Cenvat Credit admissibility on Distribution Control System of Co-generator and welding machines.

PJ/Case Law/2013-14/2049

Case:- DSM SUGAR Vs COMMISSIONER OF CENTRAL EXCISE, MEERUT-II

Citation:- 2013 (297) E.L.T. 53 (Tri.-Del.)

Brief Facts:-The appellant are manufactures of sugar and molasses chargeable to Central Excise duty. The period of dispute in this case is from December, 1995 to August, 1996. During that period, in addition, to availing Cenvat Credit of Central Excise duty paid on inputs, they were also availing Cenvat credit of distribution control system of co-generator, which is used as part of the distribution control system of co-generator and welding machines. All these items of capital goods were received in the appellant’s factory in December, 1995 and the appellant took total Cenvat credit of Rs. 5,94,395/- in respect of the same in accordance with the provisions of Central Excise Rules. In addition to this, the appellant took Cenvat credit of Rs. 28,296/- in respect of high speed diesel and took Cenvat credit of Rs. 10074/- in respect of some other inputs on the basis of invoices which were not in their name.

The department was of the view that the appellant are not eligible for Cenvat Credit in respect of the above items of capital goods and inputs and accordingly, the show cause notice was issued for recovery of allegedly wrongly availed Cenvat credit amounting to Rs. 5,94,395/-. Thus show cause notice in addition to this amount also sought recovery of Cenvat credit in respect of other items which are not the subject matter of dispute. The show cause notice was adjudicated by the additional commissioner vide Order-in-Original dated 31.12.2003 in which the above mentioned Cenvat Credit demand of Rs. 5,94,395/- was confirmed along with interest and penalty of equal amount was imposed. On appeal being filed to the Commissioner (Appeals) against this order, the order passed by the Asstt. Commissioner was upheld. Against this order of the Commissioner Appeals), this appeal has been filed.

Appellant contentions:-Shri Alok Arora, Ld. Counsel for the appellant, pleaded that so far as Cenvat credit in respect of HSD and the Cenvat Credit availed on the basis of invoice not in the name of appellant is not concerned, he is not contesting and he is contesting only the denial of Cenvat Credit in respect of the capital goods, that so far as distribution control system of power generation system is concerned, the same as is clear from the invoice, is an item classifiable under Heading No. 90.32 of the tariff, that this item is used for meter protection and safety of transformer and generation, that the definition of ‘Capital goods’ as given in Rule 57Q of the Central excise Rules covered the goods falling under Heading 90.32 of the Tariff, that in view of this, the denial of Cenvat Credit in respect of this item is not sustainable, that as regards “ co-generator system with battery & battery charger” the same is part of the distribution control system of power generation system as it is used to charge DCS by giving electricity supply, that this item being a component of the distribution control system of Power generation system would also be covered by definition of capital goods as the same stood during the period of dispute, that welding machine and welding electrodes have been specifically held as eligible for Cenvat credit by the larger Bench judgment of the Tribunal in the case of Jawahar Mills Ltd.reported in 1999 (108) E.L.T. 47 (para-40)of the judgment, which has been upheld by the Apex Court vide judgment reported in 2001 (132) E.L.T. 3 (S.C.)and that in view of this, the impugned order disallowing Cenvat Credit amounting to Rs. 5,94,395/- in respect of the above items of capital goods is not sustainable.

Respondent contentions:-The respondent reiterated the findings of the lower authorities and prayed for confirming the denial of cenvat credit.

Reasoning of Judgment:-Tribunal considered the submissions from both sides and perused the records. The first disputed item is distribution control system of power Generation and the second item-Low frequency transmission system is a component of DCS of the power generation system. The invoice in respect of the DCS mentions its classification under heading no. 90.32. There is no dispute that DCS system monitors and controls the temperature and pressure of boiler and gives alarm if any anomaly is observed in boiler/turbine. During the period of dispute, the definition of capital goods as given in explanation 57Q specifically covered the goods (other than of a kind used for refrigerating and air conditioning Appliances) falling under heading No. 90.32 and also the component/spares and accessories of the goods of Heading No. 90.32, the same was specifically covered by the definition of capital goods and the low frequency transmission system, which is part of the DCS system, would also covered by the definition of capital goods. In view of this, it was held that denial of capital goods Modvat credit in respect of these items is not sustainable, as the same are specifically covered by definition of capital goods during the period of dispute.

As regards the welding machines and welding electrodes, the same were being used for repair and maintenance of the plant and machinery. It was found that the larger bench of the tribunal in the case of Jawahar Mills Ltd.reported in 1999 (108) E.L.T. 47 (tribunal)has specifically held that welding electrodes and welding machines are eligible for Cenvat Credit. This judgment of the tribunal has been upheld by the apex court reported in 2001 (132) E.L.T. (SC). In view of this, the denial of Cenvat credit in respect of these items is also not sustainable.

In view of the above discussion, the impugned order is upheld. Only in respect of denial of Cenvat credit on HSD and on the basis of invoices not in the appellant’s name, the impugned order regarding denial of Cenvat credit in respect of the welding machine, welding electrodes and components of distribution control system of Co- generator plant and on this basis denial of Cenvat credit amounting to Rs. 5,54,395/- in respect of the above mentioned four items of the capital goods is set aside. The appeal is partly allowed with consequential relief.

Decision:-Appeal partly allowed.

Comment:-The analogy drawn from this case is that distribution control system of power generation system” used for meter protection and safety of transformer and generator, “co-generator system with battery & battery charger” that is part of distribution control system of power generation system used to charge DCS fall under the definition of Capital goods and hence being a capital goods, duty paid on the same shall be allowed as Cenvat Credit.

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PJ/Case Law/2013-14/2049

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