CENVAT credit on capital goods is admissible even if they are assembled into a larger stationary plant or are held under a lease arrangement, provided they are used within the factory for the manufacture of dutiable products, and restrictive amendments to the rules cannot be applied retrospectively.

[ORDER PER: ANGAD PRASAD]

The present appeal is directed against the Order-in-Original No. 07/2013-CE-HYD-III-ADJN (COMMNR) dated 31.03.2013, whereby, Learned Commissioner disallowed CENVAT Credit amounting to Rs. 1,89,28,243/- availed by the appellant on Capital goods and inputs used for setting up an Air Separation Plant, and also confirmed interest under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 and imposed equal penalty under Rule 15 of the CENVAT Credit Rules read with Section 11AC of the Act.

2. The fact, in brief, is that the appellant is engaged in the manufacture of paper and paper boards falling under the first schedule to the Central Excise Tariff Act, 1985. For manufacture of its final products, the appellant required oxygen and other industrial gases. Accordingly, it entered into an agreement dated 27.09.2006 with Inox Air Products Ltd., under such arrangement, Inox supplied various machinery, components, parts and accessories under the cover of Central Excise invoices specifically naming the appellant as the consignee. These goods were received in the appellant’s factory at sarapaka and used for erection and commissioning of an Air Separation Plant with the factory premises. The appellant availed CENVAT Credit of duty paid on such goods during the period October 2007 to April 2009 and reflected the same in its statutory returns.

3. The Show Cause Notice dated 06.11.2012 was issued, alleging that:

a) these parts and components lost their identity in the Air Separation Plant;

b) these parts do not belong to M/s ITC;

c) the said goods were procured by M/s Inox and the same were used in erection of a plant, which is attached to earth and ceased to be goods on erection and thus, the said Air Separation Plant cannot be treated as goods for availment of CENVAT Credit, and

d) M/s Inox have not discharged the duty liability on the said Air Separation Plant.

4. The Adjudicating Authority confirmed the entire demand with interest and penalty, giving rise to the present appeal.

5. Learned Counsel for the appellant submitted that the Air Separation Plant falls within the ambit of Capital goods under Rule 2(a) of the CENVAT Credit Rules and thus have correctly availed credit. The appellant has procured various items falling under chapter 82, 84, 85, 90 etc. which are ‘capital goods’ on which excise duty has been paid and the same have been installed in the Air Separation Plant. Certain items which falls under chapter 35, 38, 40, 69, 83, 87 are parts, components and accessories of the capital goods i.e., Air Separation Plant. The appellant is eligible to availing CENVAT Credit on these duty paid items as ‘capital goods’ under Rule 2(a)(A)(i) read with Rule 2(a)(A)(iii) of the CENVAT Credit Rules. Since the duty paid capital goods and inputs used in setting up the Air Separation Plant are used by the Appellant for manufacture of the final product i.e., paper products, the appellant is eligible to avail CENVAT Credit on such capital goods and inputs. There is no requirement that the entire air separation plant should be excisable to avail CENVAT Credit. The inputs used in the manufacture of Capital goods which are used in the factory is sufficient reason to give CENVAT Credit. Reliance has been placed on the decision of KCP Ltd., Vs CCE [2009 (237) E.L.T. 500 (Tri-Bang)].

6. It is further submitted that the Air Separation Plant is used