Characteristics Of "Consumables" Does Not Attach "Welding Electrodes", MODVAT Credit Can't Be Recovered: CESTAT

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that characteristics of "consumables" do not attach to "welding electrodes", and, therefore, the recovery of the Modified Value Added Tax (MODVAT) credit was incorrect.

The bench of C.J. Mathew has observed that MODVAT credit is available on the procurement of goods that are 'inputs' with 'capital goods' being entitled to the extent of conformity with the explanation of that expression in rule 57Q of the Central Excise Rules, 1944.

The tribunal stated that there is no mention of 'consumables' in the Explanation Rule 57Q of the Central Excise Rules, 1944, but neither is it certain that 'consumables' has little to do with the manufacturing process for denying eligibility for MODVAT credit. It is not anybody's case that "consumables" cease to exist over a period of usage; it is merely that replenishment is required owing to the nature of the product.

The appellant availed of MODVAT credit, under rule 57Q of the erstwhile Central Excise Rules, 1944, of duty charged on the procurement of "welding electrode" by them.

The appellant has contested the credit recovery proceedings on the grounds that the definition therein left "consumables," which the goods were determined to be, out of the list of items covered.

The original authority, after having examined the process of manufacture in detail, has found that the "welding electrodes" are not "capital goods."

The appellant contended that welding is necessary to keep the equipment in working condition and that the sole alternative would have been to purchase new machinery.

The issue raised was whether "welding electrodes" are "consumables" as held by the original authority or are used in the manufacture of excisable goods and, therefore, eligible for MODVAT credit as claimed by the assessee.

The CESTAT held that the common understanding of "consumables" is that of depletion without transfer to the goods deployed for manufacture, but there are a few, such as "welding electrodes" which, upon such consumption, enhance the capital goods which are, undoubtedly, eligible for credit. The absence of "welding electrodes" for deployment on "liners," which are "capital goods," impedes production and, therefore, its use is essential for production.

Case Title: Manikgarh Cement Versus Commissioner of Central Excise

Citation: Excise Appeal No. 86755 Of 2019

Date: 21/10/2022

Counsel For Appellant: Advocate Shamita J Patel

Counsel For Respondent: Sanjay Hasija

Click Here To Read Order