Eligibility of credit of duty paid on welding electrodes used for repair and maintenance of machinery.

PJ/Case law/2014-15/2213

Case:- SAMRUDDHI CEMENT LTD. Vs COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:- 2013 (297) E.L.T. 562 (Tri. - Del.)

Brief facts:- The appellant were engaged in the manufacture of cement chargeable to Central Excise duty. The point of dispute in this case was as to whether during the period from January, 2008 to August, 2008, they were eligible for credit of Central Excise duty paid on welding electrodes used for repair and maintenance of plant and machinery. The department was of the view that the appellant were not eligible for credit in respect of these items as they were neither capital goods nor inputs. Accordingly, the show cause notice was issued for recovery of credit of Rs. 2,19,439/- availed by them in respect of this item. The show cause notice was adjudicated by the Assistant Commissioner vide order-in-original dated 25-5-2009 by which he confirmed Cenvat credit demand along with interest and imposed equal amount of penalty. On appeal to the Commissioner (Appeals), this order of the Assistant Commissioner was upheld vide Order-in-Appeal dated 23-9-2009 against which this appeal had been filed.

Appellant’s contentions:- Shri Hemant Bajaj, Advocate, learned Counsel for the appellant submitted that the issue in this case already stands decided in favour of the appellant in view of the judgment of Hon’ble High Court of Chhattisgarh in the matter of Ambuja Cements Ltd. v. CCE, Raipur reported in2010-TIOL-309-HC-CHHATTISGARH-CX = 2010 (256) E.L.T. 690 (Chhattisgarh) and also by the judgment of Hon’ble Karnataka High Court in the case of CCE, Bangalore v. Alfred Herbert (India) Ltd. - 2010 (257)E.L.T.29 (Kar.)and Hon’ble Rajasthan High Court in the case of Hindustan Zinc Ltd. - 2008 (228)E.L.T.517 (Raj.)had also taken the same view and held that Cenvat credit was available on welding electrodes used for repair and maintenance of plant and machinery. In view of these judgments of various High Courts, the impugned order was not sustainable.

Respondent’s contentions:-Shri R.K. Mathur learned DR supported the impugned order, reiterating the findings of the Commissioner (Appeals) and pleaded that Hon’ble Andhra Pradesh High Court in the case of Sree Rayalaseema Hi-Strength Hypo Ltd. v. CCE & C, Tirupati - 2012 (278) E.L.T. 167 (A.P.) had taken a contrary view, that Cenvat credit cannot be claimed under Rule 2(k) on the duty paid on welding electrodes used for repairs. Therefore, same cannot be treated as input or capital goods. He, therefore, submits that there was no infirmity in the impugned order.

Reasoning of judgment:- The Hon’ble judge held that though there was a recent judgment of Hon’ble Andhra Pradesh High Court in the case of Sree Rayalaseema Hi-Strength Hypo Ltd. v. CCE & C, Tirupati, wherein contrary view had been taken but Hon’ble High Court of Chhattisgarh, Hon’ble Karnataka High Court and Hon’ble Rajasthan High Court have held that welding electrodes used for repairs and maintenance of plant and machinery would be eligible for Cenvat credit. Moreover, the definition of ‘input’ as given in Rule 2(k) of Cenvat Credit Rules, 2004 covers the goods used “in or in relation to manufacture” of final products, whether directly or indirectly which was a much wider than the expression “used in manufacture”. While repair or maintenance by itself was not a process of manufacture, this activity certainly had nexus with manufacture of final product and would be covered by the expression - “used in or in relation to manufacture of final product” as no manufacturing activity was possible with malfunctioning machinery. In view of this, judge was of the view that the impugned order was not sustainable.

In view of the above findings, the appeal was allowed.

Decision:- Appeal was allowed.

Comment:- The analogy drawn from the case is that definition of ‘input’ as given in Rule 2(k) of Cenvat Credit Rules, 2004 covers the credit of goods used “in or in relation to manufacture” of final products. While repair or maintenance by itself was not a process of manufacture, this activity certainly has nexus with manufacture of final product and would be covered by the expression - “used in or in relation to manufacture of final product” as no manufacturing activity was possible with malfunctioning machinery. Thus the assessee was eligible for taking credit of Central Excise duty paid on welding electrodes used for repair and maintenance of plant and machinery as this fall under the definition of inputs.

Prepared by: Ranu Dhoot

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PJ/Case law/2014-15/2213

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