2025 (7) TMI 210 - AT - Central Excise

Recovery of irregularly availed CENVAT Credit with interest and penalty - inputs or not - goods allegedly used to make support structures for machines - covered within the meaning of Rule 2(k) of CENVAT Credit Rules 2004 or not - HELD THAT - It is recorded by the Commissioner in Para 6.5 that as per the noticee the said goods have been used for making different parts and accessories of capital goods. The Commissioner (Appeals) however did not take note of the said submission for the reason that the appellant did not furnish the specific sub heading of the said goods so produced. Of these the subject capital goods were claimed to be a part or accessory. It is brought out on record that the appellant vide their letter dated 28.07.2014 and Certificate of the Chartered Engineer dated 21.07.2014 had indicated to the Range Officer item-wise quantity-wise material used for production of support structures and such materials used for manufacture of different components and accessories of plant machinery on which CENVAT Credit was not taken. It cannot be disputed that the impugned goods were not utilized for manufacture of items on which Cenvat was inadmissible with regard to the claim in respect of which CENVAT Credit had been availed by the appellant they also furnished a copy of all such documents on record to prove their point alongwith their appeals. It has been a settled proposition of law that for parts accessories or components the use of such goods is identified with the machinery and with the said goods and used. It is also noted that out of the total credit of Rs.1, 91, 37, 547/- third party credit on H.R. Coils amounts to 12, 91, 671/- credit which has also been disallowed rendering a findings that such coils have been used for structural components and support structures. On the contrary it has been the appellant consistent case that such H.R. Coils were actually used to make FORMER an essential part of the furnace and this Former is placed in the furnace for manufacture of finished goods. The said Former is capable of withstanding 728 heats and in the process does actually gets mixed up with the final products as they melt inside the furnace itself. It is noted that in accordance with Board s Circular No. 690/06/2003-CX dated 20.01.2003 credit on such Former is eligible to the assessee as an input. There is no reason to disallow credit on such H.R. Coils gone into the manufacture of the said products. In view of discussions aforesaid there is no substance in the Department s allegation of contravention of Rules Z(k)3 and / or 9(5) of the Cenvat Credit Rules 2004. H.R. Coils H.R. Sheets H.R. Angles H.R. Plates etc. in view of their stated use can be considered as inputs in terms of Rule 2(k) of the CENVAT Credit Rules 2004. The credit availed on such inputs would be admissible in terms of Rule 3(1) of CENVAT Credit Rules 2004 - the impugned order is set aside - appeal allowed.

Summary

The core legal questions considered by the Tribunal revolve around the admissibility of CENVAT Credit availed on certain steel items such as C.R. coils, plates, H.R. sheets, angles, channels, steel squares, H.R. coils, stainless steel sheets, and similar goods. Specifically, the issues are:

1. Whether the impugned steel goods qualify as "inputs" or "capital goods" under Rule 2(k) and related provisions of the CENVAT Credit Rules, 2004, thereby entitling the appellant to avail credit on them.

2. Whether the use of these goods for fabrication of support structures or parts of machinery, including repair and maintenance, falls within the ambit of admissible credit.

3. Whether the appellant has discharged the evidentiary burden to prove that the credit availed was proper and related to manufacture of final products or capital goods.

4. The applicability of relevant Circulars and judicial precedents concerning structural components and admissibility of credit.

5. The liability to pay interest on the irregularly availed credit, if any, under Rule 14 of the CENVAT Credit Rules, 2004, read with Section 11AA of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

Issue 1: Eligibility of the impugned goods as inputs or capital goods under CENVAT Credit Rules, 2004

The relevant legal framework includes Rule 2(k) of the CENVAT Credit Rules, 2004, which defines "input" and excludes capital goods except when used as parts or components in the manufacture of final products. Rule 3(1) allows credit on inputs used in or in relation to manufacture of final products. The exclusion clause clarifies that goods used for laying foundations or making structural supports for capital goods are not inputs eligible for credit.

Precedents cited by the Commissioner include the Board's Circular No. 966/09/2012-CX dated 18.05.2012, which reiterates that structural components used for support of capital goods/boilers do not qualify for credit. Judicial pronouncements such as the Supreme Court decisions in Saraswati Sugar Mills and CCE Rajasthan Spinning and Weaving Mills Ltd., and the Larger Bench decision in Vandana Global Ltd. have held that goods used for making structural supports for plant and machinery cannot be treated as inputs or capital goods.

The Commissioner found that the appellant failed to produce documentary evidence to substantiate the claim that the impugned goods were used as parts or components in manufacture of capital goods or final products. The appellant's claim that the goods were used for fabrication of capital goods was held to be an attempt to camouflage the actual use, which was for support structures and repair/maintenance, thus falling outside the ambit of admissible inputs.

The appellant, however, submitted detailed letters and a Chartered Engineer's Certificate indicating the item-wise and quantity-wise usage of the steel goods in manufacture of capital goods and components thereof. They also provided stock accounts, statements of parts and accessories made from such materials, and invited physical verification by the authorities.

The Tribunal emphasized that the appellant's manufacturing plant is an integrated steel plant producing primary and rolled products, with complex machinery requiring replacement and repair of parts. The Tribunal noted that materials like M.S. rods consumed in furnace lining and other manufacturing processes get melted and mixed with the product, qualifying them as inputs.

Without contrary expert evidence, the Tribunal held that the Commissioner was unjustified in disregarding the Chartered Engineer's Certificate. The Tribunal accepted that certain items like H.R. Coils were used to make "Formers," essential furnace parts capable of withstanding multiple heats and melting into the product, thus qualifying as inputs per Board's Circular No. 690/06/2003-CX dated 20.01.2003.

The Tribunal concluded that the impugned goods, given their stated use in manufacture and repair of capital goods and final products, qualify as inputs under Rule 2(k) and credit availed on them is admissible under Rule 3(1).

Issue 2: Use of goods for fabrication of support structures and repair/maintenance vis-`a-vis admissibility of credit

The Commissioner relied on the exclusion clause in Rule 2(k) and Circular No. 966/09/2012-CX, which exclude credit on goods used for structural supports of capital goods. The allegation was that the appellant used the steel goods primarily for support structures and not for manufacture of capital goods, thus disqualifying credit.

The appellant countered by clarifying that no credit was taken on goods used for factory sheds, buildings, or support structures but only on those used for manufacture of capital goods and their components. The appellant's submissions included item-wise details and Chartered Engineer's certification to this effect.

The Tribunal found that the appellant's case was consistent and supported by documentary evidence and expert certification, which was not effectively rebutted by the Department. The Tribunal also noted the operational realities of the integrated steel plant, where parts and components of machinery undergo wear and require replacement, and materials consumed in such processes are integral to manufacture.

Accordingly, the Tribunal rejected the Department's contention that the goods were used solely for structural supports and repair/maintenance outside the manufacturing process, holding that such use does not per se disqualify credit if the goods are parts or components of capital goods or inputs in manufacture.

Issue 3: Evidentiary burden and proof of proper credit availed

The Commissioner emphasized the appellant's failure to produce specific subheadings, statutory records, or returns reflecting manufacture of new capital goods from the impugned inputs. The appellant was held to have failed to discharge the burden under Rule 9(5) of the CENVAT Credit Rules, which requires maintenance of proper records showing disposal and consumption of inputs.

The appellant submitted multiple communications with detailed item-wise and quantity-wise usage, Chartered Engineer's Certificates, stock accounts, and statements of parts and accessories manufactured. The appellant also invited physical verification.

The Tribunal underscored that the appellant's submissions were substantial and credible, and the absence of contrary expert opinion weakened the Department's rejection. The Tribunal held that the appellant had adequately discharged the evidentiary burden to establish the goods' use as inputs or parts of capital goods.

Issue 4: Applicability of Circulars and judicial precedents

The Commissioner relied on Circular No. 966/09/2012-CX and Supreme Court decisions distinguishing structural components used for support from inputs eligible for credit. The Tribunal acknowledged these authorities but distinguished the facts on record, noting that the appellant's goods were not merely structural supports but parts and components integral to capital goods and manufacturing processes.

The Tribunal also relied on Board's Circular No. 690/06/2003-CX, which permits credit on "Formers" made from H.R. Coils used in furnaces, a fact undisputed and supported by expert certification.

Thus, while the legal principles exclude credit on structural supports, their application depends on factual determination of the goods' use. The Tribunal found the appellant's use consistent with admissible credit under the Rules and Circulars.

Issue 5: Liability for interest on irregular credit

The Commissioner imposed interest under Rule 14 of the CENVAT Credit Rules, 2004, read with Section 11AA of the Central Excise Act, 1944, citing CBEC Circular No. 897/17/2009-CX dated 03.09.2009, which mandates interest on irregularly availed credit regardless of its utilization.

The Tribunal, having held that the credit was admissible, implicitly negated the premise for interest liability. Since the credit was not irregularly availed, no interest was payable.

Significant Holdings:

"It is settled law that without a contrary expert opinion, the authority cannot brush aside the Certificate tendered by an expert."

"The said Former is capable of withstanding 728 heats and in the process does actually gets mixed up with the final products as they melt inside the furnace itself. We note that in accordance with Board's Circular No. 690/06/2003-CX dated 20.01.2003, credit on such Former is eligible to the assessee, as an input."

"CR Coil, Plate, HR Sheet, Angle, Channel, HR Coil, GP Coil, Chequered Coil, Joist, MS Round, Beam, Steel Round, Sheet, Steel Square, Stainless Steel, Steel Sheet etc. in view of their stated use can be considered as inputs in terms of Rule 2(k) of the CENVAT Credit Rules, 2004. The credit availed on such inputs would be admissible in terms of Rule 3(1) of CENVAT Credit Rules, 2004."

"Considering the nature and use of the items in repair and maintenance of capital goods and making structure for support of capital goods in the factory are not in conformity with the definition of input and or capital goods under Rule 2(a) & (k) of CENVAT Credit Rules 2004 and categorically being excluded from taking CENVAT credit, I find that the steel items on which the CENVAT credit had been taken wrongly were not for manufacture of any capital goods or making any parts & components in the manufacture of any final products, hence cannot be treated as input in terms of exclusion under rule 2(k) of CENVAT Credit Rules."

"We therefore, set aside the impugned Order-in-Original and allow the appeal filed by the party with consequential relief, if any as per law."