Weigh Scales at Sugarcane Collection Centres Eligible for CENVAT Credit as Functionally Integrated With Manufacturing: CESTAT [Read Order]

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that CENVAT credit is admissible on weigh scales installed at sugarcane collection centres when such weigh scales are functionally integrated with the manufacturing process.

Rana Sugar Ltd., the appellant, is engaged in the manufacture of sugar. During investigation, the department found that several weigh scales were installed at sugarcane collection centres located outside the factory premises. On this basis, the department denied CENVAT credit, alleging that the weigh scales were not used within the factory and had been removed outside the factory without reversal of credit.

The appellant’s counsel argued that the weigh scales were used for weighing sugarcane procured from farmers during the crushing season. The counsel argued that weighment of sugarcane is an essential activity connected with the manufacture of sugar and that the weigh scales were not permanently removed from the factory.

According to the appellant’s counsel, these weigh scales were integrally connected with the manufacturing process and credit could not be denied merely because they were installed outside the factory premises.

The revenue counsel argued that the weigh scales were installed at locations outside the factory and were not used within the manufacturing premises. According to the department, installation outside the factory disentitled the appellant from availing CENVAT credit.

The two-member bench comprising P.K. Choudhary (Judicial Member) and Sanjiv Srivastava (Technical Member) observed that the items in dispute were weigh scales used at sugarcane collection centres for weighing sugarcane brought by farmers. The bench observed that these weigh scales were used during the crushing season and were connected with procurement of the main raw material for manufacturing sugar.

The tribunal explained that weighment of sugarcane is an integral part of the manufacturing activity of a sugar mill. The tribunal explained that the fact that weigh scales were installed outside the factory premises does not by itself make the credit inadmissible when their use is directly connected with manufacture.

The tribunal also pointed out that the weigh scales were not permanently removed or diverted for any other purpose. In such circumstances, denial of CENVAT credit was not justified. The tribunal held that CENVAT credit on weigh scales installed at sugarcane collection centres was admissible and the denial of credit on this ground was set aside.

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