By TIOL News Service

KOLKATA, DEC 30, 2012: THIS is a Revenue appeal.

The respondents are engaged in the manufacture of Iron and Steel products [Ch. 72 and 73 of CETA, 1985]. The appellant availed CENVAT Credit of Rs.18,54,000/- in respect of duty paid on 700 HP Diesel Locomotive falling under chapter 86 of CETA, 1985. The department disallowed the CENVAT Credit. The respondents challenged the same before Commissioner(Appeals), who allowed the credit and appeal of the respondent.

Before the CESTAT, Revenue submits that the Diesel Locomotive Engine is not capital goods since it is classified under chapter 86 and it does not answer to the definition of capital goods. Moreover, the appellant had availed CENVAT credit by treating the same as inputs but the same is also improper. Reliance is placed on the decision in Vikram Cement (2005-TIOL-112-SC-CX).

The respondent submitted that they have set up integrated steel plant having railway siding within the factory premises and laid down railway lines within the factory connecting one plant to another plant for movement of raw material, semi finished and finished goods; that the Diesel locomotive is an accessory to the torpedo ladle car which increases the convenience of carrying molten metal from one place to another i.e. from blast furnace to conarc furnace and then to pig casting machine. They have also filed Cross Objection challenging the finding of appellate authority that torpedo ladle car could have been manually handled saying that it is not factually correct and that the respondents need to use some mechanical force i.e. Diesel Locomotive for handling/carrying the torpedo ladle car. The decision cited by the Revenue was also distinguished by submitting that the subject matter of dispute in the said case was the place of use of item and not the nature of use of item in dispute.

The bench after considering the submissions held that the Commissioner (A) had given clear and cogent findings to arrive at a conclusion that - “the transportation of molten iron from blast furnace conarc furnace and thereafter to the pig casting machine is an essential part of manufacturing process and without carriage of such molten metal from one place to another, the manufacturing cannot take place. In doing so, the diesel engine hauls the torpedo ladle cars containing molten metal; that diesel locomotive is an accessory to goods falling under chapter 84, such as blast furnace, conarc furnace and pig casting machine and is thus capital goods. The appellant had correctly availed the cenvat credit of the duty paid on diesel locomotive; diesel locomotive can as well be an input so as to come within its definition in the Cenvat Credit Rules, 2004.”

However, the Bench found fault with the following observation of the Commissioner(A) and which matter was argued by the respondent in their cross objection - "The torpedo ladle car containing molten iron could have been manually handled from one place to another. But its effectiveness in carrying the molten iron without melting can be enhanced by use of diesel locomotive".

Noting that the manufacturing operation involved the question of carrying 300 to 350 MT of molten iron, the Bench observed that the Commissioner(A) had failed to appreciate that such a quantity was not easy to handle manually, if not impossible, in normal situations. Holding that Diesel Locomotive torpedo ladle car carrying molten metal up to 300-350 MT not only enhanced the effectiveness, but without it the handling, and in turn production of finished goods would not be possible, the Bench upheld the view of Commissioner(A) holding Diesel locomotive as accessory of capital goods.

In fine, the CESTAT held that there was no merit in the appeal filed by the department and so dismissed the same.

(See 2012-TIOL-1964-CESTAT-KOL)