2023 (4) TMI 321 - AT - Central Excise

CENVAT Credit - capital goods - structures which are fabricated from the subject goods - assessee failed to prove that structures fabricated from the subject goods satisfy the description or classification prescribed in the definition of capital goods in Rule 2(a) of the CENVAT Credit Rules - present dispute pertains to 2005-06 to August 2008 - HELD THAT - From the perusal of the circulars dated 2-4-2012 and 18-5-2012, it comes out that these circulars have been issued in the changed context of the definition of Rule 2(k) of Cenvat Credit Rules, 2004 and both circulars have no concern for the period in issue. Thus, we find that the reliance placed by the Revenue in this regard has no substance. The Madras High Court in THE COMMISSIONER OF CENTRAL EXCISE VERSUS M/S. INDIA CEMENTS LIMITED OTHERS 2011 (8) TMI 399 - MADRAS HIGH COURT noticed VANDANA GLOBAL LTD. VERSUS CCE 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) but relied upon the Apex Court judgment in COMMISSIONER OF CENTRAL EXCISE, JAIPUR VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS LTD. 2010 (7) TMI 12 - SUPREME COURT , wherein the Apex Court has considered an issue of steel plates and MS channels used in the fabrication of chimney for diesel generating set and after considering it, the Apex Court allowed the Cenvet credit on MS Rod, sheets, MS Channel, MS Plate, etc., used for fabrication of structures to support various machines/capital goods. In M/S. THIRU AROORAN SUGARS, M/S. DALMIA CEMENTS (BHARAT) LTD. VERSUS CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, THE COMMISSIONER OF CENTRAL EXCISE 2017 (7) TMI 524 - MADRAS HIGH COURT , a Division Bench of the Madras High Court specifically considered as to whether MS structural, (which support plant and machinery), cement and steel (which are used in erecting foundations to hold plant and machinery) are integral part of capital goods eligible for Cenvat credit under the Cenvat Credit Rules, 2004 prior to the amendment of Explanation 2 to Rule 2(k) by notification dated 7-7-2009. The Madras High Court has held that irrespective of whether user test is test applied, or the test that they are an integral part of the capital goods is applied, all such items fell within the scope and ambit of both Rule 2(a)(A) and 2(k) and, therefore, Cenvat credit was to be allowed on such goods. The impugned order cannot be sustained and is accordingly set aside - Appeal allowed.

Summary

Issues Involved:
The issues involved in the legal judgment are the availing of CENVAT Credit on iron and steel items for fabrication of capital goods, the imposition of penalty under CENVAT Credit Rules, 2004, and the retrospective applicability of the amended Explanation 2 to Rule 2(k) of the CENVAT Credit Rules.

Availing of CENVAT Credit on Iron and Steel Items:
The Appellant, engaged in the manufacture and sale of cement, availed CENVAT Credit on iron and steel items used for fabrication and erection of capital goods, such as Clinker Silo and Packaging Plant, which were further utilized in the manufacturing of excisable goods. The Adjudicating authority alleged that the structures fabricated did not qualify as capital goods under the CENVAT Credit Rules and that the Appellant failed to prove the satisfaction of the prescribed criteria. A penalty was imposed under Rule 15(2) of the CENVAT Credit Rules, 2004. The Appellant contended that the Chartered Engineer's Certificate validated the usage of the subject goods within their factory, and the Show Cause Notice was time-barred. The Tribunal examined the relevant rules and held that the Appellant was entitled to claim CENVAT Credit on the iron and steel items used for fabrication of capital goods, based on precedents and the interpretation of the rules.

Penalty Imposed under CENVAT Credit Rules, 2004:
The Adjudicating authority imposed a penalty on the Appellant under Rule 15(2) of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944. The Appellant challenged this penalty in the Appeal before the Tribunal, arguing that the penalty was unjustified and should be set aside. After considering the arguments from both sides, the Tribunal found that the penalty imposed was not warranted, given the Appellant's compliance with the relevant rules and regulations regarding CENVAT Credit.

Retrospective Applicability of Amended Explanation 2 to Rule 2(k) of CENVAT Credit Rules:
The Appellant relied on a Larger Bench decision and various High Court judgments to contest the retrospective applicability of the amended Explanation 2 to Rule 2(k) of the CENVAT Credit Rules. The Tribunal analyzed the evolution of the definition of "input" under Rule 2(k) and the subsequent amendments, noting that the circulars issued in later years did not impact the interpretation of the rules during the period in question. By referring to relevant case law, including decisions from the Madras High Court, the Tribunal concluded that the Appellant's case fell within the scope of CENVAT Credit eligibility, and the impugned order was set aside, allowing the Appellant's Appeal with consequential benefits.