By TIOL News Service

NEW DELHI, AUG 27, 2013: THE appellants took CENVAT credit of Rs.6,28,320/- on the basis of 14 invoices issued by M/s Kamal Envirotech Pvt. Ltd. under which various items falling under heading 85.48 were supplied for setting of paint shop. It is the contention of the Revenue that the appellant had placed order with the supplier for supply of a paint shop, that the goods after being brought into the factory were used for erection of paint shop which is an immovable property and hence the appellant would not be eligible for capital goods CENVAT credit in respect of these items.

The demand was confirmed along with imposition of equivalent penalty and interest. Even the Executive Director and the Commercial Manager were saddled with penalties.

Since the lower appellate authority upheld the order, the appellant is before the CESTAT.

The appellant submitted that what had been brought into the factory were goods falling under Chapter 85 which are covered by the definition of capital goods and that just because the items brought were used for fabrication and erection of paint shop which is fixed to the earth, the CENVAT credit cannot be denied, and that the Apex Court's judgment in the case of Josts Engineering Co. Ltd. relied upon by Revenue, wherein it was held that the paint shop erected in the factory being fixed to the earth is immovable property and is not excisable goods, is not applicable to the issue on hand.

The Revenue representative reiterated the findings of the lower authority and emphasised that the appellant had placed orders for the entire paint shop; that various components of the paint shop after being received into the factory were fabricated and erected after which the paint shop came into existence, which being immovable property, is not excisable, and that in view of this, the items brought by the appellant company are not eligible for CENVAT credit.

The Bench observed -

"6. …It is not the department's contention that the goods received under these invoices are not the goods falling under Chapter 84 or 85. The department's objection is that these items were used in the factory for fabrication and erection of paint shop, which being fixed to the earth structure, is not excisable and hence these items are not eligible for CENVAT credit. In my view, this objection by the department is absurd, as for permitting capital goods CENVAT credit, what has to be seen is as to whether the goods fall in the Chapters specified in the definition of capital goods or are the items specifically mentioned in the definition of capital goods and secondly whether those goods were used in the factory. The purpose for which the goods were used and whether after use the goods became part of plant and machinery fixed to/embedded to the earth is not relevant. If Revenue's contention is accepted, the provisions regarding capital goods CENVAT credit would became redundant, as most of the Chapter 84 and Chapter 85 items and pipes and tubes have to be installed and after installation the same become fixed to earth. Since, in this case, there is no dispute about the fact that the items falling under Chapter 85 which are covered by the definition of capital goods were received in the factory and there is also no dispute that those items were used in the factory, the CENVAT credit cannot be denied. The ground on which the department seeks to deny the CENVAT credit is not relevant to the issue…."

Holding that the order is not sustainable the same was set aside and the appeals were allowed.

(See 2013-TIOL-1276-CESTAT-DEL)