By TIOL News Service

ALLAHABAD, JUNE 08, 2015: APPELLANT is a sugar mill engaged in manufacture and sale of sugar and molasses. It also has a chemical division producing chemicals therein. For the period January, 2001 to March, 2001; May, 2001 to June, 2001 and July, 2001 to December, 2001, it claimed MODVAT credit on use of 'Welding Electrodes' used in maintenance and repair of machinery. Department disallowed the credit and the Tribunal upheld the denial. The assessee is now before the High Court.

After referring to the provisions of Rule 57A/57B of the Central Excise Rules, 1944 and Rule 2 of the CENVAT Credit Rules, 2001, the High Court held that credit is not admissible either as inputs or as capital goods. The High Court inter alia held:

The term used in Rule 57A and 57B i.e. 'input' means, as used in or in relation to manufacture of final products. This use, in or in relation to, may be direct or indirect. It may not be necessarily used in final production which contains such 'input', but it could be used in or in relation to manufacture of final products. The appellant simply says that repair and maintenance of plant and machinery is an integral part of manufacture process and therefore, it should be included within the aforesaid term, but, we find that argument advanced by him is highly farfetched and goes to the extent of making explanation clause in Rule 57A and 57B, redundant. If what he says is taken to be correct, then land, bricks, cement, concrete, and even nut bolts etc. everything would come within the ambit of Rule 57A and 57B.

We are clearly of the view that 'Welding Electrodes' would not come within the category 'inputs' so as to qualify for MODVAT credit under Rule 57A read with Rule 57B of Rules, 1944.

Similarly, whether it can be treated to be 'capital goods' during the relevant period under Rule 57Q, we find that this aspect as already been considered in Central Excise Appeal No. 135 of 2005 – M/s Upper Ganges Sugar & Industries Ltd. Vs. Commissioner Customs & Central Excise.

'Capital goods' and 'inputs' as defined in Rule 2 of CENVAT Credit Rules, 2001, includes the same items, to which Rule 57A, 57B and 57Q were applicable. No substantial distinction, we have found so as to find that during the period when Rules, 2001 are applicable, “Welding Electrodes” stand included within the definition of 'capital goods' or 'inputs' as the case may be, so as to entitle for MODVAT credit. Appeal lacks merit and is dismissed.

(See 2015-TIOL-1412-HC-ALL-CX)