2021 (5) TMI 838 - AT - Central Excise

CENVAT Credit - inputs - welding electrodes - denial on the ground that the welding electrodes used in the maintenance of plant and machinery cannot be called as inputs used in the manufacture of their final products - Penalty - HELD THAT - A perusal of the SCN shows that the actual period in respect of the disputed CENVAT is April 2013 to March 2014. The period is significant since the definition of input under CENVAT Credit Rules, 2004 was changed with effect from 1.3.2011 and this amended definition is relevant for the period of dispute. Penalty - HELD THAT - There is no dispute that the welding electrodes were used in the factory of the manufacturer as they were used to maintain the machinery. Therefore, they are squarely covered by the definition of input under Rule 2(k). Unlike the definition of input prior to 1.3.2011, for something to qualify as an input, it need not be used in or in relation to manufacture of the final product but it only needs to be used within the factory of the manufacturer. There is no dispute that the welding electrodes have been so used. CENVAT credit can therefore, not be denied. Consequently, the penalty also cannot be imposed. The impugned order dated 16.02.2018 passed by the Commissioner (Appeals) denying the CENVAT credit and upholding the penalty is contrary to law and cannot be sustained - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal seeking quashing of order denying CENVAT credit on welding electrodes used in maintenance of plant and machinery.

Analysis:
The appellant, a manufacturer of various products, availed CENVAT Credit on welding electrodes used in plant and machinery maintenance. Show Cause Notices were issued, denying the credit as welding electrodes were not considered inputs for final product manufacture. Penalties were imposed for wrongful credit availing.

The Commissioner (Appeals) dismissed appeals and upheld Orders in Original, denying CENVAT credit and imposing penalties. Two appeals were filed against the orders. One appeal was allowed in favor of the assessee, recognizing welding electrodes as Cenvatable inputs for maintenance activities related to final product manufacture.

The Tribunal considered the period of dispute and the amended definition of 'input' under CENVAT Credit Rules, 2004 effective from 1.3.2011. Post-amendment, any goods used within the manufacturer's factory qualify as inputs, irrespective of direct relation to final product manufacture. Welding electrodes used for maintenance activities fall under this definition, entitling CENVAT credit.

Consequently, the impugned order denying CENVAT credit and upholding penalties was deemed contrary to law. The order was set aside, and the appeal was allowed with consequential relief, if any. The judgment highlighted the importance of the amended definition of 'input' post-1.3.2011 in determining CENVAT credit eligibility based on usage within the manufacturer's factory.