2017 (9) TMI 605 - AT - Central Excise

CENVAT credit - pipes, tubes and items falling under Chapter-85 - capital goods - Held that - the Cenvat credit on pipes, tubes and items falling under Chapter-85 which are admissible within the definition of capital goods and therefore show cause notice does not sustain in respect of them. The demand of Cenvat credit beyond the period of one year without invoking extended period in the SCN - Held that - as extended period not invoked, demand not sustainable. Penalty - Held that - there are no allegations for any malafiedy on the part of appellant. Therefore, penalty also set aside. We allow this appeal in respect of demand except for ₹ 68,459/- - decided partly in favor of appellant.

Summary

Issues:
1. Eligibility of Cenvat credit on specific items.
2. Recovery of duty due to loss of molasses during a specific period.

Analysis:

Issue 1: Eligibility of Cenvat credit on specific items
The appeal challenged Order-in-Original No. 32/Commr/MRT-I/2009, alleging improper denial of Cenvat credit on items like Angles, Channels, Joists, Shape & Sections, Mill Plate, PVC Pipes, used for construction. The show cause notice claimed these items were not covered under Cenvat Credit Rules, 2004. The appellant argued the items were used for machine structures and foundations, supported by a certificate from the Chief Engineer. However, the Original authority rejected this argument, citing the items were used in building construction. Relying on a previous Tribunal order, the Original authority confirmed the demand of ?61,96,295 and imposed a penalty. The appellant contended that the show cause notice did not invoke the extended period under Section 11A of the Central Excise Act, 1944, and certain items were within the definition of capital goods, thus eligible for Cenvat credit. The Tribunal found that Cenvat credit on pipes, tubes, and items under Chapter-85 was admissible as capital goods, and demand beyond one year without invoking the extended period was unsustainable. Consequently, the demand was set aside, except for ?68,459. The Tribunal also noted that interest was chargeable only on utilization of debited amounts, and since no malafide intent was proven, the penalty was set aside.

Issue 2: Recovery of duty due to loss of molasses
The show cause notice also raised an issue regarding the loss of 182.55 quintals of molasses, demanding duty of ?14,102 under Section 11A of the Central Excise Act, 1944. The appellant argued that the loss was within normal limits, citing a circular condoning up to 2% loss, while the actual loss was only 0.23%. The Tribunal agreed with the appellant, finding the confirmation of the demand unsustainable. Therefore, the demand related to the loss of molasses was set aside along with the majority of the impugned Order-in-Original. The Tribunal allowed the appeal partially, upholding a demand of ?68,459, and granting consequential relief to the appellant as per law.