immovable property, thereby making the credit inadmissible. The Commissioner(Appeals) discussed the appellant's argument that the structures were not embedded in the earth, making them eligible for credit. The judgment highlighted that there was no evidence to show that the MS items were used for civil works or foundations, supporting the appellant's claim that the denial of credit was unjustified.

5. Judgment: After considering the arguments and precedents, the Tribunal found in favor of the appellant. The Tribunal ruled that the denial of credit was unjustified as the MS items were used for fabrication of capital goods, falling within the definition of capital goods. Citing relevant case laws and recent judgments, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs. The Tribunal did not delve into the issue of limitation as the decision was based on the merits of the case.