2026-VIL-1039-CESTAT-HYD-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Cenvat Credit on Capital Goods - Machinery, equipment and components used in erection of Air Separation Plant – Disallowance of credit on grounds that the parts lost their identity in the integrated plant, goods were procured by supplier, the plant became attached to earth and ceased to be goods - Whether duty-paid goods received in appellant's factory and used for erection of an Air Separation Plant qualify as capital goods under Rule 2(a) of the CENVAT Credit Rules, 2004 - HELD - The CENVAT Credit Rules, 2004 define capital goods to include all goods falling under Chapters 82, 84, 85, 90 and components, spares and accessories thereof. The undisputed position is that the machinery and equipment fall under Chapter 84 and related chapters, were duty-paid, and were received in appellant's factory under valid invoices - Merely because various machinery, equipment, appliances and parts are assembled at the site to set up an integrated plant does not disentitle the appellant from claiming credit. The manufacturing plant facility in a factory comprises a number of capital goods which must be assembled together to function in unison to perform the required processes. In no manufacturing plant can all machineries be used independently; they have to function in conjunction with each other and for this purpose are assembled into a plant. Merely because all individual equipment, machinery or components are assembled together, it is preposterous to suggest that capital goods credit cannot be allowed on individual machinery, equipment or appliances - So long as individual machinery, equipment or appliance or parts and components thereof fall within the definition of capital goods under Rule 2(a) of the CENVAT Credit Rules and so long as they are used within the factory of production for manufacture of excisable goods which are chargeable to duty, the benefit of capital goods credit cannot be denied - The appellant is rightfully entitled to capital goods credit on various machinery, equipment, appliances and parts and components thereof used in setting up the manufacturing plant within the factory premises - The order denying capital goods credit is unsustainable in law and is set aside. The appeal is allowed - Ownership of Goods - Not a Criterion for CENVAT Credit - Revenue authority denied capital goods credit on the ground that the machinery and components were procured and owned by the supplier and not by the appellant, and that invoices were issued in the supplier's name - Whether ownership of goods remaining with the supplier disentitles the appellant from availing CENVAT Credit on capital goods received and used in its factory – HELD – The ownership of goods is not a criterion for availment of CENVAT Credit on capital goods. The CENVAT Credit Rules emphasize receipt and use of goods in the factory and nowhere prescribe ownership as a pre-condition for claiming credit. Even though the goods were initially procured and owned by the supplier, they were received in the appellant's factory under valid invoices naming the appellant as consignee and were used for setting up a manufacturing plant within the factory for production of excisable goods. The benefit of capital goods credit cannot be denied solely because ownership remained with the supplier – The denial of credit solely on the basis of ownership is legally not sustainable - The finding that ownership of goods remaining with the supplier disentitles the appellant from availing credit is set aside - Rule 4(3) of CENVAT Credit Rules - Leasing Arrangements with non-financing entities - Appellant had availed capital goods credit on machinery supplied under a leasing arrangement with a supplier which is not a financing company. Revenue authority contended that Rule 4(3) restricts credit only when goods are leased from a financing company, and since the supplier is not a financing company, credit is not admissible - Whether Rule 4(3) of the CENVAT Credit Rules restricts credit only to goods leased from financing companies or whether it extends credit even in leasing arrangements with non-financing entities - HELD - Rule 4(3) of the CENVAT Credit Rules provides that credit shall be allowed even if capital goods are acquired on lease, hire purchase or loan agreement from a Financing Company. The language "even if" is enlarging in nature and does not imply that the lessor must necessarily be a Financing Company. The Rule is enabling and enlarging in scope, not restrictive. It extends the benefit of credit and does not restrict it to financing companies alone. The Rule clarifies that credit shall be allowed even if capital goods are procured through various financial arrangements including leasing from any entity, not exclusively from financing companies. Therefore, the finding that credit is not admissible because the lessor is not a financing company is contrary to settled law. The structure of Rule 4(3) demonstrates that it was intended to expand the scope of eligibility to include various financial arrangements, ensuring that the benefit of CENVAT Credit remains available to the actual user of machinery regardless of the nature of the supplier - The finding that credit is inadmissible because the supplier is not a financing company is set aside - Immovability of Integrated Plant - The Air Separation Plant, after assembly of various machinery and components, became attached to earth through nuts and bolts and thus became immovable property. Revenue authority denied credit on the ground that the plant became attached to earth, ceased to be goods, and therefore credit on component goods was inadmissible - Whether the fact that individual machinery and components become assembled into a larger plant that becomes attached to earth affects the admissibility of capital goods credit on the individual duty-paid items - HELD - The law is well settled that even if individual machinery and components are assembled into a larger plant that becomes attached to earth, credit on the duty-paid capital goods remains admissible. Immovability of the integrated plant does not affect entitlement to credit on individual capital goods. The purpose of fastening machinery to earth by nuts and bolts is only to ensure operational stability, functionality, and vibration-free operation. Such fastening is universally recognized as temporary and functional attachment, insufficient to classify the plant as immovable property for the purpose of denying capital goods credit. The attachment does not destroy the identity of the constituent machines or components. Hence, the conclusion that the Air Separation Plant is immovable and therefore, credit is inadmissible is wholly mis-conceived - Extended Period Invocation - Whether the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act is invocable – HELD - The extended period under the proviso to Section 11A(1) is invocable only when there is suppression, misstatement or intent to evade duty. In the present case, all relevant facts were within the knowledge of the department, the credit was availed under valid invoices and disclosed in statutory returns, and the dispute is purely interpretational in nature involving substantial judicial debate on a pure question of law. There is no suppression, misstatement or intention to evade duty on the part of the appellant. The department was put to notice about the components of cenvat credit being availed and the lease arrangement was disclosed to the department well before the notice was issued. On this ground alone, the demands are not sustainable and the extended period cannot be invoked.
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