Relief for HPCL: CESTAT Allows CENVAT Credit on HR Plates and Sheets Used for Repair and Maintenance of Storage Tanks [Read Order]

The Hyderabad Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) allowed Cenvat Credit to Hindustan Petroleum Corporation Ltd. on HR Plates and HR Sheets used for repair and maintenance of storage tanks.

Hindustan Petroleum Corporation Ltd,appellant-assessee, claimed Cenvat Credit on HR Plates and HR Sheets under tariff headings 7208 3710, 7208 3730, and 7208 5210, which were not defined as inputs under the Cenvat Credit Rules, 2004. The goods were also held ineligible as inputs for capital goods since the storage tank was not considered goods under Rule 2 of CCR 2004.

The assessee argued that the goods were used for repairing and maintaining the roofs of storage tanks, not for their installation, but the Adjudicating Authority rejected this, stating that repair and maintenance did not amount to manufacture and that the tank, being embedded in the ground, could not be treated as goods.

The assessee contended that the matter was settled in earlier tribunal decisions, while the department counsel upheld the Commissioner’s findings in the impugned order.

The two member bench comprising A.K Jyotishi (Technical Member) and Angad Prasad (Judicial Member) heard both parties and reviewed the records. It observed that the key issue was whether the goods qualified as inputs under Rule 2(k) of the Cenvat Credit Rules, 2004, or as capital goods under Rule 2(a).

The tribunal noted that Rule 2(k) allowed goods to be treated as inputs if they were used as parts or components in manufacturing final products. It found that it was necessary to determine whether the goods were used in the manufacture of capital goods or only for their repair and maintenance.

The Commissioner had denied the claim, holding that repair and maintenance of capital goods did not amount to manufacturing, and therefore, the goods used for such activities could not be considered inputs for manufacturing capital goods.

The tribunal reviewed various case laws, including its own past decisions covering different periods, which showed that credit under Rule 2(k) had been allowed for items used as inputs. The Co-ordinate Benches had consistently held that items used in the fabrication, repair, and maintenance of storage tanks for petroleum products were eligible for input credit.

In the appellant’s own case, the Tribunal’s order dated 28.03.2016 [2016 (338) ELT 308 (Tri-Hyd)] was challenged by the Revenue in the High Court. The High Court upheld the Tribunal’s findings that input credit on steel items used for repair and maintenance of storage tanks was admissible, dismissing the Revenue’s appeal and thereby settling the matter.

The tribunal also considered the Supreme Court’s ruling in The Kisan Cooperative Sugar Factory Ltd. vs Commissioner of Central Excise, Meerut-1 [2023 (12) TMI 1303 (SC)], where it was held that items used for maintenance, repair, and upkeep of plant and machinery were eligible for credit. The Court explained that the term “used in or in relation to manufacture” included all items involved in the manufacturing process, whether directly or indirectly, including those used for repair and maintenance.

The appellate tribunal noted that storage tanks qualified as capital goods, regardless of whether they were embedded in the ground.

Applying these precedents, the tribunal concluded that the appellants were entitled to credit for items used in repair and maintenance of storage tanks. Accordingly, the Commissioner’s order was set aside, and the appeal was allowed.

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