2025 (4) TMI 1594 - AT - Central Excise

CENVAT Credit - inputs or capital goods - M.S. Plates M.S. Channels HR Coils Chequered Plates Linear Slide Rail HR Sheets RS Joists MS Beams and MS Square Mesh which have been used as components and accessories of the capital goods which were used for manufacturing the final products - HELD THAT - M.S. Plates M.S. Channels HR Coils Chequered Plates Linear Slide Rail HR Sheets RS Joists MS Beems and MS Square Mesh are classified under Chapter 72/73 of Central Excise Tariff Act 1985 which are not covered under definition of capital goods under clause (i) of Rule 2(a)(A) of the Cenvat Credit Rules 2004. As defined above only goods falling under Chapters 82 84 85 and 90 are treated as capital goods. It is also important that these goods are neither components spares nor accessories to the capital goods as required by Rules 2(a)(A)(iii) of Cenvat Credit Rules 2004. Hon ble Allahabad High Court in the case of Upper Ganges Sugar Industries Ltd. Vs CCE 2013 (8) TMI 501 - ALLAHABAD HIGH COURT held that Cenvat Credit on HR/NS/GC sheers plates/angles/channels/supporting structure etc. cannot be allowed as said goods are used for fabrication and construction and are not covered by definition of Capital Goods. The High Court also held that component is complete goods in itself and ready to use without any further processing . The Hon ble Supreme Court in the case of Saraswati Sugar Mills Vs CCE Delhi 2011 (8) TMI 4 - SUPREME COURT has disallowed Cenvat credit on MS Plates MS Channels HR Coils etc. which are used in fabricating support structures for installation of equipment s such as vacuum pan crystallizers sugar grader elevator etc. The said goods viz M.S. Plates M.S. Channels HR Coils Chequered Plates Linear Slide Rail HR Sheets RS Joists MS Beams and MS Square Mesh are not inputs even before amendment in Explanation 2 of Rule 2(k). Since amendment in explanation is only explanatory/clarificatory. Learned AR alternatively argued that the Appellant has claimed Cenvat Credit only during November 2009 that is after 07.07.2009. The Department may know about the Cenvat Credit availed only after availment and reflection in statutory returns. The Department may taken action only after Cenvat Credit availed and not before - The Appellant have not shown fabricating of any capital goods in statutory ER-1 Returns to be eligible for availing Cenvat Credit. In this regard Hon ble High Court of Allahabad in the case of Balaji Hindustan Ltd. 2013 (9) TMI 24 - ALLAHABAD HIGH COURT held that in absence of any evidence in ER-1 Returns and intimation to the Department Cenvat Credit on goods in subject could not be availed. Conclusion - The appellant is not entitled to Cenvat Credit on the disputed goods as they do not qualify as capital goods or inputs under the CCR. There is no merit in the appeal and therefore liable to be dismissed - appeal dismissed.

Summary

The primary legal question considered is whether the appellant is entitled to avail Cenvat Credit on certain goods-specifically M.S. Plates, M.S. Channels, HR Coils, Chequered Plates, Linear Slide Rail, HR Sheets, RS Joists, MS Beams, and MS Square Mesh-that were used as components and accessories of capital goods employed in manufacturing the final products. Alternatively, the appellant contended that if these goods do not qualify as capital goods under Rule 2(a)(A)(iii) of the Cenvat Credit Rules, 2004 (CCR), they should qualify as inputs under Explanation 2 to Rule 2(k) of the CCR.

Another issue raised was the applicability and effect of amendments to the definition of "inputs" under the CCR, particularly whether the amendment excluding certain goods used for construction or support of capital goods applies retrospectively to deny credit for goods received before the amendment's effective date.

Additionally, the question of whether the appellant complied with procedural requirements for availing credit, such as declaration in statutory ER-1 returns and intimation to the Department, was considered.

Issue-wise Detailed Analysis

1. Eligibility of Goods as Capital Goods under Rule 2(a)(A)(iii) of CCR

The legal framework defines "capital goods" in Rule 2(a) of the CCR, 2004, specifying that capital goods include all goods falling under Chapters 82, 84, 85, and 90 of the Central Excise Tariff Act, along with pollution control equipment, components, spares, and accessories of such goods, moulds, dies, refractories, tubes, pipes, storage tanks, and certain motor vehicles, when used in manufacturing or providing output services.

The appellant argued that the disputed goods are components and accessories of capital goods used in their factory and thus eligible for credit. They relied on precedents such as Grasim Industries Ltd. and Spenta International Ltd., where courts recognized the eligibility of components and accessories for credit, and contended that amendments to the definition of capital goods do not affect their claim.

Conversely, the Department contended that the disputed goods fall under Chapters 72 and 73, which are explicitly excluded from the definition of capital goods under clause (i) of Rule 2(a)(A). The Department further argued that these goods are not components, spares, or accessories of capital goods as per Rule 2(a)(A)(iii), since components must be complete goods ready for use without further processing, and spares are defined as replacement parts for worn or defective components.

The Tribunal examined the nature of the goods and their usage. The impugned goods were found to be used as structural supports, platforms, trays, ducts, cable supports, spare parts of machinery, and safety guards, rather than integral parts of the machinery or capital goods themselves. Photographic evidence demonstrated that these goods facilitated operation but were not directly used in or incorporated into the manufacture of the final product.

Relevant precedents were considered, including the Allahabad High Court's decision in Upper Ganges Sugar & Industries Ltd., which held that goods like HR sheets, plates, angles, and channels used for fabrication and construction are not capital goods. The Supreme Court in Saraswati Sugar Mills similarly disallowed credit on MS plates and channels used for fabricating support structures. The Madras High Court in Thiru Arooran Sugars distinguished components as complete goods ready for use, which the impugned goods were not.

The Tribunal concluded that the disputed goods are not capital goods under the CCR definition, nor are they components or accessories thereof, as they are not complete goods ready for use and do not form part of the machinery used in manufacturing the final product.

2. Eligibility of Goods as Inputs under Explanation 2 to Rule 2(k) of CCR

The appellant alternatively claimed that if the goods do not qualify as capital goods, they should be treated as inputs under Explanation 2 to Rule 2(k) of CCR, which includes goods used in the manufacture of capital goods further used in the factory.

The Department countered that the definition of "input" under Rule 2(k) specifically excludes goods such as angles, channels, and other items used for construction of factory sheds, buildings, or laying foundations or making structures for support of capital goods, per the amendment introduced by Notification No. 16/2009-CE (NT) dated 07.07.2009.

The appellant argued that the goods were received before the amendment's effective date and thus the exclusion should not apply retrospectively. They relied on the decision of the Chhattisgarh High Court in Vandana Global Ltd., which held that the amendment was prospective.

The Tribunal referred to the Allahabad High Court's ruling in Balaji Hindustan Ltd., which held the amendment to Explanation 2 of Rule 2(k) to be clarificatory and applicable retrospectively, stating that the excluded goods were never intended to be inputs even prior to the amendment. The Court emphasized that only goods actually used in the manufacture of capital goods qualify as inputs.

Accordingly, the Tribunal held that the disputed goods do not qualify as inputs under the CCR, even before the amendment, as they are used for fabrication or construction of supporting structures rather than manufacture of capital goods.

3. Procedural Compliance for Availing Cenvat Credit

The Department raised the issue that the appellant claimed credit in November 2009, after the amendment date, and did not provide requisite intimation or declare the fabrication of capital goods in statutory ER-1 returns, which are mandatory for availing credit on capital goods.

The Tribunal noted that the appellant failed to demonstrate compliance with these procedural requirements. The Allahabad High Court in Balaji Hindustan Ltd. had held that in the absence of evidence of intimation and ER-1 returns, credit on such goods cannot be allowed.

Thus, even if the goods had qualified as capital goods or inputs, the appellant's failure to comply with procedural formalities would disentitle them from availing credit.

4. Applicability of Precedents Cited by the Appellant

The appellant cited earlier decisions in their favor, including a prior order of the Tribunal (Appeal No. E/2103/2012), where credit was allowed on similar goods. However, the Tribunal distinguished that case on facts, noting that in the prior case the goods were used for fabrication of machinery and supporting structures, while in the present case the goods were claimed as components and accessories of capital goods, which is a different ground.

Further, the appellant relied on Grasim Industries Ltd. and related cases, which held that the right to credit arises on the date of receipt of goods, not installation. The Tribunal observed that this principle is inapplicable here since the appellant is not entitled to credit on these goods at all.

Significant Holdings

"If the product is not integrally connected with the process of the manufacture and which does not result in utilization of such product directly or indirectly into the manufacture of the finished product, then such a product cannot be said to be the input utilized for or in relation to manufacture of the final product."

"M.S. Channels, M.S. Beams, M.S. Plates, HR Coil, Chequered Plates, HR Sheets were used as platforms for easy access to operate the machine and conveyor frames for specific work as to convey the materials on the polishing line; M.S. Plates were used as making ducting pipes for transporting the gas from coal gasifier plant to spray drier; M.S. Channels, RS Joists were used as tray supports for electrical cable to supply power to the machinery; Linear Slide Rail were used as spare part of the sorting and packing machinery being used to carry the packing material and M.S. Square Mesh were used as safety guard frame used for ball mill."

"The said goods are not specific goods under the Cenvat Credit Rules and the same are not directly used in the manufacture of their final product, credit on the impugned goods is rightly denied."

"The amendment of Explanation-2 of Rule 2(k) by Notification dated 7.7.2009 is clarificatory in nature as the items specified were always held to be excluded in the manufacture of capital goods."

"Component is complete goods in itself and ready to use without any further processing."

"In absence of any evidence in ER-1 Returns and intimation to the Department, Cenvat Credit on goods in subject could not be availed."

The Tribunal concluded that the appellant is not entitled to Cenvat Credit on the disputed goods as they do not qualify as capital goods or inputs under the CCR. The goods are used for construction or support purposes and are not integrally connected to manufacture. The amendment to the definition of inputs is clarificatory and applies retrospectively, excluding the goods. Procedural non-compliance further disentitles the appellant from credit. The appeal was dismissed accordingly.