P&H HC Upholds CENVAT Credit on Steel Items Used for Capital Goods

Principal Commissioner Vs IOL Chemicals & Pharmaceuticals Ltd. (Punjab and Haryana High Court)

Material Facts: The respondent-assessee, IOL Chemicals & Pharmaceuticals Limited, availed CENVAT credit amounting to Rs. 2,49,21,545/- (consisting of Rs. 2,24,198,102/- BED, Rs. 4,83,196/- Cess, and Rs. 2,40,247/- SHE) during the period from 15.05.2006 to 31.03.2010. The credit was claimed on various steel items, including M.S. Plates, MS Sheets/Aluminium Coil, Joist/Square/joist Challen/HR Plates/Shapes & Sections/MS Channels, Angles, Welding electrodes, CRSS Patti/HRSS Plates/HR Coil/Sheets, etc.

Procedural History & Proceedings

• Show Cause Notice: The Revenue issued a Show Cause Notice dated 03.06.2011 under Section 11A of the Central Excise Act, 1944, invoking the extended period of limitation under the first proviso to Section 11A. The notice proposed to disallow and recover the CENVAT credit of Rs. 2,49,21,545/- under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of the Act, adjust Rs. 5,64,467/- already paid, recover interest under Section 11AB, and impose penalties under Rule 15 read with Section 11AC.
• Order-in-Original: The Commissioner (erstwhile Central Excise Commissionerate, Chandigarh-II) adjudicated the matter vide order dated 19.12.2011, confirming the demand of Rs. 2,49,21,545/-, adjusting Rs. 5,64,467/-, and imposing interest under Section 11AB alongside an equal penalty under Rule 15 read with Section 11AC.
• Tribunal Ruling: The respondent appealed to the Customs, Excise & Service Tax Appellate Tribunal, Chandigarh (CESTAT). CESTAT passed its final order on 05.07.2018, allowing the appeal. CESTAT held that the Show Cause Notice dated 03.06.2011 was unsustainable and barred by limitation, relying on the merits established by the Chhattisgarh High Court decision that set aside the CESTAT Larger Bench decision in Vandana Global Limited.
• High Court Appeal: The Principal Commissioner filed the instant appeal under Section 35G of the Central Excise Act, 1944 before the High Court of Punjab and Haryana, seeking to set aside CESTAT’s order dated 05.07.2018.

Submissions of the Parties

• Appellant (Revenue): Counsel for the appellant argued that CESTAT allowed the appeal without entering into the merits, relying solely on the Chhattisgarh High Court’s decision. It was submitted that the primary issue before CESTAT was whether Revenue validly invoked revisional/extended powers beyond the period of limitation, an aspect allegedly left unconsidered.
• Respondent (Assessee): Counsel for the respondent pointed to the consistent judicial position permitting CENVAT credit on such items, relying on the decision of the Chhattisgarh High Court in Vandana Global Ltd. vs. Commissioner of C. Ex. & Cus, Raipur (2018).

Court Observations & Findings

• The High Court noted that CENVAT credit was denied by Revenue on the ground that the specified steel items did not constitute capital goods under Rule 2(a) of the CENVAT Credit Rules, 2004.
• The Court observed that while the Larger Bench of the Tribunal in Vandana Global Limited v. CCE, Raipur (2010) had denied CENVAT credit, that ruling was set aside by the Chhattisgarh High Court in 2011, which extended CENVAT credit benefits on steel items by treating them as capital goods/inputs under Rule 2(a).
• The Court reviewed the subsequent decision of the Chhattisgarh High Court in Vandana Global Ltd. (2018), which addressed whether “capital goods” excludes earth-embedded structures, whether structural steel items (angles, joists, beams, bars, plates) used in fabrication are inputs, and whether the 2009 amendment to the CENVAT Credit Rules, 2004 (effective 07.07.2009) was retrospective/clarificatory.
• Citing rulings from the Gujarat High Court (Mundra Ports & Special Economic Zone Ltd.) and the Madras High Court (M/s. Thiruarooran Sugars), the Court observed that the 07.07.2009 amendment was prospective and not merely clarificatory.
• The High Court affirmed the consistent judicial stance that items such as angles, joists, beams, bars, and plates used in fabricating structures embedded to the earth qualify as inputs for capital goods under the CENVAT Credit Rules, 2004.
• Because the assessee held a substantive right to claim CENVAT credit on these items on merits, the Show Cause Notice dated 03.06.2011 issued by invoking the extended period of limitation was unsustainable.

Final Decision The High Court held that CESTAT rightly appreciated the facts and law, and no substantial question of law arose in the appeal. The High Court dismissed the Revenue’s appeal.