2022 (9) TMI 1337 - AT - Central Excise

CENVAT Credit - inputs (used in the Cement manufacturing process) or not - Welding Electrodes and Dissolved Acetylene Gas (D.A. Gas) - period from April 2013 to June 2017 - HELD THAT - The adjudicating authority had observed that Welding Electrodes and D.A. Gas were used in the cement manufacturing plant of the Appellant for the purpose of repair and maintenance of its plant and machinery. This being observation of the adjudicating authority there is no denial of the fact that plant and machinery which were being used for manufacturing of final product were being kept in usable with condition periodic repair and maintenance in which these two components were being used. Hence both Welding Electrodes and D.A. Gas are required for smooth process of manufacturing for which definition of input provided under Rule 2(k)(i) is squarely applicable as the clarificatory Circular of the Board issued on 29.04.2011 clearly mentions that goods used in relation to manufacture of final product in indirect way also excludes the definition contained in the said Rule 2(k)(F) that deals with goods having no relationship with manufacture of final product. The credits availed by the Appellant on Welding Electrodes and D.A. Gas are eligible credits and Appellant had rightly availed the same - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Denial of CENVAT Credit on Welding Electrodes and Dissolved Acetylene Gas as inputs in Cement manufacturing process.

Analysis:
1. Facts of the Case: The Appellant, a Cement and Clinker manufacturer, used Welding Electrodes and D.A. Gas for repair and maintenance of machinery. The Department denied CENVAT Credit on these items, leading to a recovery demand of Rs.10,28,852/- along with interest and penalties.

2. Appellant's Grounds: The Appellant contended that both items qualify as inputs under the amended Rule 2(k)(i) of the CENVAT Credit Rules, 2004, effective from 01.04.2011. The Appellant also argued that the items could be considered as capital goods under Clause (iii) of 2(a) of the Rules. Citing case laws, the Appellant emphasized the broadened definition of "inputs" post-amendment and challenged the Commissioner (Appeals) decision based on a pre-amendment judgment.

3. Department's Response: The Authorised Representative for the Department justified the Commissioner (Appeals) decision, citing a High Court judgment that distinguished between manufacturing and repair processes, asserting that CENVAT Credit cannot be claimed for repair and maintenance activities.

4. Tribunal's Analysis: The Tribunal examined the case record and observed that the items were used for repair and maintenance of machinery essential for the manufacturing process. Referring to a clarificatory Circular, the Tribunal concluded that the items were integral to the manufacturing process, making them eligible for CENVAT Credit under Rule 2(k)(i). The Tribunal distinguished the pre-amendment judgment cited by the Department, emphasizing the post-amendment expanded scope of "inputs."

5. Final Order: The Tribunal allowed the appeal, modifying the Commissioner (Appeals) order to recognize the eligibility of the CENVAT Credits on Welding Electrodes and D.A. Gas availed by the Appellant manufacturer. The denial of credits amounting to Rs.10,28,852/- was overturned, affirming the Appellant's right to claim the credits.

This detailed analysis highlights the key arguments presented by both parties, the legal basis for the Appellant's claim, the Department's counterarguments, and the Tribunal's reasoning leading to the final decision in favor of the Appellant.