M/S Winsome Yarns LTD. (Unit-Iii), Village Kuranwala, Barwala Road, Dera Bassi. vs. Commissioner Of Central Excise, Central Excise Commissionerate, Chandigarh-Ii

Held

The High Court held that the Tribunal was not justified in rejecting the appellant's claim for Cenvat credit on GP coils, GP sheets, and aluminum sections. The Court reasoned that these items, used to construct ducts for the air humidifier machine, qualified as accessories or components of capital goods under Rule 2(a)(A)(iii) of the Cenvat Credit Rules, 2004. The Court further held that these items also qualified as 'inputs' under Rule 2(k) of the Rules, 2004, as they were used in the manufacture of capital goods (the humidifier machine) which were further used in the factory. The Court found the revenue's argument regarding the amendment to Explanation 2 of Rule 2(k) being retrospective inapplicable, as the period in question (August 2006 to April 2007) predated the amendment of July 7, 2009. The ratio decidendi is that materials used to construct essential components like air ducts for machinery integral to the manufacturing process qualify for Cenvat credit as either capital goods (accessories/components) or inputs. Consequently, the appeal was allowed, the Tribunal's order was set aside, and the revenue was not entitled to claim interest or impose penalties.

Facts

M/s Winsome Yarns Ltd. (Unit-III) availed Cenvat credit on capital goods and input services used in manufacturing cotton yarn. During the period August 2006 to April 2007, they claimed Cenvat credit on GP coils, GP sheets, and aluminum sections used to construct ducts for an air humidification machine. An audit in 2009 revealed this credit was allegedly in contravention of Cenvat Credit Rules, 2004. A show cause notice was issued, leading to an order confirming a demand of Rs. 15,16,552/- with penalty and interest. The First Appellate Authority partially allowed the appeal, disallowing Rs. 7,67,824/- and upholding the rest. The appellant then appealed to the Tribunal, restricting their claim to Rs. 5,93,453/- related to the air ducts. The Tribunal dismissed the appeal, leading to the present High Court appeal.

Key Issues

1. Whether the Tribunal was justified in law in rejecting the appellant's claim for Cenvat credit on GP coils, GP sheets, and aluminum sections used for air ducts, by treating them as not being "capital goods" under Rule 2(a) of the Cenvat Credit Rules, 2004? Appellant's arguments: The appellant contended that the GP sheets, GP coils, and aluminum sections used in making air ducts for the humidification machinery fell under the definition of capital goods, specifically as accessories under Rule 2(a)(A)(iii) read with Rule 2(a)(A)(i) of the Rules, 2004. They argued that these items were also inputs under Rule 2(k) of the Rules, 2004. They relied on several High Court judgments, including Thiru Arooran Sugars v. CESTAT, Chennai, and M/s Vandana Global Limited v. Commissioner. Revenue's arguments: The revenue argued that the impugned order was well-reasoned and that the GP sheets and aluminum sections were not used in or in relation to the manufacture of final products or capital goods. They contended that these items were neither inputs nor covered under Rule 2(k) Explanation 2 of the Rules, 2004, citing CCE, Chandigarh v. Modern Steels Ltd. to support the exclusion of components and accessories from capital goods.