2017 (6) TMI 669 - AT - Central Excise

CENVAT credit - fire extinguishers used in the factory premises - denial on account of nexus - Held that - Section 38 of the Factories Act, 1948 mandates that manufacturing unit has to install adequate number of fire extinguishers in order to control the situation that may arise due to fire accident. It is also to be noted that the manufacturing unit has to adhere to this particular section of the Factories Act before granting a licence by the authorities. If a person is mandated to follow the law and if the Central Excise duty is paid on such fire extinguishers, same cannot be denied on the ground that the said fire extinguishers are not covered under capital good and there is no direct or indirect connection - Since the products are classified under Chapter 84 and the CENVAT credit is allowed on capital goods, there is no reason to uphold the impugned order - appeal allowed - decided in favor of appellant.

Summary

Issues: Denial of CENVAT credit on fire extinguishers under Central Excise duty.

Analysis:
The appeal was filed against the Order-in-Appeal denying CENVAT credit on fire extinguishers used in the factory premises. Despite the absence of the appellant, the issue was taken up for disposal. The Revenue and lower authorities contended that fire extinguishers are not capital goods and do not contribute directly or indirectly to the manufacturing process. However, it was noted that fire extinguishers are essential as per the Factories Act, 1948, and are required for safety compliance. Section 38 of the Factories Act mandates the installation of fire extinguishers to control fire accidents, without which a manufacturing unit may not receive licensing. The definition of capital goods under Rule 2 includes goods falling under Chapter 84, to which fire extinguishers supplied to the appellant belong. The delivery challan-cum-invoice confirmed the classification under Chapter 84, making them eligible for CENVAT credit as capital goods. Therefore, the impugned order denying credit was set aside, and the appeal was allowed with consequential relief.

This judgment clarifies that even though fire extinguishers may not directly participate in manufacturing, their necessity under the Factories Act and classification under Chapter 84 make them eligible for CENVAT credit as capital goods. Compliance with safety regulations and the specific classification of the goods were crucial in determining their eligibility for credit, overriding the argument of direct involvement in the manufacturing process.