2018 (3) TMI 1475 - AT - Central Excise

CENVAT credit - capital goods - perlite - Held that - Perlite powder was used in the storage tank to control the temperature as an insulating material - The CBEC vide Circular No.276/110/96-TRU dated 02.12.1996 clarified that the credit was available on components/spares and accessories of the specified capital goods irrespective of their classification. The denial of credit on the basis of classification of the goods is not justified - appeal allowed - decided in favor of appellant.

Summary

Issues: Alleged irregular Cenvat Credit on perlite as capital goods

Analysis:
The appellant, engaged in the manufacture of Oxygen and argon gases, availed Cenvat Credit on perlite as capital goods, which was disallowed by the adjudicating authority. The Commissioner(Appeals) upheld the disallowance along with interest and imposed a penalty equal to the amount of Cenvat Credit.

Use of Perlite:
The appellant explained that perlite was used as insulating material in double-walled storage tanks to maintain low temperatures required for manufacturing and storing gases. They purchased fully manufactured tanks and used perlite powder to line the walls for insulation, ensuring the desired temperature inside the tanks. The appellant argued that while pre-insulated tanks were available in the market, they opted for perlite powder to guarantee optimum insulation quality.

Legal Interpretation:
The adjudicating authority initially rejected the claim, stating that perlite did not qualify as a capital good under the definition. However, upon review, it was established that perlite powder was indeed used as a capital good in the storage tanks, which were integral to the manufacturing process. Citing precedents like Vikram Ispat Ltd. and Shakumbari Sugar & Allied Indus. Ltd., where similar insulating materials and components were considered eligible for Cenvat Credit, the Tribunal ruled in favor of the appellant.

Circular Clarification:
The judgment referenced Circular No.276/110/96-TRU, which clarified that credit was available on components/spares and accessories of specified capital goods regardless of their classification. This circular supported the appellant's argument that denial of credit based on goods classification was unjustified.

In conclusion, the Tribunal allowed the appeal, emphasizing that perlite powder, used as insulating material in the storage tanks crucial for maintaining low temperatures in gas manufacturing, qualified for Cenvat Credit as a capital good. The judgment highlighted the importance of considering the functional utility of components rather than their classification for determining eligibility for credit.