Cenvat Credit Allowable on Inputs used for Fabrication of Capital Goods for Plant and Machinery: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that cenvat credit is allowable on inputs used for fabrication of capital goods for plant and machinery.

The issue involved in this Appeal is whether the Appellant, MS Agarwal Foundries Pvt Ltd, have rightly taken Cenvat credit on various items of MS steel etc., utilized in fabrication of capital goods like pollution control equipment, heating furnace, casting machine, coating machine, chimney, rolling machine, reheating machine, control panel, etc., during the period December, 2005 to March, 2010.

The Appellant has availed cenvat credit on inputs, input services and capital goods under Cenvat Credit Rules, 2004 (CCR). On verification of records for the period from December 2005 to March 2010, it was observed by the Department that the Appellant has availed credit on MS items which appeared to revenue as ineligible credit availed on capital goods.

The Commissioner disallowed an amount of Rs.1,63,95,568/- as Cenvat credit irregularly availed and ordered its recovery under Rule 14 of CCR and also ordered appropriation against the amount already reversed. Further held that the Appellant has erred in taking re-credit of Rs.1,62,60,467/- suo-moto which is unauthorized and accordingly, the same is fit to be recovered under Rule 14 of CCR. Further interest was demanded and equal amount of penalty of Rs.1,63,95,568/- was imposed under Rule 15(2) of CCR read with Sec 11AC of the Central Excise Act.

The Counsel for the appellant submitted that Cenvat credit on the inputs used for fabrication of capital goods is very much available. Further inputs used in repair and maintenance of the plant and machinery or capital goods is also available, as the definition provides for – used in or in relation to manufacture of final products, whether directly or indirectly. Thus, the Court below has erred in disallowing part of Cenvat credit on extraneous considerations not known to law.

The Authorized Representative for the revenue opposed the Appeal and relied on the Impugned Order and further urged that taking of suo moto credit of the amount already reversed is not permissible.

A Two-Member Bench comprising Anil Choudhary, Judicial Member and AK Jyotishi, Technical Member observed that “The Appellant have maintained proper records and have declared the Cenvat credit taken and/or availed regularly in the returns filed with the Department. Thus, there is no case of any concealment, mis-statement or fraud on the part of the Appellant/assessee.”

“We further find that as regards the capital goods fabricated out of the inputs, there is no allegation that such capital goods have been sourced from any other manufacturer by the Appellant/ assessee. We further find that under the facts and circumstances, the court below failed to consider the eligibility of Cenvat credit disputed as inputs, as defined in rule 2(K) of CCR” the Bench concluded.

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