Whether welding electrodes used in repair and maintenance of plant and machinery are eligible for credit as capital goods?

PJ/Case law/2014-15/2282

Case:-M/s CENTURY CEMENT Vs COMMISSIONER OF CENTRAL EXCISE, RAIPUR

Citation:-2014-TIOL-1535-CESTAT-DEL

Brief facts:- Question involved in the dispute is whether welding electrodes used in the repair and maintenance of plant and machinery are eligible capital goods for the purpose of Cenvat credit or not.

Appellant’s contentions:-The appellant have strongly contended that credit on repair and maintenance of welding electrodes is available and in support of it, they have relied upon the following decisions:

1.    Hindustan Zinc Ltd. vs. Union of India [2008 (228) ELT 517 (Raj) = 2008-TIOL-408-HC-RAJ CX];
2.    CCE, Bangalore vs. Alfred Herbert (India) Ltd. [2010 (257) ELT 29 (Kar) = 2010-TIOL-427-HKA R -CX];
3.    Panipat Co-operative sugar Mills Ltd. vs. CCE, Rohtak [2013 (293) ELT 66 (Tri-Del)];
4.    Triveni Engg. & Ind. Ltd. vs. CCE, Meerut I Final Order No. A/56117-56118/2013-SM (BR) dated 28.3.13.

Respondent’s contentions:-Learned DR appearing for the Revenue, have referred to the decision of the Tribunal in the case of SAIL vs. CCE, Ranchi [2008 (222) ELT 233 (Tri-Kol) = 2007-TIOL-2272-CESTAT-RANCHI] as confirmed by the Hon'ble Apex Court reported in [2002 (139) ELT A 294 (SC)]. Further, itstand brought to our notice that Hon'ble Andhra Pradesh High Court in the case of Sree Rayalaseema Hi-Strength Hypo Ltd. vs. Commissioner of Customs & Central Excise, Tirupati [2012 (278) ELT 167 (AP)] has held that repair and maintenance is an activity distinctfrom manufacture and the Hon'ble Supreme Court in the case of Grasim Industries Ltd. vs. Union of India [2011 (273) ELT 10 (SC) = 2011- TIOL-100-SC-CX] has held that scrap and waste that arise from repair and maintenance is not excisable as same is neither by-product nor thefinal product or subsidiary product as repair and maintenance activity is not a manufacture.

Reasoning of judgment:-The Hon’ble court find that the above decisions are considered by the Tribunal in the case of Triveni Engg. & Ind. Ltd. vs. CCE, Meerut I and after noting the various decisions, it was held that dismissal of SLP by the Hon'ble Supreme Court against the order of the Tribunal in the case of SAIL without going into the reasons does not lay down any law. They further note that the identical dispute was decided in a recent decision of the Tribunal in the case of The Kanoria Sugar and General Manufacturing Company Ltd. vide its final order No. 56645/2013 wherein all the rival decisions have been taken note and it stands observed as under:-

"5. I have considered the submissions from both the sides and perused the records. There is no dispute that the welding electrodes in question have been used for repair & maintenance of plant and machinery. It is also not disputed that regular repair & maintenance of plant and machinery of a Sugar Mills is an essential activity. They have considered the submissions from both the sides and perused the records. There is no dispute that the welding electrodes in question have been used for repair & maintenance of plant and machinery. It is also not disputed that regular repair & maintenance of plant and machinery of a Sugar Mills is an essential activity.

6. The definition of 'input' during the period of dispute, as given in Rule 2 (k) of the Cenvat Credit Rules'2004, covered- "all goods except Light Diesel Oil, HSD and Motor Spirit commonly known as petrol, used in or in relation to manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes". The expression "used in or in relation to manufacture of final products whether directly or indirectly" is obviously wider in scope than expression "used in the manufacture of', as the expression "in or in relation to" expands scope of the expression "used in the manufacture of'. Apex Court in the case of J.K.Cotton Spinning & Weaving Mills Co. Ltd. Vs. Sales Tax Officer, Kanapur reported in 1997(91) WLT-34 (SC) = 2002-TIOL-116-SC-CT-LB while interpreting the scope of the expression "used in the manufacture of" in Section 8(3)(b) of the Central Sales Tax Act, 1956, has held as under:-

"In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process of activity manufacture may, even if theoretically possible, be commercially in-expedient, goods intended for use in the process or activity, as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods used "in connection with" manufacture or in relation to manufacture or which facilitates the conduct of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying an activities as a miner and as a manufacturer) fell within Rule 13, even if the vehicles were used merely for removing ore from to the mines to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for effective operation of those vehicles were also held to fall within Rule 13, See Indian Copper Corporation Ltd. Vs. Commissioner of Commercial Taxes, Bihar CA No. 1021 of 1969 dt 19.10.1964".

Thus, in term of the above judgment of the Apex Court the goods used in an activity, without which manufacturing, operations, though theoretically possible, are not commercially feasible, have to be treated as, "used in the manufacture of the final products".

When the Apex Court has interpreted the expression "used in manufacture" in the above manner, the scope of the expression "used in or in relation to manufacture whether directly or indirectly" would be much wider. The Hon'ble Calcutta High Court in case of Singh Alloys & Steel Ltd. Vs. Assistant Collector of Central Excise reported in 1993(66) ELT-594(Cal.) has held that the definition of "input" was not depend on what ought to be used or what was commercially expedient to use and the expression "in relation to" used in Explanation to Rule 57A of Central Excise Rules, 1944 has a wide connotation. Therefore, in my view for determining the eligibility of a particular item for Cenvat Credit, what has to be seen was as to whether without use of that item or without the activity in which that item was used, the manufacture of final product, though theoretically feasible, was commercially expedient or possible or not. It was nobody's case that manufacturing activity was commercially feasible with malfunctioning machinery, leaking pipes, tubes and tanks. Therefore repair and maintenance of plant and machinery, though by itself not a manufacturing activity, has to be treated as an activity in relation to manufacture and inputs used in repair & maintenance would have to be treated as goods used in relation to manufacture.

Moreover I find that Hon'ble Chhattisgarh High Court in case of Ambuja Cement Eastern Ltd. (Supra) has held that welding electrodes used for repair and maintenance of plant and machinery eligible for Cenvat Credit. In this case Hon'ble Chhattisgarh High Court has also discussed the judgment of Tribunal in the case of M/s. Steel Authority of India Ltd. Vs. Commissioner of Central Excise, Ranchi reported in 2008(222) ELT-233 (Tri. Kolkata) the SLP filed by SAIL against which has been dismissed by the Apex Court and has observed that mere dismissal of SLP without giving any reason does not lay down any law. Hon'ble Rajasthan High Court in case of Hindustan Zinc Ltd. reported in 2008(228) ELT-517 (Raj.) = 2008-TIOL-408-HCRAJ-CXand Hon'ble Karnataka High Court in case of Alfred Herbert (India) Ltd. reported in 2010(257) ELT-29 (Kar) = 2010-TIOL-427-HC-KAR-CXhas also held that the goods used for repair & maintenance of plant and machinery are eligible for Cenvat Credit.

Though Apex Court in case of Grasim Industries Ltd. reported in 2011 (273) ELT- 10 (SC) = 2011-TIOL-100-SC-CXhas held that repair & maintenance of machinery was not manufacture and therefore steal scrap, arising in course of the said activity was not excisable, this judgment does not help the Department, as for determining the eligibility for Cenvat Credit of an item used in an activity, what was relevant was as to whether without that activity in which the item, in question, was used, manufacturing operation were commercially feasible, and it was not relevant as to whether that activity by itself amounts manufacturer. In the case of Sree Rayalaseema Hi-Strength Hypo Ltd. reported in 2012(278) ELT-167(A.P.) decided by Hon'ble Andhra Pradesh High Court, the point as to whether regular repair & maintenance of the plant and machinery by using welding electrodes, manufacturing operations, were commercially feasible, had not been considered. In any case, when three other high courts are mentioned above have held that welding electrodes used for repair and maintenance of palant and machinery are eligible for Cenvat Credit, it was there judgments which will hold the field."

Inasmuch as the matter stand decided by the above decision, they find no justification for holding to the contrary. The appeal was accordingly allowed with consequential relief to the appellant by setting aside the impugned order.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that on account of various decisions, welding electrodes used for repair and maintenance of plant and machinery are eligible for Cenvat Credit.

{Prepared By :- Monika Tak}

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PJ/Case law/2014-15/2282

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