‘Angles’, ‘Beams’ and ‘Channels’ are covered within the Definition of ‘capital goods’ in rule 2(a) of CENVAT Credit Rules: CESTAT [Read Order]

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Angles’, ‘Beams’ and ‘Channels’ were covered within the definition of ‘capital goods’ in rule 2(a) of CENVAT Credit Rules, 2004.

The proceedings, culminating in the impugned order of Commissioner of Central Excise, Customs & Service Tax, Raigad, initiated against Mehta Intertrade Steels P Ltd, the appellant, a manufacturer of ‘mild steel (MS) pipes’, has its roots in the allegation that M/s Mehta Intertrade Steels P Ltd had, though registered under Central Excise Rules, 2002, not deployed any production equipment and both elements in demand, arising from denial of CENVAT credit availed by them between May 2007 and June 2011, may be considered as inevitable fallout of confirmation of lack of such facility during investigations. 

The appellant had been procuring ‘hard rolled (HR) coils/sheets’ along with other inputs to be supplied to ‘job-workers’ for production and return of ‘mild steel (MS) pipes’ to them and had been availing credit thereof to be utilized for clearing the finished goods from their premises.

They had also procured ‘‘mild steel (MS) pipes’ manufactured by some of these ‘job-workers’ on their account and by others that were subjected to processes like ‘end-cutting’ and ‘varnishing’ which, according to central excise authorities, did not amount to manufacture despite which they had not only been clearing these as though excisable but also availed credit of duty paid on such purchases. The demand was confirmed on the ground that the procured ‘mild steel (MS) pipes’ were not inputs as defined in rule 2(k) of CENVAT Credit Rules, 2004 and, hence, ineligible in terms of rule 3 of CENVAT Credit Rules, 2004.

The second element of the demand, of ₹ 14,55,597 towards credit availed of duty paid on procurement of  ‘angles’, ‘beams’ and ‘channels’, was confirmed on the ground that these were neither ‘inputs’, as defined in rule 2(k) of CENVAT Credit Rules, 2004, used in the manufacture of excisable goods nor finding fitment as required for the manufacture of ‘capital goods’, as defined in rule 2(a) of CENVAT Credit Rules, 2004, as permitted in Explanation 2 below the former definition. Inevitably, applicable interest was ordered to be recovered under section 11AB of the Central Excise Act, 1944 besides a penalty of ₹ 54,28,853 under section 11AC of the Central Excise Act, 1944 being imposed in the impugned order. 

The  ‘mild steel (MS) pipes’ procured by them had been cleared on payment of duty after undertaking some processing. It is now settled law that with duty having been paid, it was not open to central excise authorities to dispute credit availed on the goods procured for the purpose.

For the claim of the appellant that ‘angles’, ‘beams’ and ‘channels’ were covered within the definition of ‘capital goods’ in rule 2(a) of CENVAT Credit Rules, 2004. Evidently, the appellant had not yet procured the ‘cranes’ for whose support the said goods had been purportedly deployed. The facts being, thus, at variance with the cited decisions and, the ‘capital goods’, not having been installed the claim of eligibility of goods used for installing ‘structural support’ is not tenable.

A two-member bench of Mr C J Mathew, Member (Technical) and Mr Ajay Sharma, Member (Judicial) observed that “the benefit available to such goods, in terms of rule 2(k) of CENVAT Credit Rules, 2004 when used for ‘on-site’ manufacture of ‘capital goods’ is extendable only when the site happens to the alternative location for manufacture of the said ‘capital goods’; it is not intended for facilitation of deployment of ‘capital goods’ on site after clearance from factory. In the light of these facts and circumstances, the disallowance of credit of ₹ 14,55,597 is by the scheme of CENVAT.”

“CENVAT Credit Rules, 2004 offers the framework and the mechanics for neutralisation of duty discharged at the preceding stage of the ‘value addition chain’; it is, therefore, procedural enunciation in which ‘availment’, as is ‘reversal’, is in the hands of ‘assessee’ while ‘restoration’, as is recovery, of credit is left to the jurisdictional authorities.”, the tribunal held.

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