2017 (3) TMI 1083 - AT - Central Excise

CENVAT credit - M.S. Flats, angles, bars, channels/ shapes & sections, H.R./C.R. strips/coils, welding electrodes paint, thinner, adhesive, flange beams etc. as inputs in construction/fabrication of structural supports, embedded to earth, Frame works, working platforms, etc - denial on the ground that the said goods are neither inputs nor capital goods - Held that - the appellant have constructed/fabricated machinery and its support structures, accordingly they are entitled to Cenvat credit on the goods in question including welding electrodes - issue being wholly interpretational, extended period of limitation is not invokable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to Cenvat credit on steel goods and welding electrodes used in the construction/fabrication of capital goods.
2. Prospective effect of exclusions provided in Explanation-2 of Rule 2(k) of CCR, 2004.
3. Applicability of extended period of limitation.
4. Liability for interest and penalty.

Issue-wise Detailed Analysis:

1. Entitlement to Cenvat Credit:
The primary issue was whether the appellant, a sugar manufacturer, was entitled to Cenvat credit on steel goods and welding electrodes used in the construction and fabrication of capital goods and structural supports from February 2007 to June 2009. The Revenue argued that these items did not qualify as inputs or capital goods under Rule 2 of CCR, 2004, citing the Larger Bench decision in Vandana Global Ltd. vs. CCE Raipur, which held that support structures and base frames are not eligible for Cenvat credit. However, the appellant contested this, referencing several High Court rulings and previous Tribunal decisions, including its own case, which allowed Cenvat credit for similar items used in repair, maintenance, and fabrication of machinery integral to manufacturing.

2. Prospective Effect of Rule 2(k) Exclusions:
The appellant argued that the exclusions provided in Explanation-2 of Rule 2(k) of CCR, 2004, inserted on 07.07.2009, should have prospective effect only. The Tribunal supported this view, citing the Hon'ble Gujarat High Court in Mundra Port & Special Economic Zone Ltd. vs. CCE, which held that the amendment was not clarificatory and thus had only prospective effect. This was further supported by the Hon'ble Andhra Pradesh High Court in CCE vs. Sai Samhita Storages (P) Ltd., which allowed Cenvat credit on inputs like cement and iron bars used in construction necessary for providing taxable services.

3. Applicability of Extended Period of Limitation:
The Tribunal found that the issue was interpretational, with existing contrary judgments from various courts and Tribunals. Hence, the extended period of limitation was not applicable. The Tribunal emphasized that mere periodic audits by the Revenue were insufficient to establish knowledge of wrong credit availment.

4. Liability for Interest and Penalty:
Given the interpretational nature of the issue and the Tribunal's decision to allow the appeal on merits and limitation, the appellant was not liable for interest and penalty. The Tribunal set aside the impugned order, granting the appellant entitlement to consequential benefits as per the law.

Conclusion:
The Tribunal allowed the appeal, holding that the appellant was entitled to Cenvat credit on the disputed items, the exclusions in Rule 2(k) had prospective effect, the extended period of limitation was not applicable, and the appellant was not liable for interest and penalty. The impugned order was set aside, and the appellant was granted consequential benefits.