2017 (3) TMI 1623 - AT - Central Excise

CENVAT credit - capital goods - imported two extruder machines - credit denied on the ground that said machines were used only for demonstration purpose so as to explain their features to the prospective customers of the appellant as the appellant is also manufacturing the same machine and not used directly in manufacture - Held that - careful reading of the definition of capital goods what emanates is that such goods are to be used in the factory of manufacturer of final products and nowhere it is stipulated that the said goods are to be used in or in relation to the manufacture of final products - it is also found that both the authorities below are reading a non-existent condition into the definition of capital goods which is impermissible. Extended period of limitation - Held that - it is not sufficient to invoke extended period of limitation as the department has not brought any evidence to prove suppression. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of the definition of 'capital goods' under Cenvat Credit Rules, 2004.
2. Applicability of the condition 'used in or in relation to manufacture of final products' for availing Cenvat credit.
3. Time limit for issuing show cause notice.
4. Liability to pay interest on reversed Cenvat credit.
5. Allegation of suppression by the department.

Interpretation of 'Capital Goods' Definition:
The appeal challenged an order rejecting the appellant's appeal and upholding the order-in-original regarding the availed Cenvat credit on imported extruder machines. The appellant argued that the impugned order misinterpreted the definition of 'capital goods' under Rule 2(a) of the Cenvat Credit Rules, 2004. The appellant contended that the machines qualified as capital goods as per the rules and did not need to be used in or in relation to the manufacture of final products. The appellant cited legal precedents and a Board Circular to support their argument.

Time Limit for Show Cause Notice and Liability for Interest:
The appellant further argued that the entire Cenvat credit was reversed before the show cause notice was issued, relying on legal decisions to support their stance. They claimed that the demand for interest was unjustified as the credit was promptly reversed upon audit observation. The appellant also contended that the show cause notice was time-barred as it was issued beyond the one-year limit from the date of knowledge of payment. The department, however, maintained that the imported machine was not used in or in relation to the manufacture of final products, thus making the credit availed impermissible under the law.

Allegation of Suppression:
The Tribunal analyzed the definition of 'capital goods' and determined that the condition of being used 'in or in relation to the manufacture of final products' was not a requirement as claimed by the department. The Tribunal also found that the appellant was not liable to pay interest as the availed credit was not utilized. Regarding the time limit for the show cause notice, the Tribunal acknowledged the department's allegation of suppression but noted the lack of evidence to prove it. Consequently, the Tribunal concluded that the impugned order was unsustainable in law and set it aside, allowing the appeal with any consequential relief.

This detailed analysis of the judgment highlights the key issues of interpretation of legal provisions, time limits for proceedings, liability for interest, and allegations of suppression, providing a comprehensive overview of the case.