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TMI Blog2016 (7) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... visional Preventive Unit, Dindigul Division II, visited the factory on 05.01.2007 and conducted verification. Finding that the appellant has availed Cenvat credit on welding rods/electrodes and asbestos sheets, a show-cause notice dated 02.02.2007 was issued by the Adjudicating Authority, proposing to disallow Cenvat credit on welding rods/electrodes used by the appellant. The Adjudicating Authority also proposed to disallow Cenvat credit, on asbestos sheets, used by the appellant for roofing purposes. In the Adjudicatory Notice, the authority has stated that the welding rods/electrodes used by the appellant were only for repair and maintenance purposes and hence not covered by the definition of 'inputs', as contemplated by Rule 2(k) of Cenvat Credit Rules, 2004. Adjudicating Authority placed reliance on a judgment of the Larger Bench of Delhi High Court in the case of Jaypee Rewa Plant vs. CCE reported in 2003 (159) ELT 553 (Tri-LB). 3. The appellant submitted a reply to the show-cause notice on 26.02.2007. Rejecting the reply, the adjudicating Authority, passed an order dated 31.08.2007, disallowing Cenvat credit on welding rods/electrodes and asbestos sheets. The adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the pan, sugar crystals are grown. At this stage also, welding electrodes are used to keep M.S.Pipes in good condition, otherwise, production would be affected. At the centrifugal stage, molasses is separated and removed leaving the sugar crystals behind. At this stage also, there are storage tanks which store the mixture of molasses and crystal. This is because of the acidic nature of substance, corrosion may develop in storage tanks. The mixture of molasses and crystal have to be first stored, before being released in the centrifugal. The entire production of mixture and molasses and crystal, cannot at once be released into centrifugal. This requires upkeep of the storage tank and to fix fissures and holes in storage tank. If holes and cracks are allowed to develop, there would be loss of raw material, resulting in production being affected. After the centrifugal stage, where the sugar crystals are separated, bagging of sugar takes place. Thus, explaining each and every stage involved in the manufacture of sugar, and how welding electrodes are used in relation to the manufacture of the final product, namely sugar, it is the submission of Mr.N.Prasad, learned counsel for the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans: (a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products; (b) Components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and (c) moulds and dies, generating sets and weigh bridges used in the factory of the manufacturer. 12. He further submitted that the above decision of the Tribunal in holding welding electrodes will also qualify as capital goods under Rule 57Q and thus eligible for Modvat Credit has been upheld by the Hon'ble Supreme Court in Commissioner of Central Excise, Coimbatore vs. Jawahar Mills Ltd reported in 2001 (132) E.L.T. 3 (S.C.). 13. Learned counsel for the appellant also submitted that dismissal of the Revenue appeal in Jawahar Mills's case has been noticed by a Hon'ble Division Bench of this Court in Commissioner of Central Excise, Coimbatore vs. Madras Aluminium Company Ltd reported in 2008 (226) E.L.T. 342 (Mad.), wherein, at paragraph No.6, the Hon'ble Division Bench held as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India reported in 2008 (228) E.L.T. 517 (Raj.), Commissioner of Central Excise vs. India Cements Limited reported in 2009 (238) E.L.T. 411 (Mad.) and the decision of the Delhi Tribunal in Birla Jute & Industries Limited reported in 2002 (139) E.L.T. A93, and subsequently, confirmed by the Hon'ble Apex Court, the Chhattisgarh High Court, allowed the appeals of the assessee, and answered the substantial question of law, raised therein viz., whether the welding electrodes used in repairs/maintenance of plant and machinery can be construed as input, as defined under Rule 2(g) of the Cenvat Credit Rules, 2002. The Hon'ble Division Bench of the Chhattisgarh High Court further held that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rules, 2002 and thus, entitled for Cenvat credit. Relevant paragraphs in the said judgment are extracted hereunder: "13. The decision in Jaypee Rewa Plant came into consideration before the Rajasthan High Court in the matters of Hindustan Zinc Ltd. [2008 (228) E.L.T. 517 (Raj.)], involving similar issue - "Whether welding electrodes used for repair and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries Ltd., held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil Appeals preferred by the revenue against the above order were again dismissed by the Supreme Court with an observation that the civil appeals have to be dismissed in view of the judgment of this Court in Jawahar Mills Ltd. (Commissioner v. Birla Jute & Inds. Ltd.) 17. The Kolkata Tribunal in the matter of SAIL held that Modvat Credit on goods and welding electrodes etc. which are used for welding, repaid and maintenance of machineries, is not admissible. Relying upon the decision in Jaypee Rewa Plant, it has been observed that the decision in this matter has not been appealed against or reversed. SAIL filed a petition for special leave to appeal against the above decision and dismissing the SLP, the Supreme Court passed the following order: "Delay condoned. On the facts of this case, matters stand dismissed." [Steel Authority of India Ltd. v. Commissioner - 2008 (229) E.L.T. A127 (S.C.)] ............ ............ 21. Shri Bhishma Kinger, learned counsel for the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enforcement in the eye of law, as held by the Supreme Court in Kunha Yammed. 23. On the basis of aforesaid discussions, relying upon the decision of the Rajasthan High Court in Hindustan Zinc Ltd., Madras High Court in India Cement Ltd., and Delhi Tribunal in Birla JUte & Industries Ltd., which have been subsequently, affirmed by the Supreme Court, we allow both the appeals, set aside the impugned orders and answer the substantial question of law in favour of the appellant-assessee and hold that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rules, 2002 and thus, entitled for Cenvat credit." 16. On the aspect, as to how the word 'input' in Rule 2(g) of Cenvat Rules, 2002 has to be understood, the Hon'ble Supreme Court in Maruti Suzuki Ltd. vs. Commissioner of Central Excise, Delhi-III reported in 2009 (240) E.L.T. 641 (S.C.), at paragraph Nos.9, 10, 12, 14 and 16 held as hereunder: "9. Coming to the statutory definition of the word "input" in Rule 2(g) in the CENVAT Credit Rules, 2002, it may be noted that the said definition of the word "input" can be divided into three parts, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to the manufacture of final product whether directly or indirectly and whether contained in the final product or not". These words "whether directly or indirectly" and "whether contained in the final product or not" indicates the intention of the legislature. What the legislature intends to say is that even if the use of input (like electricity) in the manufacturing process is not direct but indurect still such an item would stand covered by the definition of "input". In the past, there was a controversy as to what is the meaning of the word "input", conceptually. It was argued by the Department in a number of cases that if the identity of the input is not contained in the final product then such an item would not qualify as input. In order to get over this controversy in the above definition of input, the Legislature has clarified that even if an item is not contained in the final product still it would be classifiable as an "input" under the above definition. In other words, it has been clarified by the definition of "input" that the following considerations will not relevant: (a) use of input in the manufacturing process be it direct or indirect; (b) even if the input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression "used in or in relation to the manufacture" have many shades and would cover various situations based on the purpose for which the input is used. However, the specified input would become eligible for credit only when used in or in relation to the manufacture of final product. Hydrogen gas used in the manufacture sodium cyanide is an eligible input, since it has a significant role to play in the manufacturing process and since the final product cannot emerge without the use of gas. Similarly, Heat Transfer oil used as a heating medium in the manufacture of LAB is an eligible input since it has a persuasive role in the manufacturing process and without its use it is impossible to manufacture the final product. Therefore, none of the categories in the inclusive part of the definition would constitute relevant consideration per se. They become relevant only when the above crucial requirement of being "used in or in relation to the manufacture" stands complied with. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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