CESTAT Quashes Order Reversing CENVAT Credit for Transformer Oil used in Transformer Manufacturing

Commissioner of GST & Central Excise Vs Indo Tech Transformers Ltd (CESTAT Chennai)

Conclusion: CENVAT credit of excise duty was allowable on transformer oil which was used for the manufacture of the transformer as transformer oil purchased by assessee was used inside the factory in the process of manufacture and only for convenience had been transported in barrels along with the finished product and the transformer oil was not cleared ‘as such’, therefore, the order of reversal of Cenvat credit was quashed.

Held: Assessee-company was engaged in the manufacture of transformers and their parts falling under Chapter Heading 8504 of the Central Excise Tariff Act 1985. It was registered with the Central Excise department and was availing CENVAT credit on various inputs including transformer oil. Assessee appealed against the order passed by Adjudicating Authority for dropping the proceedings and held that the transformer oil was not cleared ‘as such’ by the respondent as alleged in the show cause notice (SCN). Assessee contended that the transformer oil had undergone necessary inspection and testing and it could not be said that the transformer oil was cleared ‘as such’ and the testing was also part and parcel of manufacture of the final product. The process of use of the transformer oil was explained by assessee in their reply to the show cause notice. Department contended that assessee had cleared the final product viz. transformer, and paid duty on the final product as if the transformer oil had formed part of the value of transformer oil and the transformer oil was cleared ‘as such’ and the assessee ought to have reversed the credit availed on the transformer oil as under Rule 3 (5) of CENVAT Credit Rules,2004. It was held that the transformer oil purchased by assessee was used inside the factory in the process of manufacture and only for convenience had been transported in barrels along with the finished product and the transformer oil was not cleared ‘as such’. Therefore, the appeal filed by department was dismissed.

FULL TEXT OF THE CESTAT CHENNAI ORDER

Brief facts are that the respondent is engaged in the manufacture of transformer and their parts falling under Chapter Heading 8504 of the Central Excise Tariff Act 1985. They are registered with the Central Excise department and are availing cenvat credit on various inputs including transformer oil.

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