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2016 Supreme(Mad) 2102
IN THE HIGH COURT OF JUDICATURE AT MADRAS
S. MANIKUMAR and D. KRISHNAKUMAR, JJ.
The National Co-operative Sugar Mills Ltd. - Appellant
Versus
Commissioner of Central Excise Madurai - Respondents
C.M.A. No. 3224 of 2009
Decided On : 15-07-2016
For the Appellant : Mr. N. Prasad
For the Respondent: Mr. A.P. Srinivas Senior Standing Counsel for Income-Tax
The term 'inputs' under Rule 2(k) of the Cenvat Credit Rules, 2004 is interpreted to include goods used in or in relation to the manufacture of the final product, whether directly or indirectly, as per judicial pronouncements.
Headnote:
Cenvat Credit - Sugar Manufacturing - Rule 2(k) of Cenvat Credit Rules, 2004 - 2003 (159) ELT 553 (Tri-LB), 1999 (108) E.L.T.47 (Tribunal), 2001 (132) E.L.T. 3 (S.C.), 2008 (226) E.L.T. 342 (Mad.), 2008 (222) E.L.T. 233 (Tri. - Kolkata), 2009 (238) E.L.T. 411 (Mad.), 2002 (139) E.L.T. A93, 2009 (240) E.L.T. 641 (S.C.), 2008 (229) E.L.T. A127 (S.C.), 2008 (228) E.L.T. 517 (Raj.), 1996 (86) E.L.T. 613 (Tri), 2001 (136) E.L.T. 182 (Tribunal-Chennai), 2014 (309) E.L.T. 71 (Mad.)
Fact of the Case:
The appellant, a sugar mill, availed Cenvat credit on welding rods/electrodes and asbestos sheets used in the factory. The authorities disallowed the credit, alleging that the welding rods/electrodes were only for repair and maintenance purposes and not covered by the definition of 'inputs' under Rule 2(k) of Cenvat Credit Rules, 2004.
Finding of the Court:
The court found that welding electrodes used for repair and maintenance of machineries, in relation to the manufacture of the final product, namely sugar, is eligible for Cenvat credit.
Issues: Whether the welding rods/electrodes used by the appellant qualify as 'inputs' under Rule 2(k) of the Cenvat Credit Rules, 2004.
Ratio Decidendi: The term 'inputs' is wide enough to cover all goods used in or in relation to the manufacture of the final product, whether directly or indirectly, as per judicial pronouncements.
Final Decision: The Civil Miscellaneous Appeal is allowed, and the impugned order of the Customs, Excise and Service Tax Appellate Tribunal is set aside.
S. MANIKUMAR, J.
Civil Miscellaneous Appeal is directed against the Final Order No. 939/09 dated 07.08.2009 passed by Customs, Excise and Service Tax Tribunal, Chennai - 600 006, confirming the order of both original and Appellate Authorities, disallowing Cenvat credit on welding electrodes used by the appellant in their factory.
2. Short facts leading to the appeal are that M/s. National Co-operative Sugar Mills Ltd, is engaged in manufacture of sugar, falling under Chapter Heading No. 1701 of the Central Excise Tariff Act, 1985. Based on the information gathered by the Divisional Preventive Unit that M/s. National Co-operative Sugar Mills Limited are availing Cenvat credit wrongly, on welding rods/electrodes and asbestos sheets, the officers attached to the Divisional Preventive Unit, Dindigul Division II, visited the factory on 05.01.2007 and conducted verification. Finding that the appellant has availed Cenvat credit on welding rods/electrodes and asbestos sheets, a show-cause notice dated 02.02.2007 was issued by the Adjudicating Authority, proposing to disallow Cenvat credit on welding rods/electrodes used by the appellant. The Adjudicating Authority also proposed to disallow Cenvat credit, on asbestos sheets, used by the appellant for roofing purposes. In the Adjudicatory Notice, the authority has stated that the welding rods/electrodes used by the appellant were only for repair and maintenance purposes and hence not covered by the definition of 'inputs', as contemplated by Rule 2(k) of Cenvat Credit Rules, 2004. Adjudicating Authority placed reliance on a judgment of the Larger Bench of Delhi High Court in the case of Jaypee Rewa Plant vs. CCE reported in 2003 (159) ELT 553 (Tri-LB).
3. The appellant submitted a reply to the show-cause notice on 26.02.2007. Rejecting the reply, the adjudicating Authority, passed an order dated 31.08.2007, disallowing Cenvat credit on welding rods/electrodes and asbestos sheets. The adjudicating Authority also imposed interest under Rule 14 of Cenvat Credit Rules, 2004 r/w Section 11A of Central Excise Act, 1944. Penalty also been imposed under Rule 15 of Cenvat Credit Rules, 2004, alleging contravention of Rule 3 of the said Rules.
4. Being aggrieved by the Order in Original dated 31.08.2007, the appellant herein has filed an appeal before the Commissioner of Central Excise (Appeals), Maduari, who, by an order dated 26.02.2009, has modified the order in original dated 31.08.2007 of the adjudicating authority. The appellate Authority, has also disallowed credit on welding rods/electrodes and allowed credit on asbestos sheets.
5. Aggrieved by the same, a further appeal was filed under Section 35B of the Central Excise Act, 1944 before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, which dismissed the appeal. Thus the present appeal is filed under Section 35G of the Central Excise Act, 1944 on the following substantial question of law.
"Whether the Hon'ble Customs, Excise and Service Tax Appellate Tribunal committed an error or law in disallowing the Cenvat Credit on welding rods/electrodes used by the Appellants when, in fact, the same were used in and or in relation to manufacture of the final product as required by Rule 2(k) of the Cenvat Credit Rules, 2004?"
6. Heard both parties.
7. Appellant is a Co-operative sugar mill. On the aspect of usage of welding rods/ electrodes in the sugar mill, Mr. N. Prasad, learned counsel for the appellant, submitted that major sections of sugar factory consists of: (i) Crushing, (ii) Syrup stage, (iii) Pan, (iv) Centrifugal and (v) Bagging. According to him, welding rods are used at every stage. For instance, juice which emerges at the crushing stage is moved via M.S. pipes to syrup stage. Here, the acidic levels are high. Continuous passage of juice through pipes results in corrosion of pipes and eventually cracking of pipes. If the situation is allowed to continue, holes would develop affecting production, as the juic
