2025 (3) TMI 841 - AT - Central Excise

Wrongful availment of CENVAT credit on ineligible capital goods taken during the period May 2013 to March 2014 - capital goods or not - MS Angles MS Plates MS Channels MS Sheets and HR Bars which are used as components and spares for machinery - HELD THAT - Rule 2 (a) (A) (iii) merely stipulates that capital goods means components spares and accessories of the goods specified at (i) and (ii). It does not contain any stipulation as to the chapter headings to which such components spares and accessories should pertain. Thus the definition of capital goods squarely covers components spares and accessories of the goods falling under chapter 82 84 85 90 heading number 68.05 grinding wheels and the like and parts thereof falling under heading 6804 of the First schedule to the Excise Tariff Act and pollution control equipment. It is evident that in the absence of any prescribed headings to which such components spares and accessories should pertain the claim of the appellant that the impugned goods are covered under the definition of capital goods merits acceptance. This tribunal finds that the adjudicating authority has erred in rendering a finding that the appellants had raised contradictory claims. The adjudicating authority has failed to appreciate that the appellants had only claimed that the components spares and accessories of the goods specified at (i) (ii) of the definition of capital goods as given at Rule 2 (a) (A) are chapter agnostic and are thus covered under the definition. It was never a contradictory claim as found by the adjudicating authority and such a finding as upheld by the appellate authority is wholly untenable. This Tribunal also finds that it is settled law that the scope of entry components spares and accessories in the definition of capital goods is not restricted to the components spares and accessories falling under Chapter 82 84 85 or 90 of CETA 1985 alone but covers all spares components and accessories of specified goods irrespective of their classification under any chapter and is thus not chapter specific. The reliance placed by the Appellant on the decision in CCE ST Vs. India Cements Ltd. 2014 (7) TMI 881 - MADRAS HIGH COURT and India Cements Vs CESTAT Chennai 2015 (3) TMI 661 - MADRAS HIGH COURT and Mangalam cement limited versus CC Jaipur (1) 2018 (3) TMI 1547 - CESTAT NEW DELHI - LB is apposite. The impugned order in appeal upholding the demand of the adjudicating authority and imposing penalty cannot sustain and is liable to be set aside. Conclusion - Irrespective of the classification of components spares and accessories when those are fitted to the machines/machineries of the above eligible Chapters the same should also be considered as capital goods for availment of Cenvat credit of Central Excise duty paid thereon. The impugned order set aside - appeal allowed.

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this appeal is whether the CENVAT credit taken on certain goods by the appellant, used in their factory, qualifies as capital goods under the CENVAT Credit Rules, 2004. Specifically, the question is whether goods such as MS Angles, MS Plates, MS Channels, MS Sheets, and HR Bars, which are used as components and spares for machinery, fall within the definition of capital goods as per Rule 2(a)(A)(iii) of the CENVAT Credit Rules, 2004.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework revolves around Rule 2(a)(A) of the CENVAT Credit Rules, 2004, which defines "capital goods." According to this rule, capital goods include components, spares, and accessories of goods falling under Chapter 82, 84, 85, and 90 of the Central Excise Tariff Act, 1985. The appellant relied on this rule to justify the credit availed on the disputed goods.

The appellant also cited several precedents, including decisions from various High Courts and Tribunals, such as Mangalam Cement Ltd. vs. CC, Jaipur and CCE & ST Vs. India Cements Ltd., to support their position that components and spares do not need to fall under specific chapter headings to qualify as capital goods.

Court's Interpretation and Reasoning

The Tribunal interpreted the definition of capital goods under Rule 2(a)(A)(iii) as inclusive of components, spares, and accessories without requiring them to fall under specific chapter headings. The Tribunal emphasized that the rule does not stipulate any chapter-specific requirements for components, spares, and accessories, thereby supporting the appellant's claim.

Key Evidence and Findings

The Tribunal found that the adjudicating authority and the appellate authority failed to provide sufficient reasoning for denying the CENVAT credit. The authorities did not verify the appellant's claims regarding the use of the goods as components and spares in machinery installed at their factory. The Tribunal noted that the appellant had explained the usage of the goods, and it was incumbent upon the authorities to verify these claims.

Application of Law to Facts

The Tribunal applied the definition of capital goods as per Rule 2(a)(A)(iii) to the facts of the case, concluding that the goods in question qualify as capital goods. The Tribunal determined that the appellant's interpretation of the rule was correct and supported by relevant case law.

Treatment of Competing Arguments

The Tribunal addressed the respondent's argument that the goods do not fall under the definition of inputs as per Rule 2(k) of the CENVAT Credit Rules. The Tribunal found this argument irrelevant to the determination of whether the goods qualify as capital goods, as the appellant's claim was based on the definition of capital goods, not inputs.

Conclusions

The Tribunal concluded that the goods in question qualify as capital goods under Rule 2(a)(A)(iii) of the CENVAT Credit Rules, 2004. The Tribunal found that the adjudicating authority and the appellate authority erred in denying the CENVAT credit and imposing a penalty on the appellant.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Tribunal held: "On reading of the above definition, it reveals that no Chapter of the Central Excise Tariff Act, 1985 (CETA) has been prescribed for the components, spares and accessories for consideration as capital goods. Thus, it is evident that irrespective of the classification of components, spares and accessories, when those are fitted to the machines/machineries of the above eligible Chapters, the same should also be considered as capital goods for availment of Cenvat credit of Central Excise duty paid thereon."

Core Principles Established

The Tribunal established that the definition of capital goods under Rule 2(a)(A)(iii) is not restricted by chapter headings for components, spares, and accessories. This interpretation aligns with the broader understanding that such goods qualify as capital goods if they are used in machinery falling under the specified chapters.

Final Determinations on Each Issue

The Tribunal set aside the impugned order in appeal, which upheld the demand of the adjudicating authority and imposed a penalty. The appeal was allowed, granting the appellant the consequential benefits in law.

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