Credit admissibility on Plates, Channels, Beams etc used in fabrication of capital goods and canteen shed.

PJ/Case Law /2016-17/3314

Case:-MATRIX LABORATORIES LTD. VERSUS COMMR. OF CUS., C. EX. & S.T., HYDERABAD-I

Citation:- 2016 (339) E.L.T. 122 (Tri. - Hyd.)

Brief Facts:- The appellants are manufacturers of bulk drugs and intermediaries falling under Chapter 29 of the 1st Schedule of CETA, 1985. They are also availing Cenvat credit on inputs and capital goods. During the period from Nov., 2008 to June, 2009, the appellants had availed Cenvat credit on MS angles, channels, beams, plates, etc., falling under Chapter No. 72 and 73. The department entertained a view that credit on these items is not available, and issued a show cause notice dated 19-11-2009. After adjudication, the original authority disallowed the credit being inadmissible and demanded recovery of the same along with interest and imposed equal amount of penalty. Aggrieved by the said order, the appellants have filed an appeal before the Commissioner (Appeals) who vide the order impugned herein dismissed the appeal upholding the disallowance of credit but reduced the penalty to Rs. 50,000/-. Being aggrieved by the said order, the appellants have preferred this appeal.

Appellant’s Contention:- The learned counsel for the appellant Sh. R. Muralidharsubmitted that the appellant had explained the manner of use of the impugned goods in fabrication/manufacture of capital goods, spares and accessories to capital goods. The MS angles/channels were used for fabrication in support to the technological structural bridge wherein the pipeline system laid down from utility block to production block area in the plant. In addition to the above, the angles were used in fabrication of cable tray which will be supporting the electrical cables laid from the electrical panel to production and utility blocks. They were also used for supporting the equipments like reactors, distillation columns, heat exchangers, etc. He submitted that the appellants also produced a Chartered Engineers certificate which was prepared by the Chartered Engineer after due verification. The learned counsel placed reliance on the judgments in Rajasthan Spinning and Weaving Mills - 2010 (255) E.L.T. 481 (S.C.) and the case of India Cements Ltd. - 2015 (321) E.L.T. 209 (Mad.).

Respondent’s Contention:- Against this, the Learned AR vehemently argued that the credit is not admissible as the subject items do not qualify as capital goods nor is there any proof that they were utilised for manufacture of capital goods/components/ spares/accessories. That the appellant have not submitted sufficient documents to establish use of the impugned goods in manufacture of capital goods. He also pointed out that some of the subject items were used in making canteen shed and therefore the credit cannot be allowed.

Reasoning of Judgement:- The certificate issued by the Chartered Engineer Shri N.J. Vidyasagar of Secunderabad, states that the impugned items were used for fabrication of technological structures bridges, supporting to the equipments like reactors, distillation column, heat exchangers, receivers in utility and production blocks, pipeline systems, etc. The Commissioner (Appeals) has brushed aside this certificate stating that there are no supporting documents to evidence the use of these items in the manner stated in the certificate. It is further stated by the Commissioner that even assuming that the appellants used the subject MS items for fabrication of support of structure to support pipelines/heat exchangers/reactors distillation column/electrical cables they are permanently fixed on the ground or walls and are not eligible to avail the credit for structural items as these are not goods any more having been fixed to the ground. The Hon’ble Courts not able to agree with this view that the MS items used as support structure for capital goods/parts/components/ are not eligible for Cenvat credit. The use of MS items to manufacture/fabricate capital goods/parts/accessories has been settled in the cases of Rajasthan Spinning and Weaving Mills and India Cements. While considering the issue the Hon’ble Courts have taken the view that the machineries in a factory have to be properly supported and connected. Such structural supports are necessary for the machines to make them function without vibration or movement. In Divis Laboratories Ltd. v. CCE, Visakhapatnam - 2006 (196) E.L.T. 285 (Tri.-Bang.) it was held that the items like angles channels, beams, pipes, tubes, etc. used as parts of technological structures which support a reaction vessel or used in particular equipment in the manufacture of bulk drugs was admissible.

However, It is seen that the appellants have used the impugned items for making canteen sheds. The claim of credit on MS items used for making canteen sheds, in Hon’ble Courts view is not admissible for the reasons that canteen sheds do not qualify as capital goods as provided in Cenvat Credit Rules, 2004. It then becomes necessary to quantify the amount of impugned item used in the manufacture of canteen shed. The appellant will have to approach with necessary document to the concerned Range Superintendent for this. The Appellant shall furnish evidence regarding the quantity of impugned items used in the construction of canteen shed and is also liable to reverse the credit availed on manufacture of canteen shed.

Decision:- Appeal partly allowed.

Comment:- The gist of the case is that MS items used to manufacture/fabricate capital goods/parts/accessories will qualify as capital goods and Cenvat credit on the same is admissible but MS items used in construction of canteen shed is not admissible for the reason that canteen sheds do not qualify as capital goods as provided in Cenvat Credit Rules, 2004.

Prepared by:- Akshit Bhandari

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PJ/Case Law /2016-17/3314

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