2017 (3) TMI 356 - AT - Central Excise

CENVAT credit - Input services utilized towards construction of rest rooms and provision of amenities to railway personnel in the railway yard - denial on the ground that the yard was situate outside the factory premises and that the ultimate purpose of the same was for providing rest and relief to the employees - capital goods installed in the railway yard adjacent and attendant to the factory premises - denial on the ground that the goods were installed outside the factory premises; that railway yard separated by public roads was not the appellant s sole property; that railway yard was also used by other manufacturers in the vicinity - Held that - No doubt, the railway yard was definitely used for handling coal which is essential to the manufacturing process, nonetheless as, the same is outside the factory premises, it cannot come within the ambit of eligible capital goods for the purpose of Rule 2 (1A) of Cenvat Credit Rules, 2004. The cenvat credit in respect of the railway siding and rest rooms/other fittings in the railway yard outside the factory cannot be availed since not falling within the ambit of the definition of capital goods - appeal dismissed - decided against appellant.

Summary

Issues:
1. Denial of Cenvat credit for capital goods installed in the railway yard outside the factory premises.
2. Denial of Cenvat credit for input services used in the construction of rest rooms and amenities for railway personnel in the railway yard.

Analysis:

Issue 1: Denial of Cenvat credit for capital goods:
The first dispute revolves around the denial of Cenvat credit for capital goods installed in the railway yard adjacent to the factory premises. The appellant's registration did not include the railway yard, leading to the denial of credit. The appellant argued that the capital goods were essential for manufacturing activities, citing precedents like Jayaswal Neco Ltd case. The appellant highlighted a Private Sliding Agreement with Southern Railway, indicating exclusive use of the railway yard. However, the department contended that since the capital goods were used outside the factory premises, they were not eligible for credit. The tribunal noted that while the railway track was crucial for manufacturing activities, the goods were not within the registered factory premises, making them ineligible for Cenvat credit.

Issue 2: Denial of Cenvat credit for input services:
The second dispute concerns the denial of Cenvat credit for input services used in constructing rest rooms and amenities for railway personnel in the railway yard. The denial was based on the premise that the yard was outside the factory premises and the services were for employee welfare. The appellant argued that the services were for electrical work and fittings in the railway yard, not specifically for rest rooms. The tribunal emphasized that to qualify as "capital goods," items must be used in the factory of the manufacturer of the final product. The judgment cited the Vikram Cement case, highlighting the distinction between captive mines and non-captive mines for Cenvat credit eligibility. Since the railway yard did not fall within the definition of "capital goods" and did not meet the eligibility criteria, the denial of Cenvat credit for input services was upheld.

In conclusion, the tribunal upheld the denial of Cenvat credit for both capital goods and input services due to their usage outside the factory premises and failure to meet the criteria for eligibility as per the Cenvat Credit Rules. The judgment emphasized the importance of goods being used within the factory of the manufacturer to qualify for such credits, citing relevant legal precedents to support the decision.