2017 (6) TMI 1204 - AT - Central Excise

CENVAT credit - whether they are entitled to take Cenvat credit on iron and steel items namely Shapes and Sections Angles M.S. Plates M.S. Round M.S. Plates Channels Hot Strips Chequered Plates M.S. Plat HR coils Aluminium Sheets R.S. Joist etc. falling under Chapter 72 73 and 76 of the Central Excise Tariff Act 1985 including welding electrodes? - whether the exclusions provided in Explanation-2 of Rule 2 (k) of Cenvat Credit Rules 2004 inserted with effect from 07/07/2009 have prospective effect only? - whether the demand is barred by limitation? Held that - The Apex Court in the case of J.K. Cotton Spg. & Weaving Mills Co. Ltd. Vs. Sales Tax Officer Kanpur 1964 (10) TMI 2 - SUPREME COURT OF INDIA while interpreting the scope of the expression used in the manufacture of in Section 8 (3) (b) of Central Sales Tax Act 1956 has held that if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity the manufacture may even if theoretically possible be commercially inexpedient the goods intended in that process or activity would have to be treated as used in the manufacture. When the Apex Court has interpreted the expression used in the manufacture in the above manner the scope of the expression used in or in relation to manufacture whether directly or indirectly in the definition of input in Rule 2 (k) of the Cenvat Credit Rules 2004 would be much wider. So far the utilization of items like M.S. Plates are concerned it is admitted fact that such items have either been used in repair and maintenance or for fabrication of various capital items or machinery of the sugar mill and therefore the same would be eligible for Cenvat credit - That the steel items used for fabrication of various items of Sugar Mill Machinery like cane Bagasse carrier Bagasse Cilo pipe etc. being sugar mill machinery and hence are covered by chapter 84 would be eligible for Cenvat credit as inputs and the definition of input also cover the goods used for manufacturing of capital goods used in the factory of manufacturer of dutiable goods. As the steel items have admittedly been used for fabrication of various items of plant and machinery being components of sugar mill machinery or used in the repair of such machinery the steel items would have to be treated as input in the manufacture of capital goods and hence would be covered by the definition of input in Rule 2(k) and would be eligible for credit. Whether the exclusions provided in Explanation-2 of Rule 2 (k) of Cenvat Credit Rules 2004 inserted with effect from 07/07/2009 have prospective effect only? - Held that - Hon ble Gujarat High Court in the case of Mundra Port and Special Economic Zone Ltd. Vs CCE 2015 (5) TMI 663 - GUJARAT HIGH COURT have held overruling the Larger Bench of this Tribunal in the case of M/s Vandana Global Limited 2010 (4) TMI 133 - CESTAT NEW DELHI (LB) that explanation 2 in Rule 2(k) of CCR 2004 inserted with effect from 7th July 2009 have only prospective effect observing that there is nothing in the amending Act to suggest that amendment was clarificatory in nature. Time limitation - Held that - when objection was raised by audit that they have rightly taken Cenvat credit of the items in dispute and from such date show cause notices have been issued after more than 12 months - SCN are bad on the ground of limitation and there is no ground for invoking the extended period of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to Cenvat credit on iron and steel items.
2. Prospective effect of exclusions in Explanation-2 of Rule 2(k) of Cenvat Credit Rules, 2004.
3. Barred by limitation.

Issue-Wise Detailed Analysis:

1. Entitlement to Cenvat Credit on Iron and Steel Items:
The appellants, manufacturers of sugar and molasses, claimed Cenvat credit on various iron and steel items used in the manufacture of capital goods like Syrup Treatment Plant, Control Unit, and Filter Clarification System. The department contended that these items do not qualify as capital goods under Rule 2(a)(A) of the Cenvat Credit Rules, 2004, and thus, the credit was inadmissible. The appellants argued that these items were used in the fabrication of plant and machinery, which should be considered as inputs under Rule 2(k) of the Cenvat Credit Rules, 2004. The tribunal found that the usage of iron and steel items for repair and maintenance of plant and machinery is integral to the manufacturing process, as established by multiple High Court judgments. The tribunal concluded that items used for repair, maintenance, and fabrication of capital goods are eligible for Cenvat credit.

2. Prospective Effect of Exclusions in Explanation-2 of Rule 2(k) of Cenvat Credit Rules, 2004:
The tribunal noted that the Larger Bench ruling in Vandana Global Ltd. was overruled by the Hon’ble Gujarat High Court and Hon’ble Madras High Court in subsequent judgments. It was held that the explanation inserted with effect from 07/07/2009 has only prospective effect, and there is no indication that the amendment was clarificatory in nature. Therefore, the exclusions provided in Explanation-2 of Rule 2(k) cannot be applied retrospectively.

3. Barred by Limitation:
The tribunal observed that the show cause notices were issued after more than 12 months from the date the appellants took a categorical stand on the eligibility of Cenvat credit. The tribunal held that the extended period of limitation could not be invoked as the appellants had not suppressed any facts or misrepresented them. Consequently, the show cause notices were deemed time-barred.

Conclusion:
The tribunal allowed the appeals both on merits and on the ground of limitation. The appellants were entitled to Cenvat credit on the disputed items and were granted consequential benefits in accordance with the law.