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CX -Box HS Wagons are capital goods and entitled for CENVAT -merely because assessee reversed credit and paid interest thereon will not deprive them from substantive right of availing credit: CESTAT

2019-TIOL-2312-CESTAT-KOL

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EAST REGIONAL BENCH, KOLKATA

Ex. Appeal No. 38/2009

Arising out of Order-in-Original No.09/Commr./Bol/08, Dated: 03.11.2008
Passed by Commissioner of Central Excise, Bolpur

Date of Hearing: 03.07.2018
Date of Decision: 19.09.2018

M/s JAI BALAJI INDUSTRIES LTD

Vs

COMMISSIONER OF CENTRAL EXCISE
BOLPUR

Appellant Rep by: Shri S Mahapatra, GM
Respondent Rep by: Shri H S Abedin, Asstt. Commr. AR

CORAM: P K Choudhary, Member (J)
Bijay Kumar, Member (T)

CX – The issue involved is regarding availment of credit on box HS wagon classifiable under Chapter Heading 86069290 treating them as capital goods – The capital goods has been defined under Rule 2(a)(A) of CCR, 2004, where certain goods have been specified by classification as well as by description and such goods are required to be used in factory of production of final product – From the perusal of definition of “capital goods”, it is evident that the box HS wagon is classifiable under Chapter Heading 860692.90 which is not excluded from the definition of “capital goods” – It is the contention of assessee that the said credit has been availed by them on capital goods i.e. box HS wagon, which has been procured and handed over to the railways authority for transport of their input as well as output – It is on record that the assessee is manufacturing goods, which are being transported by railways to their customers – On account of shortage of box HS wagon admittedly supplied, they have procured the box HS wagon, which are being used by assessee – Although, they have reversed the cenvat credit initially on these box HS wagon under the mistaken belief that the same are not covered within the purview of capital goods and accordingly, they have reversed the cenvat credit before issue of the impugned SCN and interest thereon after issuance of SCN – Not being satisfied with reversal, the Department has demanded the penalty under provisions of Section 11AC of CEA, 1944 r/w Rule 15 (1) of CCR, 2004 – The box HS wagon are being used for procurement of inputs as well as dispatch of output product from their factory – Going by the definition of capital goods, it can be seen that there is no bar on the use of product as capital goods, merely that the assessee has reversed cenvat credit and interest thereon will not deprive from the substantive right for availing cenvat credit within CCR, 2004 – Accordingly, the impugned order is set aside: CESTAT

Appeal allowed

Case law cited:

Rashtriya Ispat Nigam Limited Vs. CCE – 2002-TIOL-116-CESTAT-BANG…Para 4

FINAL ORDER NO. 76637/2018

Per: Bijay Kumar:

The present appeal is filed against Order-in-Original No. 09/Comr/BOI/08 dated 3.11.208 passed by Commissioner of Central Excise, Bolpur against the appellant. The issue involved in this case is regarding availment of Cenvat credit on capital goods viz. wagons for the period of May, 2006.

2. The appellant is engaged in the manufacture of sponge iron, ferro silico Manganese & pig iron falling under Chapter 72 of the First schedule in the Central Excise Tariff Act, 1985 in the district Burdwan. They have been availing the benefit of Cenvat credit. It is alleged that the appellant had wrongly availed the Cenvat credit of duty paid on 51 number of box HS wagon classified under Chapter Heading No. 86069290 of Central Excise Tariff Act,1985 and availed Cenvat credit under Cenvat Credit Rules, 2004, amounting to Rs.88,39,469/- along with education cess of Rs. 1,76,789/- during the aforesaid period. It appeared to the Revenue that the Cenvat credit is not available on the said wagon as capital goods as the same is not being used in relation to the manufacture of finished goods neither the factory of production under Rule 3 of Cenvat Credit Rules against which Rule 2(a)(A) of Cenvat Credit Rules. It is also apparent from the record that the assessee has availed the aforesaid Cenvat credit but subsequently the same was reversed back by them vide RG 23-C Part-II Entry No. 9 dated 2.5.2007 on having realised that they have incorrectly availed the Cenvat credit. The appellant has also paid this amount before the issue of impugned show cause notice and subsequent to that they have also paid the applicable interest to the tune of Rs.10,53,370/- and Rs.21,67,000/- on 6.6.2007 i.e. after issue of show cause notice. Not satisfied with the reversal, the Revenue issued impugned show cause notice demanding reversal of wrongly availed Cenvat credit along with imposition of penalty under Rule 15(2) of Cenvat Credit Rules read with Section 11AC of Central Excise Act. The case was adjudicating upon by the impugned order and accordingly a penalty of Rs.90,16,258/- was imposed on them under Rule 52 of the Cenvat Credit Rules, 2004 read along with Section 11AC of Central Excise Act.

3. Against this background, we heard ld. Advocate on behalf of the appellant and ld. DR on behalf of the Revenue.

4. Ld. Advocate on behalf of the appellant submits that they have availed Cenvat credit on the bonafide belief that the same is permissible in the Cenvat Credit Rules. However, under the mistaken notion, they have reversed the Cenvat Credit before issue of show-cause notice and paid applicable interest after the issue of show-cause notice. But these itself will not debar the appellant to contest the issue for the imposition of penalty and on merit as well. Following the ratio laid down in case of Hon’ble Tribunal’s decision in the case of Rashtriya Ispat Nigam Limited Vs. CCE – 2003 (161) ELT 285 (Tri.-Bang.) = 2002-TIOL-116-CESTAT-BANG, the Tribunal held that penalty is not imposable against under Section 11AC of the Central Excise Act as well as under Rule 173Q of the erstwhile Central Excise Rules, 1944 when the duty has been deposited before the issuance of the show cause notice. The Revenue appeal against the decision of the order before Hon’ble Supreme Court has been dismissed and, therefore, the same has become law of the land. Therefore the adjudicating authority has erred while imposing the penalty on them.

5. On the other hand, the ld. DR supported the order on the ground that penalty is imposable in this case as the appellant has availed the Cenvat credit on capital goods which are not defined as capital goods in Cenvat credit under Rule 2(a)(A).

6. We have considered the rival submissions and also perused the appeal record. The issue involved in this case is regarding availment of credit on box HS wagon classifiable under Chapter Heading 86069290 treating them as capital goods. The capital goods has been defined under Rule 2(a)(A) of Cenvat Credit Rules, 2004, where certain goods have been specified by classification as well as by the description and such goods are required to be used in the factory of production of the final product. For better appreciation of the issue involved, it is worthwhile to extract Rule 2(a)(A) of Cenvat Credit Rules, 2004, which is as under:

“Rule 2(a)(A) of CENVAT Credit Rules, 2004 defines the Capital Goods as the following goods, namely-

(i) ll goods falling under Chapter 82, Chapter, 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;

(ii) pollution control equipment.

(iii) components, spares and accessories of the goods specified at (i) & (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof; and

(vii) storage tank,

Used in the factory of the manufacture of final products.”

From the perusal of the definition of the “capital goods”, it is evident that the box HS wagon is classifiable under Chapter Heading 860692.90 which is not excluded from the definition of “capital goods”.

8. It is the contention of the appellant that the said credit has been availed by them on the capital goods i.e. box HS wagon, which has been procured and handed over to the railways authority for transport of their input as well as output. It is on record that the appellant is manufacturing goods, which are being transported by the railways to their customers. On account of shortage of box HS wagon admittedly supplied, they have procured the box HS wagon, which are being used by the appellant. Although, they have reversed the cenvat credit initially on these box HS wagon under the mistaken belief that the same are not covered within the purview of capital goods and accordingly, they have reversed the cenvat credit before issue of the impugned show-cause notice and interest thereon after issuance of show-cause notice. Not being satisfied with the reversal, the Department has been demanded the penalty under the provisions of Section 11AC of the Central Excise Act, 1944 read with Rule 15 (1) of Cenvat Credit Rules, 2004. We also find that the box HS wagon are being used for procurement of inputs as well as dispatch of output product from their factory. Going by the definition of the capital goods as extracted above, it can be seen that there is no bar on the use of the product as a capital goods, merely that the appellant has reversed the cenvat credit and interest thereon will not deprive from the substantive right for availing cenvat credit within Cenvat Credit Rules, 2004. This view has been upheld by catena of judgement passed by Higher Appellate Forum including this Tribunal in various cases. Accordingly, we set aside the impugned order and allow the appeal with consequential relief to the appellant, if any.

(Pronounced in the open Court on 19.09.2018)

(Paras are numbered as per the original text: Editor)

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