Cenvat Credit on Capital Goods- admissibility of

PJ/Case Laws/2011-12/1398

Case: Commissioner of C. Ex. Mangalore Vs Rajashri Packagers Ltd.

Citation: 2011 (268) E.L.T. 337 (Kar.)

Issue:- Cenvat credit of capital goods used for manufacturing exempted main product but dutiable by-products also emerging – whether credit admissible?

Brief Facts:- Respondent-assessee were engaged in the manufacture of refined vegetable oil and vanaspati by processing crude oil which are exempted from payment of excise duty. In the course of manufacture of vanaspati, by-product emerged at different stages which were cleared on payment of duty. Certain Capital goods were received which were utilized in the manufacturing of these exempted goods. Respondent took Cenvat Credit on the same.

Revenue proceeded against respondent on the ground that the new capital machineries were used in the plant which produces vanaspati only, which is totally exempted. When capital goods are used exclusively for manufacture of exempted goods, no credit would be available in terms of Rule 6 of the Cenvat Credit Rules.

The Original Authority confirmed the demand and imposed penalty. In appeal, the Commissioner (Appeals) held that the availment of credit cannot be denied as long as the new plant is in the same factory and is connected to the process which produces the edible goods at any stage. Accordingly, demand was set aside.

Aggrieved by the same, the Revenue preferred an appeal to the Tribunal. The Tribunal held that entire process appears to be integrated. It would not be correct to isolate a piece of machinery and to hold the view that at the final stage, only exempted product emerges and therefore the said machinery is used exclusively for the manufacture of the exempted products. By-product emerges at various stages and these are cleared on payment of duty. Therefore it was held that the capital goods were not used exclusively for the production of exempted goods and consequently the assessee is entitled to Cenvat Credit. Aggrieved by the same, the revenue is in appeal before the High Court. The Tribunal held that judgment cited by the respondent given in the case of Ruchi Health Product Limited vs. Commissioner of Central Excise [2007 (218) ELT 716 (Tri-Chennai)] is applicable o the case.

Appellant’s Contention:- Revenue contended that, in view of the report of the original authority who visited the factory, saw with his eyes the manufacturing process and has recorded the finding that the exempted goods emerge by the exclusive use of the capital goods, the Appellate Authority and the Tribunal could not have ignored the said finding of the fact and held that the assessee was entitled to the Cenvat Credit. Therefore the impugned order requires to be set aside.

Reasoning of Judgment:- The Tribunal noted that the chart produced before them by respondent showed the various stages of manufacturing process and disclosed that there are roughly 10 stages between the first stage of mixing crude oil with palm oil and the last product vanaspati coming out. Some of the processes are conducted in the old machinery in which the by-product emerges after the partial processing of the crude oil and palm oil in the old machinery which gets into new machine. After several stages of process in the new machinery, the final product vanaspati emerges at the end. The Assessing Authority who visited the spot has not stated that the entire processing is done in the new machinery. From his own report it is clear that a portion of the process takes place in the old machinery and the remaining process takes place in the new machinery. Without old machinery, by operating the new machinery alone these exempted goods of vanaspati cannot be manufactured similar in the case of old machinery. It was held that as rightly pointed out by the Tribunal, it is an integrated process where both the machineries were used and after several processes carried out at various stages, the final product emerges. As it was clear from the material on record and the chart showing the various processes, the High Court were satisfied that the both machinery was used in the manufacture of vanaspati & therefore cannot be said that the new machinery was used exclusively for the manufacture of the vanaspati. It was clear from the facts of the case that the new machinery in respect of which Cenvat credit was claimed was not exclusively used in the manufacture of the exempted goods. It can be said that in the integrated manufacturing process exempted goods i.e. vanaspati emerges as a product. The Appellate Authority as well as the Tribunal was justified in coming to the conclusion to which they have come on the basis of legal evidence and does not suffer from any legal infirmity.

Decision:- Appeal dismissed.

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PJ/Case Laws/2011-12/1398

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