Commissioner of Central Excise & Service Tax, Daman Vs. Aarti Industries Ltd. [(2014) 47 taxmann.com 148 (Ahmedabad – CESTAT)]

Aarti Industries Limited (the Respondent) was engaged in the manufacture of Organic and Inorganic chemicals and purchased hydrogen gas cylinders (Cylinders) to store hydrogen gas for use in the process of manufacture of various chemicals in its factory. The hydrogen gas is procured from various suppliers and in this process the empty Cylinders have to move out from the Respondent’s factory frequently for refilling of hydrogen gas. After refilling, these Cylinders are received back in the Respondent’s factory and put to use for manufacture of final products.

The Cylinders are installed on hired vehicles and interconnected to form hydrogen cylinder bank for ease of the transportation and use within the factory.

The Respondent took Cenvat credit of the Excise duty paid on Cylinders under the category of “Capital Goods” during the period from October, 2004 to May, 2007.

The Department argued that the Respondent wasn’t eligible to avail the Cenvat credit on following grounds:

(a)   Capital goods were not installed within factory; and

(b)   Procedure under Rule 3(5) Cenvat Credit Rules, 2004 (“the Credit Rules”) relating to reversal and re-credit was not followed; and

(c) Procedure under Rule 4(5)(a) of the Credit Rules was also not followed.

Accordingly, the Adjudicating Authority disallowed the Cenvat credit to the Respondent and raised demand for recovery of such Cenvat credit along with interest and penalty of equivalent amount under Section 11AC of the Central Excise Act, 1944.

The first Appellate Authority allowed the Respondent’s appeal by setting aside the Order of the Adjudicating Authority.

Being aggrieved, the Department filed an appeal before the Hon’ble CESTAT.

The Hon’ble CESTAT observed that Rule 2(a) of the Credit Rules provide that the condition for availing Cenvat credit on capital goods is their use within the factory of the manufacturer of final products. It was held that there was no requirement under the Credit Rules that the capital goods must be installed within the factory of production.

Further, the Hon’ble Tribunal held that temporary to and fro movement  of  Cylinders for the purpose of refilling of hydrogen gas is covered by Rule 4(5)(a) of the Credit Rules. Furthermore, reversal of credit at time of removal of Cylinders and availment of credit at time of receipt of duly filled Cylinders is a revenue neutral exercise.

However, the Hon’ble CESTAT held that the arguments of the Department pertaining to Rule 4(5)(a) and 3(5) were not sustainable because the same were not invoked in the Show Cause Notice. Hence, Adjudication proceedings and appeal proceedings cannot go beyond scope of show cause notice.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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