Whether the availment of Cenvat on paints, thinners, welding electrodes and HR coil and plates be eligible under the definition of input or capital goods ?

Case:- DSM SUGAR Versus COMMISSIONER OF CENTRAL EXCISE, MEERUT-I

Citation:-2013 (31) S.T.R. 210 (Tn. - Del.)

Brief fact:-The facts of the case are as under:
The appellant are manufacturers of sugar chargeable to central excise duty. They availed Cenvat credit of central excise duty paid on inputs and capital goods. The point of dispute in this case is from March, 2008 to October, 2008. During this period, the appellant took different amounts of Cenvat credit in respect of H.R. Coils, M.S. Girder, M.S. Bars, Coils & Wire Rod, M.S. Plates and Shapes & Sections, G.C. Sheet, C.R. Coil etc., also welding electrodes and paints and thinners. The department being of the view that these items are not eligible for Cenvat credit issued eight separate show cause notices for denial of Cenvat credit amounting to Rs.3,29,322/-, Rs.75,210/-, Rs.4,10,370/-, Rs.2,31,682/-, Rs. 4,03,101/-, Rs.4,50,857/- and Rs. 4,72,757/- along with the interest and also for imposition of penalty. These show cause notice were adjudicated by the Assistant Commissioner in eight separate orders by which the Cenvat credit demands mentioned above were confirmed along with interest and penalty of Rs.10,000/- was also imposed on the appellant in each case. Against these orders passed by the Assistant Commissioner, appeals were filed the Commissioner (Appeals), the details of which are given below:

SI. No.	Appeal No. & date	04-0 No. & date	Amount of Cenvat credit disal- lowed (Rs.)	Goods on which credit has been disallowed	Period
1	84/10 dt. 29-3-10	327/AC/MB D/2009 dt. 28-1-10	3,29,322/-	H.R. Coil, M.S. Girder, M.S. Bar, Coils/Wire Rod	August, 08
				M.S. Plate and
				Shape & Section
2	85/10 dt.	328/AC/MB	75,210/-	Welding Elec-	Sept., 08
	29-3-10	D/2009 dt. 28-1-10		trodes, Paint, Thinner, H.R. Coil and Shape	& October, 08
				& Section
3	86/10 dt. 29-3-10	329/AC/MB D/2009 dt.	4,10,370/-	Welding Electrodes, H.R.	August, 08
		28-1-10		Coil, M.S.
				Girder, M.S. Bar, G.P. Sheets, C.R.
				Coils M.S.
				Plate/Section and Shape &
				Section
4	87/10 -dt.	330/AC/MB	2,31,682/-	Welding	June, 08 &
	29-3-10	D/2009 ' dt.		Electrodes, M.S.	July, 08
_.		28-1-10	,	Bar (Flat), M.S. Plate and Shape
				& Section
5	88/10 dt. 29-3-10	331/AC/MB D/2009 dt.	4,03,101/-	H.R. Coil/ Plate, G.P. Sheets, G.C.	March, 08.
		28-1-10		Sheets & C.R.
				Coils/ Sheets
6	89/10 dt.	332/AC/MB	4,50,562/-	H.D. Coil, M.S.	March, 08
	29-3-10	D/2009 dt.		Angle/Joint/
		28-1-10		Beam/Channel/
				Sheets, Skelp, C.R. Sheets, M.S.
				Flat/Steel Bar, Shape & Section
7	90/10 dt.	333/AC/MB	4,80,857/-	H.R. Coil, G.C.	March, 08
	29-3-10	D/2009 dt.		Sheets, G.P.
		28-1-10		Coils/Sheets, Skelp & C.R.
				Coils/Sheets

91/10 dt.
29-3-10

334/AC/MB
D/2009 dt.
28-1-10

4,72,757/-

H.R. Coil,
Coils,
Coils /Sheets
and Shape
Section

G.P.
C.R.
&

March, 08

Appellant’s contention:-the appellant, pleaded that so far as the welding electrodes and paint and thinner are con' cerned, the use of these items for repair and maintenance of capital goods is not disputed; that paints and thinners are specifically covered by the definition of input and since the same are used to protect the capital goods from rust, the denial of Cenvat credit in respect of the same is incorrect; that welding electrodes used for repair and maintenance of the plant and machinery are eligible for Cenvat credit in view of judgment of Hon`ble Chhattisgarh High Court in the case of Ambuja Cements Eastern Ltd. v. CCE, Raipur reported in 2010 (256) E.L.T. 690 (Chhattisgarh), and judgment of Rajasthan High Court in the case of Union of India v. Hindustan Zinc Ltd. reported in 2008 (228) E.L.T. 517; that the Commissioner (Appeals)'s observation that the appellant have not produced any evidence regarding the use of welding electrodes in fabrication or repair and maintenance of the capital goods and regarding use of paints/thinners for applying on capital goods for protection from rust is incorrect and as this ground has not been taken even in the show cause notice in as much as the show cause notice has been issued on the basis that welding electrodes; welding electrodes and paints & thinners are not inputs, that as regards the H.R. coils, H.R. sheet, G.C. sheet, Angles, Channels shapes and sections, etc., the same except for some quantity which has been used for making of supporting structures for machinery, have been used in fabrication of various machinery or parts thereof; that in this regard, the appellant had furnished the evidence regarding the use of these items in form of store register showing the receipt of these items, issue slips as well as certificate of G.M. (Technical) of the factory countersigned by a Chartered Engineer; that issue slips clearly show the quantity of the steel item, the description of the steel item and where the same was used; that neither in the order-in-original nor order-in-appeal the use of these items has been considered and at both the stages the Cenvat credit has been denied; on the general ground that these items are normally used for supporting structure; that the ground on which the Cenvat credit has been denied in respect of steel items used in fabrication of machinery or parts thereof is totally incorrect, that when the steel items are used for fabrication of capital goods or parts thereof, the same would be eligible for Cenvat credit as input as definition of input, as given in Rule 2(k) of the Cenvat Credit Rules, 2004 also covers the items used for fabrication of capital goods for use in the factory except for the inputs used in fabrication of supporting structures, foundation, etc.; that the evidence regarding use of steel items in fabrication of sugar mill machinery and parts thereof has been produced by the appellant but the same has not been considered and that in view of this, impugned order denying the Cenvat credit in respect of steel items is not correct.

Respondent’s contention:-The Respondent supported the impugned order by reiterating the finding of the Commissioner (Appeals) and pleaded that the items are not covered by the definition of input.

Reasoning of Judgment:- Having considered the submissions from both the sides and perused the record, it is conclude as below:
So far as paints and thinners are concerned, the same, undisputedly have been used for applying on the various machinery. The paint is specifically covered by the, definition of input as given in Rule 2(k) of the Cenvat Credit Rules, 2004 and, therefore, the impugned order denying Cenvat credit in respect of item is not sustainable. As regards the ground that evidence regarding this use has not been produced, since this ground has not been taken in the show cause notice, the same cannot be raised at the appellate stage.

As regards welding electrodes, the reason given by the Commissioner (Appeals) are two folds. Firstly, welding electrodes used for repair and maintenance are not eligible for Cenvat credit. Secondly, the appellant have not produced any evidence with regard to their use. But the ground regarding evidence of use of welding electrodes has not been taken in the show cause notice, as the show cause notice has been issued for denying the Cenvat credit on welding electrodes only on the basis that the same are not input . In any case, the welding electrodes can be used either for fabrication of new machinery or its part or for repair and maintenance. While in the first case, the same would be eligible for Cenvat credit as input, in the second case the same would be eligible for Cenvat credit in view of judgment of Hon'ble Chhattisgarh High Court in the case of Ambuja Cements Eastern Ltd. (supra)and judgment of Hon'ble Rajasthan High Court in the case of Hindustan Zinc Ltd. (supra). Though the Commissioner (Appeals) has relied upon the judgment of Tribunal in the case of SAIL v. Commissioner, Central Excise, Ranchi reported in 2008 (222) _.E.L.T. 233; the SLP against which has been dismissed by the Apex Court; I find that this judgment has been discussed by Hon'ble Chhattisgarh High Court in the case of Ambuja Cements Easteyn (supra) and High Court has held that the judgment of Tribunal is not correct and that the dismissal of SLP by the Apex Court without giving any reason does not lay down any law. In view of this I hold that the impugned order denying the Cenvat credit in respect of welding electrodes is not sustainable and is liable to be set aside.
As regards the., the appellant themselves admit that while a part of these have been used for making supporting structures, for machinery the remaining quantity has been used for fabrication of various items of machinery and machinery parts and in support of this contention they have products the evidence in form of store register showing the receipt of these items in the factory, issue slips showing issue of these items for specific use and also certificate issued by General Manager countersigned by Chartered Engineer. On going through the impugned order-in-appeal, I find that the appellant's plea with regard to evidence given in respect of use of these items has not been considered at all and simply a finding has been that these items are generally used for making of supporting structures for machinery and therefore would not be eligible for Cenvat credit in view of the judgment of the Larger Bench of the Tribunal in the case of Vandarui Global Ltd. v. CCE, Raipur reported as - 2010 (253) E.L.T. 440 (Tri.-LB). In cases, where the steel items, in question, have been used for fabrication of sugar mill machinery or its part, the same would be eligible for Cenvat credit as input. The appellant in this regard has produced issue slip coupled with the certificate given by General Manager (Technical) countersigned by Chartered Engineer. In view of the above discussion while the Commissioner (Appeals)'s order denying the Cenvat credit in respect of paints & thinners and welding electrodes is set aside, the order with regard to denial of Cenvat credit in respect of H.R. coil, M.S. Bar, M.S. Plate, G.C. Sheets, M.S. Angles, Channels and steel items is also set aside, but the matter is remanded to the original adjudicating authority for de novo decision keeping in view the observations made above. To the extent these items have been used in fabrication of suppOrting structure, the Cenvat credit would not be admissible and to the extent that these items have been used in fabrication of machinery or its parts the same would be eligible for Cenvat credit and in this regard all the evidences produced by the appellant i.e. store registers, issue slips and certifiCate given by General Manager (Technical)/Chartered Engineer must be considered. The appeals stand disposed of as above.

Comment:- the tribunal while analyzing all the facts presented before it, has taken the view that paints, thinners etc are eligible inputs in the light of definition od input goods and so are the welding electrodes when used for the repair maintenance of plant and machinery. As regards the H.R. Coil, M.S. Girder, G.C. Sheets, M.S. Channels, shape and section, etc, the tribunal held that only that much Cenvat relating to such proportionate of said goods shall be eligible which has been used in the fabrication of machinery and the rest which has been used in the fabrication of supporting structures shall not be eligible as Cenvat.

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