Whether steel items used for fabrication of various parts of capital goods eligible for credit?

PJ/CASE LAW/2015-16/2563

Case:-COMMISSIONER OF CENTRAL EXCISE, RAIPUR VERSUS HI-TECH POWER & STEEL LTD.

Citation:- 2015 (315) E.L.T. 428 (Tri.- Del.)

Brief Facts:-The respondents are manufacturers of Sponge Iron chargeable to central excise duty. During the period from November, 2001 to June, 2004, they took Cenvat credit of Rs. 17,69,695/- on M.S. Angles, Channels, Beams, Joists, M.S. Plates, Steel Tubes and H.R. Strips, etc. which according to them were used for fabrication of Coal Ground Hopper, Iron Ore Ground Hopper, Coal Crusher House, Conveyor System, Stock House, After Burning Chamber, Kiln Coller Transformer House etc. The department was of the view that since these items after fabrication had been erected and installed and the same after being installed became fixed to earth structures, the materials used for fabrication of the above items would not be eligible for Cenvat credit either as input or as capital goods. Accordingly, a show cause notice dated 8-12-2006 was issued under proviso to Section 11A(1) of the Central Excise Act, 1944 for recovery of the Cenvat credit demand along with interest and for imposition of penalty on the respondent. This show cause notice was adjudicated by the Addl. Commissioner vide order-in-original dated 21-3-2008 by which the above mentioned Cenvat credit demand was confirmed along with interest and penalty of Rs. 3,50,000/- was imposed on the respondent. On appeal being filed to the Commissioner (Appeals) against this order, the Commissioner (Appeals) vide order-in-appeal dated 4-4-2008 set aside the Addl. Commissioner’s order holding that the order is not sustainable on merits as well as on limitation. Against this order of the Commissioner (Appeals), Revenue is in appeal.

Appellant Contentions:-Ld. Departmental Representative, assailed the impugned order by reiterating the grounds of appeal and pleaded that the steel items, in question, have not been used by the respondent for fabrication of any capital goods as defined under Rule 2(a) of the Cenvat Credit Rules, 2004, as the capital goods have to be “goods” i.e. movable item, while various items fabricated by the respondent were installed after which the same became fixed to the earth structures. He also pleaded that extended period of limitation under proviso to Section 11A(1) has been correctly invoked inasmuch as the use of these goods was not disclosed by the respondent to the Department. He also pleaded that in view of the judgment of the Larger Bench of the Tribunal in the case of Vandana Global Ltd. reported in 2010 (253) E.L.T. 440 (Tribunal-LB), the steel items used for fabricating fixed to the earth structures for supporting the machinery or other fixed to the earth structures are not eligible for Cenvat credit. He, therefore, pleaded that the impugned order is not correct.

Respondent Contentions:-Ld. Counsel for the respondent, pleaded that the judgment of the Larger Bench of the Tribunal in the case of M/s. Vandana Global Ltd.(supra) is not applicable to the facts of this case, as in this case the steel items, in question, have been used for fabrication of various parts of capital goods viz. Coal Ground Hopper, Iron Ore Ground Hopper, Coal Crusher House, Conveyor System, Stock House, After Burning Chamber, Kiln Coller Transformer House etc. and hence, the steel items have to be treated as inputs used for fabrication of capital goods manufactured in the factory and accordingly, the same would be eligible for Cenvat credit as input in terms of Rule 2(k) of the Cenvat Credit Rules, 2004. With regard to limitation, she pleaded that even if it is held that the items are not eligible for Cenvat credit on the ground that the same have been used for fabrication and installation of supporting structures, the demand is time barred, as during the period of dispute, there were conflicting decisions on this issue and hence, in view of the judgment of the Apex Court in the case of Continental Foundation Joint Venture v. CCE, Chandigarh-I reported in2007-TIOL-152-SC-CX - 2007 (216) E.L.T. 177 (S.C.), longer limitation period of 5 years cannot be applied. She, therefore, pleaded that there is no infirmity in the impugned order.

Reasoning of Judgment:-Tribunal have considered the submissions from both the sides and perused the records. According to the respondent, the steel items, in question, have been used in fabrication of the Coal Ground Hopper, Iron Ore Ground Hopper, Coal Crusher House, Conveyor System, Stock House, After Burning Chamber, Kiln Coller Transformer House etc., which according to the findings of the Commissioner (Appeals), are parts of the machinery and hence, are covered by the definition of capital goods. The grounds of appeal do not dispute the above uses of the steel items and in the grounds of appeal it is simply stated that the items fabricated are supporting structures. Tribunal do not accept this plea of the department, as from the nature of the items fabricated, it is clear that the same are component of the various machinery and hence, have to be treated as components of capital goods and accordingly, the steel items used in fabrication of the same would be eligible for Cenvat credit in terms of Rule 2(k) of the Cenvat Credit Rules, 2004. In any case, since on the issue involved in this case, there were conflicting decisions of the Tribunal, in view of the judgment of the Apex Court in the case of Continental Foundation Joint Venture (supra), no mala fide can be attributed to the respondent and accordingly, the longer limitation period under proviso to Section 11A(1) would not be available to the department and the demand is time barred. In view of the above discussion, there is no infirmity in the impugned order. The Revenue’s appeal is dismissed.

Decision:-Appeal dismissed.

Comment:-The gist of this case is that it is clear that the M.S. Angles, Channels, Beams, Joists, M.S. Plates, Steel Tubes and H.R. Strips, etc. are component of the various machinery and treated as components of capital goods and accordingly, the steel items used in fabrication of the same would be eligible for Cenvat credit in terms of Rule 2(k) of the Cenvat Credit Rules, 2004. Apart from this, the demand is liable to be set aside as the same is time barred.

Prepared by: Hushen Ganodwala

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PJ/CASE LAW/2015-16/2563

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