CENVAT Credit of Excise Duty allowable on ‘Transformer oil’ which used for manufacture of transformer: CESTAT quashes reversal of CENVAT Credit [Read Order]

The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the CENVAT credit of excise duty is allowable on transformer oil which was used for the manufacture of the transformer. 

Indo Tech Transformers Ltd, the respondent-assessee was engaged in the manufacture of transformers and their parts falling under Chapter Heading 8504 of the Central Excise Tariff Act 1985 they are registered with the Central Excise department and are availing CENVAT credit on various inputs including transformer oil. 

The assessee appealed against the order passed by the adjudicating authority for dropping the proceedings and held that the transformer oil was not cleared ‘as such’ by the respondent as alleged in the show cause notice (SCN). 

T.R. Ramesh, the counsel for the assessee contended that the transformer oil had undergone necessary inspection and testing and it cannot be said that the transformer oil was cleared ‘as such’ and the testing was also part and parcel of manufacture of the final product. The process of use of the transformer oil was explained by the assessee in their reply to the show cause notice. 

Rudra Pratap Singh, the counsel for the department contended that the assessee had cleared the final product viz. transformer, and paid duty on the final product as if the transformer oil had formed part of the value of transformer oil and the transformer oil was cleared ‘as such’ and the assessee ought to have reversed the credit availed on the transformer oil as under Rule 3 (5) of CENVAT Credit Rules,2004. 

The Bench observed that the transformer oil purchased by the assessee was used inside the factory in the process of manufacture and only for convenience had been transported in barrels along with the finished product and the transformer oil was not cleared ‘as such’. 

The two-member bench comprising Sulekha Beevi (Judicial) and Vasa Seshagiri Rao (Technical) quashed the reversal of CENVAT credit availed by the assessee. 

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