2025 (5) TMI 1748 - AT - Central Excise

CENVAT credit on cement used and laying down of foundation or making structures for support of capital goods - Rule 2(k) of Cenvat Credit Rules 2004 - HELD THAT - Admittedly in the show cause notice it has been recorded that the cement TOR steel Structural steel were used by the appellants in fabrication/manufacture of capital goods and structure for supporting the plant and machinery. The said view has been affirmed by the Larger Bench of this Tribunal in the case of Manglam Cement Ltd. Vs. CCE 2018 (3) TMI 1547 - CESTAT NEW DELHI - LB wherein this Tribunal has observed that we are of the considered opinion that the eligibility to duty credit of the disputed good cannot be denied. Such eligibility either as capital goods (accessories) or as inputs has been examined and upheld by various decisions of the Hon ble apex court and the Hon ble High courts as above. As the cement and steel items which have been used by the appellants for fabrication/manufacture of capital goods and structure for support of plant and machinery do qualify as inputs in terms of Rule 2(k) of Cenvat Credit Rules 2004. Conclusion - The cement and steel items used for fabrication or manufacture of capital goods and supporting structures qualify as inputs under Rule 2(k) of the Cenvat Credit Rules 2004 entitling the appellants to Cenvat credit. The Cenvat Credit cannot be denied to the appellants. Accordingly the impugned orders deserve no merits therefore the same are set aside - Appeal allowed.

Summary

The core legal question considered by the Tribunal was whether the cement and steel bars used in laying foundations or constructing supporting structures for plant and machinery qualify as 'capital goods' or 'inputs' under the Cenvat Credit Rules, 2004, thereby entitling the appellants to avail Cenvat credit on such goods.

Another related issue was the applicability and interpretation of Rule 2(k) of the Cenvat Credit Rules, 2004, which defines 'input' and includes goods used in or in relation to the manufacture of final products or capital goods, and whether the usage of cement and steel in the present case falls within this definition.

The Tribunal also considered the impact of previous decisions, including those of the Larger Bench of the Tribunal, various High Courts, and the Supreme Court, on the eligibility of Cenvat credit for cement and steel used in foundations and supporting structures.

Further, the Tribunal examined whether the show cause notices issued based on earlier decisions denying credit were sustainable in light of subsequent judicial pronouncements.

Regarding the first issue on classification of cement and steel bars, the Tribunal relied heavily on the Larger Bench decision in Manglam Cement Limited vs. CCE, Jaipur-I, which held that cement and steel used for laying foundations for erection of capital goods qualify as capital goods under the relevant rules. This decision was grounded on the "user test" established by the Supreme Court and followed by various High Courts, which examines the end use of the goods rather than their physical incorporation into the final product.

The Tribunal noted that no successful challenge to the Larger Bench decision had been brought before the Court, thereby reinforcing its binding nature. The Larger Bench had also interpreted Rule 2(k) of the Cenvat Credit Rules, 2004, in conjunction with the definition of 'input' and the appended explanations, to clarify that goods used in or in relation to the manufacture of capital goods, including those used indirectly such as in foundations, qualify as inputs eligible for credit.

In analyzing the legal framework, the Tribunal referred to the Supreme Court's user test and the Madras High Court's decisions in India Cements Ltd. and Thiru Arooran Sugars & Ors., which extended the benefit of Cenvat credit to cement and steel used in foundations and supporting structures. The Madras High Court's reasoning emphasized that such materials are integral parts of capital goods as they support the plant and machinery used in manufacturing the final product.

The Tribunal interpreted the definition of 'input' under Rule 2(k) as encompassing goods used directly or indirectly in the manufacture of final products or capital goods, irrespective of their physical presence in the final product. The Tribunal concluded that cement and steel bars used for erecting foundations and structures for machinery installation fall within this ambit.

On the competing argument that the goods should not qualify as inputs or capital goods because they are not physically incorporated into the machinery, the Tribunal rejected such a narrow interpretation. It held that the functional relationship and integral nature of the supporting structures to the capital goods satisfy the criteria for classification as capital goods or inputs.

Regarding the show cause notices issued based on the Larger Bench decision in Vandana Global Ltd. vs. CCE, which had denied credit, the Tribunal noted that this decision was set aside by the Chhattisgarh High Court and affirmed by the Supreme Court in CCE vs. M/s Nakoda Ispat Ltd. The Supreme Court's affirmation effectively overruled the denial of credit in similar circumstances, thereby rendering the earlier show cause notices unsustainable.

The Tribunal applied these legal principles to the facts, where the appellants used cement and steel for fabrication and construction of foundations and supporting structures for plant and machinery. It found that such usage qualifies as use in relation to capital goods and hence entitles the appellants to avail Cenvat credit.

The Tribunal concluded that the impugned orders denying credit lacked merit and deserved to be set aside. It remitted the matter to the Tribunal for fresh adjudication in accordance with the legal principles established by the Larger Bench and subsequent judicial pronouncements.

Significant holdings include the preservation of the Larger Bench's reasoning that "Applying the user test of 'capital goods' as enunciated by the Hon'ble Supreme Court ... the disputed goods ... should be considered as 'capital goods' for the purpose of the Cenvat benefit." The Tribunal emphasized that "goods used in the manufacture of capital goods, which are installed for manufacture of the capital goods should also be considered for availment of cenvat credit."

The Tribunal also quoted the Madras High Court's observation that "MS structurals, which support the plant and machinery ... are an integral part of such plant and machinery ... whether the 'user test' is applied or the test that they are the integral part of the capital goods is applied, the Assessees ... should get the benefit of Cenvat Credit."

Finally, the Tribunal held that cement and steel items used for fabrication or manufacture of capital goods and supporting structures qualify as inputs under Rule 2(k) of the Cenvat Credit Rules, 2004, entitling the appellants to Cenvat credit. The impugned orders denying such credit were set aside, and the appeals were allowed with consequential relief.