The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has allowed CENVAT credit of ₹18.19 lakh on steel materials used to fabricate parts, spares, accessories and supporting structures for sugar manufacturing machinery.
The bench of Dr. Suvendu Kumar Pati (Judicial Member) has set aside the order denying the credit and directing its reversal with interest and an equal penalty.
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The appellant/assessee company manufactures sugar and molasses, had availed CENVAT credit on steel materials such as MS beams, MS angles, MS channels and HR plates. These materials were used to fabricate machinery parts and accessories, as well as structures supporting the manufacturing machinery.
The credit was recorded in the company’s CENVAT register, books of accounts and ER-1 returns. However, the Range Superintendent issued a letter dated April 8, 2010, asking the company to reverse the credit on the ground that the goods did not fall within the definition of capital goods.
The company submitted replies explaining its entitlement to credit. Subsequently, a show-cause notice dated March 21, 2012, sought recovery of ₹18,19,948, along with interest and an equal penalty, by invoking the extended period of limitation.
Both the adjudicating authority and the Commissioner (Appeals), Aurangabad, confirmed the demand, prompting the company to approach the Tribunal.
The company submitted that the issue was covered by several Tribunal decisions, including the Larger Bench ruling in Mangalam Cement Ltd. v. CCE, Jaipur-I. He argued that credit could not be denied because the steel items qualified either as accessories to capital goods or as inputs.
The department relied on the Supreme Court’s decision in Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III. It contended that steel structures had been held not to constitute components of capital goods used in a sugar manufacturing plant for the purpose of MODVAT credit.
Examining the use of the disputed materials, the Tribunal noted that ₹13,62,554 of the credit related to steel used to fabricate spares, parts and accessories of sugar manufacturing machinery. The remaining ₹4,57,394 related to materials used to fabricate supporting structures.
The bench observed that Rule 2(a) of the CENVAT Credit Rules, 2004, includes components, spares and accessories of specified capital goods within its definition.
Relying on Mangalam Cement, the Tribunal explained that accessories to capital goods were eligible for CENVAT credit. It therefore held that the Saraswati Sugar Mills ruling, which concerned MODVAT credit and the treatment of structures as components, could not be applied to deny credit in the present case.
On credit for supporting structures, the Tribunal acknowledged that divergent decisions existed. However, it noted that a decision of the Chhattisgarh High Court had been consistently followed to extend the benefit of CENVAT credit to such structures.
The bench referred to the reasoning that machinery cannot remain suspended in mid-air and requires suitable support to function smoothly. Structural materials used to erect those supports were treated as falling within the definition of capital goods, which covers components, spares and accessories.
Following these judicial precedents, the Tribunal allowed the appeal and set aside the Commissioner (Appeals)’ order dated March 13, 2013, with consequential relief, if any.
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