2019 (5) TMI 1089 - AT - Central Excise

CENVAT credit - inputs used for repair and maintenance of the machinery - MS items such as plates, angles, channels and sheets falling under chapter heading 72, 73 and 74 - CBEC vide Circular No. 943/4/2011-CX dated 29.04.2011 - appellant is a manufacturer of bulk drugs - HELD THAT - The definition of inputs under Rule 2(k) of CCR, 2004 has been amended with effect from 01.04.2011 to include all materials of goods used in the factory of the manufacture of the final products. It is not in dispute that the goods in question were used in the factory of manufacture by the manufacturer. The only question which remains is only whether they get excluded by the exclusion part of the definition as materials which have no relationship whatsoever to the manufactured final products. It is not in dispute that the materials in question were used for repair and maintenance of the machinery which were used for manufacture of final product - thus there is a direct relationship between goods which were used and the manufactured of final products and therefore they were not excluded by clause (f) of the Rule 2(k). Credit allowed - appeal allowed - decided in favor of appellant.

Issues: Entitlement to cenvat credit on MS items as inputs.

Analysis:
The judgment revolves around the issue of whether the appellant, a manufacturer of bulk drugs, is entitled to cenvat credit on MS items such as plates, angles, channels, and sheets as inputs. Initially, the appellant had claimed cenvat credit on these items as capital goods, but later admitted that they were used for repair and maintenance of machinery. The key contention was whether these items qualified as inputs under the modified definition effective from 01.04.2011. The appellant argued that since the materials were used within the factory for maintenance of machinery involved in the manufacture of final products, they should be eligible for cenvat credit as per the updated definition of inputs.

The lower authority confirmed the demands raised by the department, leading to the appellant's appeal before the First Appellate Authority being rejected. The appellant then approached the Appellate Tribunal challenging the denial of cenvat credit on the grounds that the goods in question were used within the factory for maintenance purposes related to the machinery used in the manufacturing process. The appellant emphasized that the machinery was utilized in the production of final products, and the disputed materials were essential for maintaining this machinery, thus establishing a direct relationship with the manufacturing process.

The appellant cited relevant case laws and a circular by the CBEC to support their argument. They highlighted a judgment of the Hon'ble High Court of Bombay that favored the assessee regarding the entitlement of cenvat credit on similar materials during a specific period. Additionally, the appellant referenced case laws involving other companies where cenvat credit was allowed on materials used for maintenance and repair of machinery. The appellant also drew attention to a CBEC circular clarifying that materials used for maintenance within the factory, which directly relate to the manufacturing process, should be eligible for cenvat credit as inputs.

After considering the arguments presented by both sides and examining the records, the Appellate Tribunal concluded that the materials in question were indeed used for repair and maintenance of machinery involved in the manufacturing of final products. As a result, the Tribunal found a direct relationship between the disputed goods and the production process, thereby making them eligible for cenvat credit as inputs under the amended definition. The Tribunal referred to previous judgments where cenvat credit was allowed on materials used for maintenance and repair of machinery, leading to the decision to set aside the impugned order and grant relief to the appellant by allowing the appeals.

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