2017 (9) TMI 268 - AT - Central Excise

CENVAT credit - goods used for fabrication of plant and machinery - Held that - the identical issues have come up before the Tribunal in appellant s own case M/s Dalmia Cements (Bharat) Ltd. Versus CCE & ST (LTU) , New Delhi 2017 (3) TMI 1084 - CESTAT NEW DELHI , where it was held that the goods fabricated, using such structurals, will have to be considered as parts of the relevant machines. The definition of Capital Goods includes, components, spares and accessories of such capital goods. Accordingly, applying the User Test to the facts in hand, we have no hesitation in holding that the structural items used in the fabrication of support structures would fall within the ambit of Capital Goods as contemplated under Rule 2(a) of the Cenvat Credit Rules, hence will be entitled to the Cenvat credit - credit allowed. CENVAT credit on capital goods - denial on the ground that appellant have not commenced production at the relevant time - Held that - There is no irregular utilization of credit by the appellant and no such allegation has been made in the show cause notice. Even if the appellant has entered the credit in their books of accounts no utilization is possible without commencement of production. In effect, the credits available on the capital goods will come to be entered as availed and utilized only on production of dutiable final product. We find no justification to deny Cenvat credit on capital goods which, are otherwise legitimately available to the appellant - credit allowed. CENVAT credit - input services - construction of factory - denial on the ground that construction is with reference to immovable property and accordingly the credit is not available - Held that - The credits availed by the appellant are with reference to construction of factory. The said activity is covered by the definition of input service during the relevant time. It is also to be noted that the definition of input service is very broad and includes those services which are used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products. It is clear that the said service even if used indirectly by the manufacturer in relation to manufacture of final product, the same should be eligible for credit. Apart from this, there is a specific inclusion of services used in relation to setting up of factory. The services availed by the appellants are covered by the definition of input service - Considering the scope of the definition of input service during the relevant time, credit allowed. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Credit availed on goods used for fabrication of plant and machinery.
2. Credit availed on capital goods before commencement of production.
3. Credit availed on input services for construction of factory.

Analysis:

Issue 1:
The first issue involved the denial of credit amounting to ?2,51,34,068/- on goods used for fabrication of plant and machinery. The appellant argued that the goods were used for support structures of capital goods, making them eligible for credit as capital goods under Rule 2(a) of the Cenvat Credit Rules. The Tribunal referred to the "user test" established by the Apex Court and held in favor of the appellant, citing previous judgments supporting the eligibility of such goods for credit.

Issue 2:
Regarding the denial of credit amounting to ?12,54,71,323/- on capital goods before the commencement of production, the Tribunal found that the Circular dated 26/12/1994, relied upon by the Original Authority, was not relevant to the dispute. The Tribunal emphasized that the credit availed by the appellant was legitimate under the Cenvat Credit Rules, 2004, and that the goods were received for setting up the plant, with credits to be utilized only upon commencement of production. The Tribunal dismissed the Original Authority's reasoning and allowed the appellant's eligibility for credit on capital goods.

Issue 3:
The third issue involved the denial of credit on input services for construction of the factory. The Original Authority relied on a Board circular dated 04/01/2008, which was deemed misplaced by the Tribunal. The Tribunal noted that the services availed by the appellant for setting up the production factory fell under the definition of "input service" as per Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal rejected the Original Authority's findings, stating that the services used indirectly in relation to the manufacture of final products should be eligible for credit. The Tribunal set aside the impugned order and allowed the appeal based on the broader definition of "input service" during the relevant time.

In conclusion, the Tribunal allowed the appeal filed by the appellant, overturning the denial of credit on various grounds related to goods used for fabrication, capital goods, and input services for construction.