Cement, TMT, CTD used as structurals not eligible for Credit – Amendment to CENVAT Credit Rules, 2004

By TIOL News Service

NEW DELHI, JULY 06, 2009: A long pending dispute between the assessees and the department is all set for resolution by introduction of an amendment to the definition of inputs in Rule 2 (k) of CENVAT Credit Rules, 2004. By virtue of Notification No. 16/2009-CE (NT) dated July 7, 2009, in Explanation 2 to sub rule (k) of Rule 2, the following words are introduced after ‘factory of the manufacturer’:

“but shall not include cement, angles, channels, Centrally Twisted Deform bar(CTD) or Thermo Mechanically Treated bar(TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods”

The said explanation after the proposed amendment will read as follows:

“Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer but shall not include cement, angles, channels, Centrally Twisted Deform bar(CTD) or Thermo Mechanically Treated bar(TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.”

In Vandana Global Ltd vs. CCE, Raipur 2008-TIOL-2327-CESTAT-DEL the Delhi Bench of CESTAT while disagreeing with the Mumbai Bench in Bhushan Steel & Strips Ltd referred the following questions for resolution by a Larger Bench:

(a) Whether the term “capital goods” can include plant, structures embedded to earth?

(b) Whether the goods like angles, joists, beam, channels, bars, flats which go into fabrication of such structures can be treated as ‘inputs' in relation to their final products as inputs for capital goods, or none of the above?

(c) Whether the credit can be allowed in respect of goods like angles, joists, beam, channels, bars, flats which go into fabrication of such structures and plant?

Incidentally, CBEC vide letter F No. 267/30/2008 – CX.8 dated April 19, 2009 called for a report from the field formations to provide the among other things, details of cases on this issue, approximate amount of CENVAT Credit availed on such materials in a year, and if any show cause notices were issued in this regard.

While the tenor of this Board letter indicated a retrospective amendment to the CENVAT Credit Rules, 2004 for barring credit on the disputed items, the current amendment, it appears is prospectively only. So the dispute involving availability of credit on these items for the earlier period will have to be resolved by the Larger Bench.

Or can we expect a retrospective amendment by insertion of an amendment in the Finance Bill, 2009 and a mechanism for recovery of such ineligible credit during the past period. Going by the mood of the Government to mop up as much revenue as possible for the various welfare measures proposed in the Budget, anything is possible.