Welding Electrodes are Integral part of Manufacture of Goods: Bombay High Court allows CENVAT Credit [Read Judgment]

Business Income - Bombay High Court 2 - Tax Scan

In a recent ruling, Bombay High Court held that welding electrodes are also the integral part of the ultimate manufacture of goods, hence the Assessee would be entitled to get CENVAT Credit.

The Assessee M/s ACC Cement Limited is a private company in the instant case engaged in the manufacture of cement and for this purpose, the Assessee Company has a manufacturing unit also has duly filed their return of income for the relevant assessment year.

During the course of assessment proceedings, the Assessing Officer (AO) noticed that the Assessee has availed credit of Rs.40,556 of duty paid on welding electrodes. However the AO disallowed the CENVAT credit by holding that the welding electrodes are used for repairs and maintenance of the plant and machinery, therefore it cannot be considered to have been used in relation to manufacture.

On the other hand, the Assessee contended that the welding electrodes are consumed in the work of fixing of machinery and also the same is used for maintenance of the capital goods. In fact, the welding electrodes are an integral part of the manufacturing process and can be said to have been utilized in relation to manufacture of final product. The Assessee Company further argued that the electrodes are used for installation or fixing of machinery or are used as accessories, credit is available.

However, the Assistant Commissioner of Central Excise refused to accept the contentions of the Assessee and accordingly disallowed the CENVAT credit of Rs.3,09,089 and also imposed the penalty of  Rs.78,000 in the exercise of power under Rule 13 of the said Rules of 2002.

On appeal the Income Tax Appellate Tribunal (ITAT) also upheld the order of the authority and confirmed the penalty also by holding that gases and electrodes which were used for repairs and maintenance of the plant and machinery cannot be considered to have been used in relation to manufacture of final products as they were not used coextensively with the process of manufacture of final products. Hence the use of welding electrodes was not integrally connected with the process of manufacture.

Thereafter, the Assessee Company carried the matter before the Court by the further appeal against the passed by the Tribunal.

The division bench comprising of Justice A.S.Oka and Justice A.K.Menon held that “if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, by the commercially inexpedient quality for special treatment. This is to say that every category of goods in connection with the manufacture of, or in relation to manufacture, or which facilitates the conduct of the business of manufacture will be included in Rule 13”.

The Court further observed that in the present case the welding electrodes used for repairs and maintenance of machinery, do not fall within the definition of capital goods under Rule 2(b) of the Rules, they are nevertheless eligible for credit as ‘inputs’ within the meaning of section 2(g) of the rules. It is submitted that in or to be eligible for credit as inputs under Rule 2(g) of the rules, the only requirement is that the said goods must have been used in or in relation to the manufacture of the final product.

While concluding the issue the Court set aside the impugned order and the appeal before the Tribunal is remanded to the Tribunal for a fresh decision.

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