Whether credit admissible in respect of MS Plates used for repair of capital goods ?

PJ/Case Law/2014-15/2020

Case:- SARJOO SAHKARI CHINI MILLS LTD. VERSUS COMMISSIONER OF C. EX., LUCKNOW

Citation:-2014 (301) E.L.T. 387 (Tri. - Del. )

Brief facts:- The point of dispute in this case is to whether the MS Plates, MS Sheets, etc used for repair and maintenance of the existing plant and machinery or for modification of the existing plant and machinery are eligible for Cenvat credit or not. The department being of the view that these items used for the above purpose during July, 2007 to April, 2009 period were not eligible for Cenvat credit ,issued a show cause notice for recovery of allegedly wrongly taken Cenvat credit amounting to Rs.5,78,539/- along with interest and also for imposition of penalty on the appellant under Rule 15 (2) of Cenvat credit Rules, 2004. The show cause notice was adjudicated by the Additional Commissioner vide Order- In-Order dated 29-4-2010 by which while the demand of Rs. 4,03,637/- was dropped on the ground that the same was in respect of Boiler Tubes, and MS Pipes, the remaining Cenvat credit demand of Rs. 1,74,722/- in respect of MS Plates and HR Sheets used for repair and maintenance was confirmed along with interest and beside this, penalty of equal amount was imposed on the appellant under the Rule 15(2) of Cenvat Credit Rules. On appeal to Commissioner (Appeals), the Additional Commissioner’s order was upheld vide Order – in – Appeal dated 7-3-2011. Against this order of the Commissioner (Appeals), the present appeal stands filed.
Appellant’s contention:-The appellant pleaded that as mentioned in the show cause notice itself, the items, in question, have been used for repair and maintenance of the plants and machinery or modification of the existing plant and machinery, that in the reply dated 7-3-2010 to the show cause notice, it has been confirmed by the appellant that these items had been used for repair and maintenance, that the issue of eligibility of these items for Cenvat credit stands decided in favour of the appellant by the judgment of Union of India vs. Hindustan Zinc Ltd. reported in 2007 (214) E.L.T. 510 (Raj.), the Government's SLP against which it was dismissed by the Hon'ble Supreme Court vide judgment reported in 2007 (214) E.L.T. A115 (S.C.) and also by the judgment of Hon'ble Karnataka High Court in the case of CCE, Bangalore-I v. Alfred Herbert (India) Ltd. reported in 2010 (257) E.L.T. 29 (Kar.), that in view of these two High Courts, the impugned order is not correct, and same is required to be set aside.
Respondent’s contention:- The respondent opposed the prayer by reiterating the findings of Commissioner (Appeals) in the impugned order and pleaded that as observed by the Commissioner (Appeals) in the impugned orders, these items have been mainly used for fabrication of structures fixed to earth and, hence, same would not be eligible for Cenvat credit in view of Tribunal (Larger Bench)'s judgment in the case of Vandana Global Ltd. v. CCE, Raipur reported in 2010 (253) E.L.T. 440 (Tri.-LB) and that the Apex Court also in the case of Saraswati Sugar Mills v. CCE, Delhi-III reported in 2011 (270) E.LT. 465 (S.C.) has held that the steel structures for supporting the machinery in a plant are not capital goods within the meaning of this term as defined in Rule 57Q of Central Excise Rules, 1944 (para 19 of the judgment). He, therefore, pleaded for rejection of appeal.
Reasoning of judgment:- Having carefully heard the submissions from both sides and perused the records, it is found that while the Commissioner (Appeals) in the impugned Order-in-Appeal has observed that the items, in question - MS Plates, MS Sheets, etc. were used in the factory for construction of supporting structure for machinery and foundation, in the show cause notice it has been alleged that the items, in question, were used by the appellant for repair and maintenance of the existing plant and machinery or for modification of the existing plant and machinery. Thus, the allegation that the items, in question, were used in the foundation of capital goods or for fabricating supporting structures for capital goods was not there in the show cause notice itself and, hence, the same cannot be raised at the appellant stage. As regards, the question as to whether the steel plates used for repair and maintenance for plants and machinery are eligible for Cenvat credit or not. There are judgments of two High Courts - Hon'ble Rajasthan High Court in the case of UOI v. Hindustan Zinc Ltd. (supra) and Hon'ble Karnataka High Court in the case of CCE, Bangalore-I v. Alfred Herbert (India) Ltd. (supra). By following the said decisions, the impugned orders are set aside and the appeal is allowed with consequential relief.
Decision:- Appeal allowed.
Comment:- The crux of this case is that credit of MS angles, sheets, plates is deniable only if they are used in the construction of supporting structures of the capital goods. As the said inputs were used in the repair and maintenance of plant and machinery in the present case, the credit was allowed in view of the decision given by two high courts.

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