CX - CENVAT on Capital Goods - There is no requirement that capital goods at time of receipt must be owned by manufacturer or that same would cease to be capital goods, if they are fixed to earth: Demand of Rs 800 Cr stayed: CESTAT
By TIOL News Service
NEW DELHI, APR 17, 2014: THE appellant are a Public Sector Undertaking, engaged in the manufacture and marketing of petroleum products. The dispute in this case is in respect of their refinery at Panipat where they manufacture various petroleum products falling under Chapter 27 and also goods covered by Chapter 39 of Central Excise Tariff, Act 1985. During period from July 07 to March 12 the appellant had taken Cenvat Credit of Rs. 3 ,67,72,79,616 /- in respect of various items of capital goods received by them for erection, installation and commissioning of Nephtha Cracker Plant.
Commissioner Central Excise, Rohtak confirmed the Cenvat Credit demand of Rs.367,14,65,992 /- and 58,13,624/- against the appellant along with interest thereon under section 11AB and besides this, imposed penalty of Rs. 367,72,79,616/- on the appellant company under Rule 15(2) of the Cenvat Credit Rules, 2002 read with Section 11AC of Central Excise Act., 1944.
The Cenvat Credit, in question, has been taken in respect of various items of the machinery. It is not disputed that the goods in respect of which Cenvat Credit, in question, has been taken are covered by the Chapter 84, 85 & 90 of the Central Excise Tariff or are the item specifically mentioned in Rule 2(a) and accordingly are covered by the definition of the 'capital goods' as given in Rule 2(a) of Cenvat Credit Rules.
The Department sought to deny the Cenvat Credit on the two grounds, namely;-
(a) at the time of receipt of capital goods in the refinery where the same had been installed for setting up Nephtha Cracker Plant, the appellant were not owner of the goods, as the same had been brought by their contractor for setting up the plant; and
(b) the goods after being installed had become fixed to earth structure which is not excisable and hence the Cenvat Credit of Central Excise duty involved these goods would not be available to the appellant.
The Tribunal observed:
1. In term of the definition of 'capital goods' as given in Rule 2(a) of the Cenvat Credit Rules, 2004, the capital goods are those goods which are specified in this Rule and which (except for office equipment or appliance) are used in the factory of the manufacturer of the final products or for providing of output service.
2. Thus any item which is covered by the list of the items mentioned in Rule 2(a) of the Cenvat Credit Rules, except for office equipment or office appliances, and is used in any manner in the factory of the manufacturer of the final products, would be covered by the definition of the capital goods and accordingly would be eligible for Cenvat Credit.
3. There is absolutely no requirement that the capital goods at the time of receipt must be owned by manufacturer or that the same would cease to be capital goods, if they are installed in the factory and become fixed to earth.
4. In fact, most of the capital goods the machinery, equipment or instruments covered by Chapter 84, 85 & 90, pipes and tubes, pollution control equipment refractories, and storage tanks are required to be installed and after installation, the same put together constitute a manufacturing plant, which is a fixed to earth structure.
5. Just because after being installed in the factory, the capital goods put together become a plant which is a fixed to earth structure, the Cenvat Credit cannot be denied on the basis that the plant which is fixed to earth structure, is not excisable.
6. This preposition of the Department is, in fact absurd , as there is no such condition in Rule 2(a) for capital goods.
7. For capital goods Cenvat Credit, the items must be among those mentioned in this Rule and should have been used in the factory of the manufacturer and how the items are not used relevant.
8. The words used in Rule 2(a) are "used in the factory of manufacturer of the final product" not "used in the manufacture of final product". Therefore, once any item received in the factory is "capital goods" in terms of Rule 2(a) of the Cenvat Credit Rules, and is used in the factory, the manufacturer would be entitled to Cenvat Credit of excise duty paid in respect of the same.
9. If the logic of the commissioner in the impugned order is accepted, no capital goods Cenvat Credit can be allowed in respect of any item of capital goods enumerated in Rule 2(a) of the Cenvat Credit Rules, as all the items - various items of machinery covered under Chapter 84, 85 & 90 of the Tariff, pipes & tubes, tanks, pollution control equipments refractories etc. have to be installed in the factory before being put to use and after installation, the same would become fixed to earth plant.
10. Reading the impugned order gives an impression that the same has been passed without any application of mind.
11. We, therefore, are of prima facie view that impugned order is not sustainable and as such the appellant have strong prima facie case in their favour .
12. The requirement of pre-deposit of the Cenvat Credit demand, interest thereon and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal.
The stay application is allowed.
(See 2014-TIOL-579-CESTAT-DEL)
