CESTAT allows CENVAT Credit on materials used in capital goods

Rexon Strips Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Kolkata)

In the case of Rexon Strips Ltd. vs. Commissioner of CGST & Central Excise, the CESTAT Kolkata ruled on the eligibility of CENVAT Credit for inputs used in capital goods. The appellant, engaged in manufacturing sponge iron, had claimed CENVAT Credit of ₹7.49 crore on materials like MS angles, channels, joists, and plates used for fabricating capital goods such as conveyor systems, furnaces, and storage hoppers. The Adjudicating Authority, citing the Vandana Global Ltd. decision, denied the credit, arguing that these materials were used for construction and supporting structures rather than manufacturing. The Commissioner (Appeals) partially overturned the decision by allowing credit for welding electrodes but upheld the disallowance for other materials.

Rexon Strips Ltd. appealed to CESTAT, contending that the materials were integral to capital goods and relied on precedents such as Thiru Arooran Sugars v. CESTAT Chennai and Mundra Ports & SEZ Ltd. v. CCE. The tribunal found no dispute regarding the actual usage of materials in capital goods and noted that the Chartered Engineer’s certificate supported their claim. It also observed that similar demands across India had been set aside when reviewed by higher courts. Based on established legal precedents, CESTAT overruled the prior decisions and allowed the CENVAT Credit, affirming that materials used in capital goods qualify as inputs under Rule 2(k) of the CENVAT Credit Rules, 2004. The ruling enables Rexon Strips Ltd. to claim consequential relief as per law.

Appellant was represented by Shri Kartick Kurmi, Advocate

FULL TEXT OF THE CESTAT KOLKATA ORDER

The appellant is engaged in the manufacture of Sponge Iron. They have set up an induction furnace for manufacture of MS Ingots. During the course of such expansion, they have procured a lot of inputs and other raw materials which are required for the fabrication of capital goods. During the period November 2004 to March 2008, the appellants have procured channels, angles, joists, plates, CR coils, HR coil, MS round, HR sheets, etc., all falling under Chapter 72 and also they procured arc welding electrodes falling under Chapter 83 for this purpose. They have claimed the CENVAT Credit of Rs.74, 98, 836/- on all these items.

2. These items were used in the fabrication and commissioning of various capital goods like conveyor system, iron ore slip, furnace gratings, hopper, EOT crane, furnace hopper, etc. The adjudicating authority heavily relied on the Decision of Larger Bench in the case of Vandana Global Limited wherein it has been held that for items like cements, angles, channels, CT and DMT bars, etc., which are used for construction of factory shed, building, etc., the cenvat credit will not be available. It was held that the items do not qualify to be viewed as inputs as per Rule 2(k) of the Cenvat Credit Rules, 2004. The Adjudicating authority has also taken the view that many of these items have been used for fabrication of supporting structures. Finally, he has concluded that the appellant would not be eligible for any CENVAT Credit. He has also denied the CENVAT Credit on welding electrodes. Being aggrieved, the appellant filed their appeal before the Commissioner (Appeals). The Commissioner (Appeals) has allowed the CENVAT Credit on account of welding electrodes and confirmed the demand on account of other inputs on which CENVAT Credit has been taken. Being aggrieved, the appellant has filed the present appeal before the Tribunal.

3. The Learned Advocate appearing on behalf of the appellant submits that the issue is no more res integra. So far as the facts are concerned, the appellants have provided detailed certificate from the Chartered Engineer as to where these inputs have been used in the factory. He provides us the details of capital goods in which these inputs have been used.

4. He submits that the goods in question have been either used directly in the manufacture of capital goods or the same have been used in making the supporting structure for usage of the capital goods. Relying on the case law of Thiru Aroran Sugars v. CESTAT, Chennai as reported at 2017-355-ELT-373 Madras, he submits that in this case the Madras High Court has held that inputs used in the supporting structures which are used towards support plant and machinery are eligible for CENVAT Credit.

5. He also relies on the case law of Mundra Ports and Special Economic Zone Ltd. v. CCE and CUS as reported at 2015-39 STR-726 Gujj. He submits that in this case it has been held that the Vandana Global Ltd. Larger Bench decision is not correct in law. Based on these submissions, he prays that the appeal may be allowed on merits.

6. The Learned AR rated the findings of the Adjudicating Authority and Commissioner Appeals and justifies the confirmed demand.

7. Heard both sides, perused the appeal papers and documentary evidence submitted and the case law cited by the parties.

8. We find that there is no dispute on the facts of the case. The appellants have taken credit on various inputs like MS angle, MS channel, MS beam, joist, HR plate, MS plates etc. They have claimed that these goods have been used either in the manufacture of the capital goods or have been used for providing structural support for the capital goods. The Adjudicating Authority at page 15 and 16 has given a Table as to where these inputs have been used. The Superintendent has visited the factory and has seen the functioning of their capital goods. The Table reproduced below gives the details of usage of the inputs.

9. It can be seen from the Table that the items have been used in the conveyor system, iron ore silo, furnace gratings, induration furnace, furnace duct, product storage hopper etc. There is no dispute that these are all essential capital goods which are required for carrying out the manufacturing process. From paragraph 15 of the Order-in-Original, we find that the appellant has provided a certificate from the Chartered Engineer as to how the inputs have been utilized in fabrication of the capital goods or for making the structures for capital goods. Therefore, the usage of the goods in question is not in dispute. We find that during the period under consideration several proceedings were initiated throughout India based on the basis of Larger Bench decision in the case of Vandana Global. When these proceedings reached the Tribunal or High Court stage, all such demands were set aside and the appeals filed by the appellants have been allowed.

10. The case in point would be the decision of the Madras High Court in the case of Thiru Arooran Sugars v CESTAT Chennai [2017 (355) ELT 373 (Mad.) cited supra. After going through the factual details and the statutory provisions, the Hon’ble High Court has held as under produced:-

“44. In the facts of this case, we have to conclude that MS  structurals, which support the plant and machinery, which are, in turn, used in the manufacture of sugar and molasses are an integral part of such plant and machinery. The assessee has clearly demonstrated that structurals as well as foundations, which are  erected by using steel and cement are integral part of the capital  goods (i.e., plant and machinery), as they hold in position the plant and machinery, which manufactures the final product. Therefore, in our opinion, whether the “user test” is applied, or the test that they are the integral part of the capital goods is applied, the assessees, in these cases, should get the benefit of Cenvat credit, as they fall within the scope and ambit of both Rule 2(a)(A) and 2(k) of the 2004 Rules.”

11. We also find that the decision of Vandana Global Larger Bench itself was under question in the case of Mundra Ports & Special Economic Zone Ltd., v CCE CUS, [2015 (39) STR 726 (Guj.)] Gujarat High Court has held as under produced:-

“8. Mr. Y.N. Ravani, learned counsel for the Revenue has placed reliance on the decision of the Larger Bench of the Tribunal in Vandana Global Limited v. Commissioner of Central Excise, Raipur, 2010 (253) E.L.T. 440. We have carefully gone through the decision of the Larger Bench of the Tribunal. We do  not find that amendment made in Cenvat Credit Rules, 2004  which come into force on 7-7-2009 was clarificatory amendment as there is nothing to suggest in the Amending Act that amendment made in Explanation 2 was clarificatory in nature.  Wherever the Legislature wants to clarify the provision, it clearly mentions intention in the notification itself and seeks to clarify existing provision. Even, if the new provision is added then it will be new amendment and cannot be treated to be clarification of particular thing or goods and/or input and as such, the amendment could operate only prospectively. In our opinion, the view taken by the Tribunal is based on conjectures and surmises  as the Larger Bench of the Tribunal used the expression that intention behind amendment was to clarify. The coverage under the input from where this intention has been gathered by the Tribunal has not been mentioned in the judgment. There is no material to support that there was any legislative intent to clarify any existing provision. For the same reason, as mentioned above, the decision of the Apex Court in Sangam Spinners Limited v. Union of India and Others, reported in (2011) 11 SCC 408 = 2011 (266) E.L.T. 145 (S.C.) would not be applicable to the facts of the instant case.”

12. We find that the decision of in the case of Thiru Arooram Madras High Court is squarely applicable to the facts of the present case. Accordingly, following the ratio of this case law, we set aside the impugned order and allow the appeal filed by the appellant on merits.

13.  The appellant would be eligible for consequential relief if any as per law.

(Pronounced in the open court on…11^th February, 2025…..)