CENVAT allowed on fabrication of capital goods – CESTAT

CA Urvashi Porwal

Brief of the case

In the case of CCE & ST, Raipur Vs. M/s. Mahamaya Steel Industries Ltd., it was held that CENVAT credit on various items used in the fabrication of capital goods can be availed. In the present case, the assessee provided sufficient evidence to prove the usage of different items in the installation of capital goods.

Facts of the Case

The respondent herein are engaged in the manufacture of various Iron and Steel products such as Joists, Channel, Angles, Blooms  liable to central excise duty. They were availing  cenvat credit of duty paid on inputs and capital goods. After audit of the records of the respondent by the officers,  proceedings were initiated to disallow under a cover of cenvat credit amounting to Rs.27,08,116/- availed on cement and structural items. After adjudication, the Original Authority passed  order dated 10.09.2014 disallowing the said credit and imposing equal penalty. On appeal, the Commissioner (Appeals) allowed the appeal by setting aside the original order. Aggrieved by this order, the Revenue is in appeal.

Contentions of Revenue

The Revenue contested the findings in the impugned order on the following grounds:-

(a) Iron and Steel structures on which credit has been availed by the respondent cannot be considered as components  of machineries. These structures are mainly  for support of capital goods;

(b) The Commissioner (Appeals) accepted the certificate of Chartered Accountant submitted by the respondent  without detailed analysis. Many goods purported to have been fabricated were civil structures, platform permanently attached to the earth and hence, not eligible for credit;

(c) If the capital goods were manufactured and used captively by the respondent, the detail should have been mentioned in the ER-I  Returns with a claim for exemption under Notification no.67/95-CE;

(d) The cement has been used in the civil work of construction of support structures of storage tank and hence, credit cannot be allowed on such cement.

Contentions of the Assessee

The respondent submitted that the impugned order examined all the issues in detail with supporting case laws and there is nothing in the present appeal filed by the Revenue to contradict the findings in the impugned order. The assessee further submitted that it is incorrect to allege that the Commissioner (Appeals) simply accepted the certificate  of Chartered Accountant to allow the credit on various items. It was submitted that they are not contesting the non-eligibility of cenvat credit on cement, which used for making under-ground storage tank.

Held by Hon’ble CESTAT

The Hon’ble CESTAT stated that the plea of the Revenue is that the credit taken on structural items amounting to Rs.21,60,362/- and cement Rs.38,122/- is not legal and proper. These structural items are used by the appellant only to support the capital goods. The CESTAT found that such assertion by the Revenue is without any supporting evidence whereas the Respondent have produced detailed certificate  indicating the usage of various steel items in the fabrication of conveyors, cooling bed, overhead tanks, billet, pusher bed, re-heating furnace and heating furnace and ancillary heating furnace. Thus, the usage of various M.S. items in relation to fabrication of  various  capital goods, components of capital goods has  been explained by the respondent  before the lower Appellate Authority. The certificate also states that the various items are fabricated at site and later on, erected  and bolted to the concrete footing with the help of nuts and foundation bolts. Here, it is necessary to refer to the Hon’ble Supreme Court’s decision in the case of CCE Vs. Rajasthan Spinning Mills- 2010 (255) ELT 481 (SC). The Hon’ble Supreme Court while allowing the credit on M.S. items like angles, sheets, etc. evolved “user test” to determine whether these items can be considered as components or accessories of capital goods on applying this principle. The Hon’ble CESTAT found that there is no error in the findings by the ld. Commissioner (Appeals) in as far as eligibility of credit on steel structural items. However, the cement used for constructing under-ground storage tank, which is a civil structure, will not be eligible for cenvat credit.

In view of the above discussion and findings, the present appeal is without merit except to the extent of cenvat credit on cement. Accordingly, the appeal is dismissed except to the extent that the credit on cement availed by the respondent is not legally eligible.