CESTAT denies CENVAT Credit on Iron and Steel Items due to Unverified Usage in Capital Goods [Read Order]

The Allahabad Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT) denied CENVAT credit claimed on iron and steel items due to the assessee’s failure to provide sufficient evidence proving their use in the fabrication, repair, or maintenance of capital goods or supporting structures.

Simbhaoli Sugar Ltd.,appellant-assessee,was engaged in the manufacture of sugar and molasses and had availed CENVAT credit on capital goods and inputs under the CENVAT Credit Rules, 2004.

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A show cause notice was issued in August 2007 seeking recovery of ₹18.36 lakh in CENVAT credit availed on iron and steel items. The department alleged that these items were used for civil construction, which did not qualify as “inputs” under Rule 2(k).

The adjudicating authority (AA)confirmed the demand, and the Commissioner (Appeals) upheld the decision, stating that the items seemed to be used in construction and maintenance work, not in manufacturing capital goods.

On further appeal, the Tribunal in 2016 remanded the matter, directing the adjudicating authority to verify if the items were used for fabricating or repairing capital goods or essential supporting structures.

A verification was carried out in 2018, but the department reported that it was not possible to confirm the use of the items due to lack of physical proof and supporting documents like capitalization records or invoices.

Based on this, the adjudicating authority again confirmed the demand. The Commissioner (Appeals) dismissed the assessee’s subsequent appeal, leading to the present appeal before the Tribunal.

The tribunal reviewed the impugned order and submissions made during the appeal.

The main issue was whether Cenvat Credit on iron and steel items used for fabrication, repair, or maintenance of capital goods and supporting structures was admissible. The tribunal earlier directed verification of the claim, stating credit would be allowed if the items were used as claimed.

The AA conducted verification but found no documentary or physical evidence to prove the use of these items for capital goods or structures. The assessee admitted that after more than ten years, verification was not possible and failed to provide specific records.

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The tribunal held that the burden of proof was on the assessee, who did not justify the claim with evidence. Therefore, the claim for Cenvat Credit was rejected, and the interest and penalties were confirmed. The Commissioner (Appeals) upheld the order due to lack of credible defense and evidence.

The show cause notice referred to a statement in 2007 admitting that credit was admissible but no direct link between the steel items and capital goods could be shown. Even then, there was no clear evidence on how these items were used for manufacturing or repairing capital goods. No new proof was provided during later proceedings, and verification remained impossible after more than 10 years.

The appellate tribunal rejected the request for another chance to verify in 2025, holding that the appellant’s later claims contradicted earlier statements and were barred by estoppel. The appellant could not take a different position from what was stated in the 2018 hearing about the impossibility of verification.

The assessee cited previous decisions allowing credit on similar items, but the tribunal found no merit since those cases did not involve failure to verify capital goods. The assessee also did not challenge the final order from 2016, so it was barred by res judicata.

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The single member bench of Sanjiv Srivastava (Technical Member) relied on the Supreme Court’s ruling in Saraswati Sugar Ltd., which said iron and steel structures were not essential parts of sugar manufacturing machinery and thus not eligible for credit. The appellant’s argument about duty exemption was rejected as it was not raised earlier.

The circular allowing credit applied only to items specified under Rule 57Q, which did not include these iron and steel goods. Unlike other cases where steel parts were integral to machinery, these structures were not part of the sugar plant’s machinery.

The tribunal dismissed the appeal and upheld the earlier decisions.

To Read the full text of the Order CLICK HERE

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