CENVAT Credit on structural items – Amendments round the corner

By Vijay Kumar

AS per Rule 2(a) of the CENVAT Credit Rules,

(A) the following goods, namely:-

all 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;

++ pollution control equipment;

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

++ moulds and dies, jigs and fixtures;

++ refractories and refractory materials;

++ tubes and pipes and fittings thereof; and

++ storage tank,

used-

in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or

for providing output service;

(B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act;

Explanation 2 to Rule 2(k), reads,

Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;

The Commissioner of Central Excise, Bhubaneswar has requested the Board to review the Rule and the explanation – because a number of new industries especially in the metal sector are availing Cenvat Credit under the category of 'capital goods' on structural items and even on cement. These units receive items like MS bars/plates/sheets/angles/channels/TMT/CTD bars/beams etc and take Cenvat Credit. These goods are used for fabrication of structures and towers and also in the foundation laid for installation of machineries etc. These industries have claimed that these material are used for manufacture of capital goods, which is further used for production of goods, therefore, it is eligible for Cenvat Credit as per Explanation 2 to Rule 2(k).

Therefore, it has been requested that suitable legal changes may be made in order to specifically disallow the credit on such materials which are not used directly in the manufacture of capital goods but for other purposes.

So now the Board wants information from the Chief Commissioners on similar cases in their jurisdiction.Board also wants Chief Commissioners to give their considered opinion on whether

CENVAT Credit should be allowed on these items or not.

any amendment is required to be carried out in the law

Incidentally this very issue was decided in assessee’s favour by the Mumbai Bench of CESTAT in Bhushan Steel & Strips vs. CCE [2007-TIOL-2306-CESTAT-MUM]. But the Delhi Bench differed with the views of the Mumbai Bench in Vandana Global Ltd vs. CCE, Raipur [2008-TIOL-2327-CESTAT-DEL] and the matter was referred to a Larger Bench. Recently, the Larger Bench rejected a preliminary objection raised by the Revenue that coordinate bench of CESTAT cannot refer issues to Larger Bench at stay stage and this was reported by TIOL in 2009-TIOL-882-CESTAT-DEL-LB.

If CBEC and the officers in its field formations understand the concept that CENVAT Credit is allowed to avoid the cascading effect of taxation, such issues would never be discussed. What is wrong in allowing credit on the structures? Why can’t the Board be a little benevolent and think of ways to help the assessees who work hard so that our bureaucrats can be paid a decent salary?

That apart, in any case, the issue is before the Larger Bench and CBEC can request the CDR to move an application for an early hearing of this matter by the LB. The other option before the Revenue is to press the Chief Commissioners to give their views quickly and consolidate them and put them before the LB through the CDR.

CBEC Letter in F. No. 267/30/2008 – CX.8 Dated 19th April, 2009