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2018 (12) TMI 845 - AT - Central ExciseCENVAT/MODVAT Credit - inputs/capital goods - bought-out components - Department took the view that as the bought-out components are not used or intended for use in the manufacture but merely exported in the same form in which they were procured the appellants would not be entitled to avail credit on the same. Held that - In view of the changed definitions and provisions of law during the period of dispute in these appeals appellant are very much eligible to avail CENVAT credit of duty paid in respect of the input / goods which have been bought out by the appellants and have been removed / cleared as such from their factory in various consignments for export under bond for eventual purposes of setting up of sugar plant in Indonesia. Hon ble Supreme Court s decisions in the appellant s own case for earlier period in M/S. KCP LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE CHENNAI 2013 (9) TMI 98 - SUPREME COURT need not be applied to the subsequent periods covered by these 12 appeals not only on account of aforesaid change of definition of inputs/capital goods as also on account of subsequent decisions of the Hon ble Supreme Court. Hon ble Supreme Court in their subsequent judgment in Thermax Babcock & Wilcox Ltd. 2015 (5) TMI 631 - SUPREME COURT has been followed by the Tribunal in Thermax Ltd. Vs. Commissioner of Central Excise Pune 2016 (7) TMI 797 - CESTAT MUMBAI wherein it has been held that bought out items used in erection of boilers at customer s site are inputs and cannot be distinguished from inputs used in manufacture of components within the factory as both have gone into manufacture of final product. CENVAT credit availed on the impugned bought out goods / inputs with interest and also imposing penalties under various provisions of law cannot be sustained and require to be set aside - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Eligibility of MODVAT/CENVAT credit on bought-out components/assemblies not used in the manufacture but exported in the same form. 2. Applicability of the Hon'ble Supreme Court's judgment to subsequent periods. 3. Changes in the statutory definition of inputs and capital goods and their impact on credit eligibility. 4. Application of Rule 16 of the Central Excise Rules, 2001/2002. 5. Penalty provisions under Rules 57I and 57U. 6. Consideration of interest provisions and overlapping demands. 7. Depreciation claims on capital goods. 8. Reopening the question of time bar and consideration of rebate. Detailed Analysis: 1. Eligibility of MODVAT/CENVAT Credit on Bought-Out Components: The appellants, manufacturers of machinery for the sugar industry, exported machinery and components to Vietnam, including bought-out items. They availed MODVAT/CENVAT credit on these bought-out components. The Department contended that since the bought-out components were not used in the manufacture but exported as procured, the appellants were not entitled to credit. The Tribunal initially held that bought-out items could not be considered eligible inputs or capital goods for MODVAT credit, as the sugar plant machinery installation was immovable property and not goods. This decision was upheld by the Hon'ble Supreme Court, which stated that the machinery purchased was not used in the factory of the appellant and thus did not comply with the necessary conditions for availing MODVAT credit. 2. Applicability of Supreme Court Judgment to Subsequent Periods: The appellants argued that the Supreme Court's judgment should be restricted to the periods covered by the original show cause notices and not subsequent periods due to changes in the statutory definition of inputs and capital goods. The Tribunal agreed, noting that the definitions of inputs and capital goods had evolved post-2001, broadening the scope of what could be considered inputs. Hence, the Supreme Court's judgment was not applicable to the periods covered by the present appeals. 3. Changes in Statutory Definitions: The definitions of inputs and capital goods underwent significant changes post-2001, broadening to include accessories and other consumables used in the factory. The Tribunal noted that the evolving definitions allowed for a broader interpretation of inputs, including bought-out items used in the manufacture of final products. The Tribunal concluded that the appellants were entitled to CENVAT credit on the bought-out items during the impugned period. 4. Application of Rule 16 of Central Excise Rules: Rule 16 allowed for credit on goods brought into the factory for any reason, not just for repair or reconditioning. The Tribunal found merit in the appellants' argument that the rule permitted credit on bought-out items brought into the factory and exported as such. This interpretation was supported by various Tribunal decisions, which held that credit was admissible on duty-paid goods brought into the factory, even if not used in the manufacturing process. 5. Penalty Provisions: The Tribunal noted that penalty provisions under Rules 57I and 57U were only incorporated with effect from 23.7.1996, and no penalty under these rules could be imposed for periods prior to this date. If any other penal provision was attracted, the appellants were to be given a reasonable opportunity for defense. 6. Interest Provisions and Overlapping Demands: The Tribunal directed the adjudicating authority to consider the applicability of interest provisions, especially the appellants' plea that the credit was not utilized. The issue of overlapping demands was also to be addressed. 7. Depreciation Claims on Capital Goods: The aspect of depreciation claims on capital goods was to be examined and dealt with by the adjudicating authority. 8. Reopening Question of Time Bar and Consideration of Rebate: The Tribunal rejected the plea to reopen the question of time bar, as the order of the Tribunal had merged with the order of the Supreme Court. The plea for consideration of rebate was also rejected as no such claim existed in the preceding proceedings. Conclusion: The Tribunal allowed the appeals, holding that the appellants were entitled to CENVAT credit on the bought-out items during the impugned period due to changes in the statutory definitions and the broadening scope of inputs. The impugned orders confirming the demand of CENVAT credit, with interest and penalties, were set aside. The appeals were allowed with consequential benefits as per law.
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