Admissibility of Cenvat credit on the trolleys used in the assembly line of ACs?

PJ/CASE LAW/2015-16/2977

Case-HITACHI LIFE & SOLUTION INDIA LTD. Versus COMMR. OF C. EX. & S.T., AHMEDABAD

Citation-2015 (325) E.L.T. 148 (Tri. - Ahmd.)

Brief Facts-This appeal has been filed by the appellant against OIA No. 42-2013-AHD-III-SKS-COMMR-A-AHD, dated 15-3-2013 issued on 18-3-2013.

Appelants Contention-Shri S.J. Vyas, (Advocate) appearing on behalf of the appellant argued that the issue involved in this proceedings is admissibility of Cenvat credit on the Trolleys falling under Chapter 87 of the Central Excise Tariff Act, 1985 which are used for carrying components from one part of the assembly line of the AC to another part of the assembly line. Learned Advocate argued that Trolleys used in the assembly line are essential part of the manufacturing activity and Cenvat credit will be admissible in view of the Larger Bench decision in the case of Banco Products (India) Limited v. CCE, Vadodara [2009 (235)E.L.T.636 (Tri. - LB)]. He made the Bench go through Paras 5, 24 and 25 of the Larger Bench judgment to argue that Trolleys used by the appellant are comparable to Plastic Crates for which Larger Bench judgment decided the issue. That it has been held by the Larger Bench that Plastic Crates used between material handling equipment in the factory premises as capital goods are eligible to Cenvat credit as inputs. Learned Advocate further relied upon the case law of P.K.P.N. Shipping Mills (P) Limited [2015 (316) E.L.T. A160 (Mad.)]. It was his case that the Madras High Court relying upon the Larger Bench judgment in the case of Banco Products (India) Limited v. CCE, Vadodara (supra), held that Cenvat credit of duty paid on Plastic Crates is admissible.

Respondents Contention-Shri T.K. Sikdar (AR) appearing on behalf of the Revenue argued that Trolleys used by the appellant for carrying components in the assembly line of the ACs are classifiable under Chapter 87 of Central Excise Tariff Act, 1985 and can neither be said to classified as capital goods nor inputs. That Hon’ble High Court in the case of Commissioner of Pondicherry v. Mohan Breweries Limited [2010 (259)E.L.T.176 (Mad.)], relied upon by the first appellate authority, has held that steel plates and M.S. Channels used for fabrication of Chimney cannot be entitled to Modvat credit.

Reasoning Of Judgement-Heard both sides and perused the case records. The issue involved in the present proceedings is whether Cenvat credit of duty paid on Trolley’s, used in the assembly line of ACs, is admissible to the appellant or not. There is no dispute on the fact that the Trolleys, for which Cenvat credit is taken, are used by the appellant for carrying material from one part of the assembly line to another part of the assembly line or the place to and from where assembly of goods is taking place. It has been held by the Larger Bench in the case of Banco Products (India) Limited v. CCE, Vadodara (supra) that credit of Plastic Crates used for handling of materials within the factory is admissible for credit under Rule 2(b) of the Cenvat Credit Rules, 2002 presently Rule 2(a) of Cenvat Credit Rules, 2004. Paras 5, 24 and 25 of this case law are relevant and are reproduced as follow :-
“5. Admittedly, the plastic crates are not covered by Sr. Nos. (i) and (ii) of the above definition. The claim is under Sr. No. (iii), as accessories of the goods specified at Sr. No. (i). As such, only question required to be decided is as to whether the plastic crates can be considered as accessories of the machine falling under Sr. No. (i). For that, we need to understand the meaning of “accessory”. By referring to the various decisions, it stand strongly argued before us that an accessory means something which contributes in a sub-ordinate degree to attain the general result or effect and if added merely to the convenience or effectiveness of the machine, it would be an accessory.
6 to 23 …… ……...
24. We fully agree with the above judgment on the issue. The plastic crates are used for transporting/storing of the goods in the factory of production. Proper storage of inputs is essential for efficient manufacturing process and in absence of proper facilities for storage and transportation; the same will affect the manufacturing process. Further, the Hon’ble Supreme Court in the case of M/s. Rajasthan State Chemical Works has observed that the manufacturing process starts with the drawing of water from the reservoir. By applying the same fact, it can be safely concluded that the manufacturing process starts with the issuance of the inputs from the stores and their further transportation to the production platform is only a part of the process of manufacture integrally related to the final production. In absence of the delivery of the raw material to the manufacturing platform, the process cannot start. Such delivery of the goods includes transportation of the goods by plastic crates. Similarly, finished products are required to be stored in a bonded store room. The plastic crates are again used for such transportation. As such, we are of the view that the plastic crates would also be eligible for Modvat credit as input. In view of our foregoing discussion, we answer the referred question as under:
Modvat credit is available on the plastic crates used as material handling equipment in the factory premises as capital goods as also as input.”
The Hon’ble Madras High Court in the case of P.K.P.N. Shipping Mills (P) Limited (supra) has also held that credit of Plastic Crates is admissible. The nature of function attributable to the Plastic Crates and Trolleys used by the appellant are the same. The case law Commissioner of Pondicherry v. Mohan Breweries Limited (supra) has been relied upon by the Revenue. The issue in this case relied upon by the Revenue was Cenvat credit of duty paid on steel plates and M.S. Channels used for fabrication of Chimney. The facts involved in that case were different and, therefore, it was not be proper on the part of the first appellate authority to distinguish the Larger Bench judgment in the case of Banco Products (India) Limited v. CCE, Vadodara (supra) as the facts and nature of equipment involved in the present proceedings are similar. Therefore, Cenvat credit is admissible to the appellant. In view of the above discussion, appeal filed by the appellant is allowed.

Decision-Appeal allowed

Comment-The analogy of the case is that the Trolleys falling under Chapter 87 of the Central Excise Tariff Act, 1985 and used for carrying components in assembly lines of ACs are admissible to the cenvat credit as because these trolleys are essential part of the manufacturing activity. This is in view of the Larger Bench decision in the case of Banco Products (India) Limited v. CCE, Vadodara wherein it has been held that credit of Plastic Crates used for handling of materials within the factory is admissible for credit under Rule 2(b) of the Cenvat Credit Rules, 2002 presently Rule 2(a) of Cenvat Credit Rules, 2004.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2977

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