Gujarat High Court Allows CENVAT Credit On Welding Electrodes, Welding Wire, Etc. Used For Laying Rail Lines Outside Factory

The Gujarat High Court has allowed the cenvat credit on welding electrodes, welding wire, etc. used for laying rail lines outside factories.

The bench of Justice Bhargav D. Karia and Justice Niral R. Mehta, while dismissing the appeal of the GST department, observed that CESTAT has correctly allowed the Cenvat credit on inputs, i.e., welding electrodes, wire FLR, filler wires, welding wires, wire rope, material used for railway lines, and capital goods, i.e., M.S. gratings and G.I. coated gratings.

The department raised the issue of whether the respondent assessee is entitled to Cenvat credit on inputs, i.e., welding electrodes, wire FLR, filler wires, welding wires, wire rope, material used for railway lines, and capital goods, i.e., M.S. coatings or G.I. coatings, or not.

The Commissioner of CENVAT by order denied the CENVAT credit on the inputs on the ground that the use of such goods for repair and maintenance of plant and machinery by the respondent assessee cannot be considered to have been used “in or in relation to the manufacture of final products," as they are not used co-extensively in the process of manufacturing the petroleum products by the respondent assessee.

It was therefore held that the respondent-assessee cannot avail of the Cenvat credit as inputs are not integrally connected with the manufacture of the petroleum products.

The adjudicating authority, with regard to the Cenvat credit availed by the assessee on M.S. gratings and G.I. coated gratings, held that such credit cannot be availed by the assessee. The input cannot be classified as component spares or accessories for plants and machinery used in the manufacture of the final products. The Cenvat credit on goods was also denied on the ground that the same was used in the laying of rail lines, and such rail lines were situated outside the factory premises.

The respondent assessee preferred the appeal before the CESTAT. The CESTAT allowed the appeal.

The department contended that the adjudicating authority analyzed the definition of input as provided in Rule 2(k) of the CENVAT Credit Rules 2004 up to March 31, 2011 and Rule 2(k) of the CENVAT Credit Rules, which were amended with effect from April 1, 2011 via Notification No. 3 of 2011. The adjudicating authority held that the respondent-assessee has not utilized the inputs of the goods for the purpose of manufacturing the final product. The adjudicating authority has categorically held on the facts that there is no evidence on record to show that any part of such inputs was used in the manufacture of any capital goods for captive consumption.

The adjudicating authority has applied the “user test,” and in the facts of the case, it was held that such Ms. Gradings cannot be considered part of the capital goods installed in the factory premises of the respondent, and therefore the same would not fall within the ambit of the capital goods as contemplated in Rule 2(a)(A) of the Cenvat Credit Rules, 2004.

The assessee contended that in view of the settled legal position, the interpretation of the expression “used in or in relation to manufacture” was interpreted as to the item used for maintenance of the plant, and machinery was also held to be the item used in the manufacture of the finished goods. The Tribunal has not committed any error in arriving at the findings that the respondent is entitled to the Cenvat credit on items like welding electrodes and welding filler wires as capital goods as per Rule 2(k) of the CENVAT Credit Rules, 2004.

The court held that the M.S. gratings were used as an accessory for supporting and holding for approaching how to plant and process units of refineries, and platforms for approaching or reaching out the plant are part and parcel of the entire plant and machinery, particularly in large-scale manufacturing units, without which the operation of the plant is not possible.

The court held the Tribunal has not committed any error in following a Coordinate Bench's decision in the case of the respondent assessee itself.

Counsel For Appellant: Hetvi H Sancheti

Counsel For Respondent: Dimple K. Gohil

Case Title: The Principal Commissioner Central Gst And Central Excise Versus M/S Nayara Energy Ltd.

LL Citation: 2024 LiveLaw (Guj) 52

Case No.: R/Tax Appeal No. 158 Of 2024

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