Whether Cenvat credit is allowed on consumable accessories of capital goods?

PJ-Case law-2012/13-1564

Case:- COMMR. OF C. EX., VADODARA VERSUS GUJARAT NARMADA VALLEY FERTILISERS

Citation:- 2013 (291) E.L.T. 76 (Tri. - Ahmd.)

Brief facts:-Revenue is in appeal against the decision in the impugned order that respondent is eligible for Cenvat credit in respect of High Pressure gauge, Electric Machine Pump, RTD sensor, Thermo Couple, PH. Electrode, Carbon filled bush, Branded Gland packing and Gland packing. The ld. A.R. on behalf of Revenue made it in detail submissions and after hearing both the sides, it is felt that respondent is eligible for the benefit of Cenvat credit. Each item, eligibility and the reasons therefore are discussed below (i) High Pressure Gauge, Electric Machine Pump, RTD sensor and Thermo Couple.In all these cases it is the contention of the Revenue that the ld. Commissioner has not indicated as to which machine/equipment these items can be considered as accessories. On this ground the decision is challenged. The ld. Counsel for the respondent relied on the case of Banko Products India Ltd. v. CCE - 2009 (235) E.L.T. 636 (Tri. - LB) to submit that an accessory need not have to be identified with a particular machine or equipment.

Appellant’s Contention:-Credit in respect of PH electrode, carbon filled brush, branded gland packing and gland packing. In all these cases it is the contention of the Revenue that these are consumables and therefore cannot be considered as capital goods and hence credit is not available. The ld. A.R. relied upon the decision of the Tribunal in the case of Swill Overseas Ltd. - 2010 (254) E.L.T. 338 (Tri. - Del.) to submit that items which are consumables cannot be considered as capital goods.

Respondent’s Contention:-He submits that in Banko Products case, the Larger Bench had taken the view that credit is available on plastic crates used for moving materials from one part of the factory to another and therefore they could not have been considered as accessory to any particular machine.

Reasoning of Judgment:-After considering the documents and hearing both sides, Tribunal find considerable force in the argument that the decision of the Tribunal of the Larger Bench applies to above items i.e. Credit in respect of PH electrode, carbon filled brush, branded gland packing and gland packing is available. The Judge found that the Swill Overseas Ltd decision is not applicable to the facts of this case as the issue before the Tribunal was whether the credit is admissible in respect of welding electrodes used for repairs and maintenance in a factory. In this case all these items have not been used for repairs and maintenance. In respect of carbon filled bush and PH electrode, both are parts of machineries and get consumed when the machineries are used and therefore have been held as consumables. Just because they have to be frequently replaced, it cannot be said that they are in the nature of capital goods. Further, it also cannot be said that just because after some time they are required to be replaced, they cease to be part/accessory of the machine. Under these circumstances, the credit is to be allowed on carbon filled bush and PH electrode. As regards branded gland packing and gland packing, these items have been used to arrest leakages in pumps, heat exchangers and compressors. The ld. counsel for the respondents submitted that basically the leakages in valves were plugged by using these materials. On going through the facts discussed in paragraph 7.6 of the impugned order Tribunal finds that the reliance of the Commissioner on the decision in the case of KCP Sugar Industries Ltd. [2004 (178) E.L.T. 275 (Tri. - Bang)] is appropriate. Tribunal finds that when the leakage is plugged the products used for plugging the leakage and ensured that the leakage does not occur in the machine/wall whatever it is. In reality they become part and parcel of the machine and so long as they are intact and ensure that the leakage does not happen. In view of the above, the credit is rightly available on these items. In the result, the appeal filed by the Revenue has no merits and accordingly is rejected.

Decision:-Appeal rejected.

Comment:-The substance of this case is that merely because the accessories to the capital goods get consumed while the capital goods are in operation cannot be a ground to deny credit on them and all the things used for smooth functioning of the capital goods would be eligible for availing cenvat credit.

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PJ-Case law-2012/13-1564

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