Credit on H.R.Sheets, M.S. Plates and angles used in fabrication of tank covered under capital goods is admissible.

PJ/Case Laws/2012-13/1401

Case:- SAKTA INX. (INDIA) LTD. Vs. C.C.E., JAIPUR-I

Citation:- 2012 (284)E.L.T. 701 (Tri. - Del.)

Brief Facts:-H.R. Sheets, M.S. Plates and angles were used in fabrication of oil tank which was a capital goods coming under Chapter 73 of Central Excise Tariff Act, 1975. Revenue denied the credit of the same on the ground that cement and steel used in the manufacture of capital goods viz., storage tank, if any structure for support of capital goods is constructed and steel and cement is used for such support, the assessee is not entitled to the benefit of cenvat credit on the duty paid on such cement and steel. Aggrieved by the order of lower appellate authority appellant filed appeal before Tribunal.

Appellant’s Contention:-Appellantsubmits that H.R. Sheets, M.S. Plates and angles were used in fabrication of oil tank which was a capital goods coming under Chapter 73 of Central Excise Tariff Act, 1975. The Tank so fabricated was to serve the purpose of manufacture. That was also not embedded to earth. Further he submits that the photographs filed clearly indicates that the tank was not in any way an immovable property because that can be dismantled for placement wherever required. Once the goods in question was not embedded to earth that comes within the frame work of Chapter 73 of the Tariff Act. Appellant further submit that such an issue was precisely before Hon'ble High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore v. SLR Steels Ltd. reported in 2011-TIOL-892-HC-KAR-CX. = 2012 (280) E.L.T. 176 (kar.).

The appellant also reads paras 7 & 8 of the judgment to buttress his claim which reads as under:-

7. A perusal of the aforesaid provision makes it. very clear though storage tanks may be immovable property and the pollution control equipment are included within the definition of 'capital goods', input as defined in Rule 2(k) makes it clear that 'input' includes goods used in the manufacture of capital goods which are further used in the factory of the manufacture. Therefore, the input is not necessarily to be used in the manufacture of final product. By virtue of explanation 2 - goods used in the manufacture of capital goods which are further used in the factory of the manufacturer of capital goods which are further used in the factory of the manufacturer also falls within the definition of input. In 2009, this explanation has been amended to the following effect:

"but shall not include cement, angles, channels. Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods"

8. Therefore, the intention of the Legislature is very clear that it is only the 'inputs' used in the manufacture of construction of capital goods which is construed as input and cenvat credit is available on the duty paid in purchase of such inputs. If the cement, angles, channels, Centrally Twister Deform bar (CTD) or Thermo Mechanically 6 Treated bar (TMT) and other items are used in the construction of factory shed, building or laying of foundation, the duty paid on such items the assessee would not be entitled to cenvat credit. Similarly, though the assessee is entitled to cenvat credit of cement and steel used in the manufacture of capital goods viz., storage tank, if any structure for support of capital goods is constructed and steel and cement is used for such support, the assessee is not entitled to the benefit of cenvat credit on the duty paid on such cement and steel. Therefore, there is not ambiguity in any of these provisions. When once storage tank and pollution control equipment constitutes capital goods and any raw material purchased for construction of those goods, the duty paid could be utilised as a cenvat credit by the assessee notwithstanding the fact that the storage tank is as immovable property. Therefore, the appellate authority committed a serious error firstly in holding that the storage tank is an immovable property and secondly, on the ground that it cannot be knight and sold in the market, the criteria which is totally unwarranted under the circumstances. Therefore, the tribunal was justified in setting-aside the said order and holding that the assessee is entitled to the benefit."

Respondent’s Contention:-The Respondent supports the order passed by the Commissioner (Appeals).

Reasoning of Judgment:- The Tribunal heard both sides and perused the record. The Tribunal has given opportunity toRevenue to test the case in the light of the judgment of Hon'ble High Court of Karnataka and also to explain whether the factual background of the case of the appellant is covered by aforesaid judgment. The appellate order nowhere disputes as to the affixation of the capital goods to earth. It is only a mechanical disallowance of cenvat credit by first appellate order without examining the use of the inputs in fabrication of the oil tank. Emergence of the oil tank is an admitted fact. That is also a capital goods under Chapter 73 of Tariff Act, 1975. Therefore, there should not be denial of Cenvat Credit on the input used. Hon'ble High Court of Karnataka examined Rule 2(k) of Cenvat Credit Rule 2004 in para 7 of the judgment and also found that the storage tank was capital goods which made the appellant in that case eligible to input credit. For the fact that the oil tank was not embedded to earth, the appellant is entitled to the Cenvat credit on inputs in the peculiar circumstances of the present case.

Decision:- Appeal is allowed.

Comment:- The analogy drawn from this case is that often there is mechanical disallowance of cenvat credit by the department without even examining the facts of a particular case. Credit was clearly admissible in the present case as H.R. Sheets, M.S. Plates and angles were used in the fabrication of tank that was very well covered in the definition of capital goods but unnecessarily the credit was denied to the assessee.

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PJ/Case Laws/2012-13/1401

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