In a recent ruling, the Allahabad High Court held that Welding Electrodes are ‘Capital Goods’ under the classification given under the Central Excise Tariff Act.
However, the bench, relying upon the decision in M/s Upper Ganges Sugar & Industries Ltd. v. Commissioner Customs & Central Excise, held that the assessee is not eligible for CENVAT credit.
The bench was hearing an appeal filed by the Revenue against the order of the CESTAT allowing the assessees’ claim that ‘Welding Electrode’ is specified under Head 8311.00 of Central Excise Tariff and used in repair and maintenance of ‘Machines’, therefore, would fall within the category of ‘Capital Goods’.Accordingly, it was held that assessee is eligible for CENVAT Credit.
Before the Court, the appellants contended that ‘Welding Electrodes’ would not fall in the category of ‘Capital Goods’ under the provisions of Rule 57Q of Central Excise Rules.
The bench noticed the decision of the Karnataka High Court in Commissioner of Central Excise and Service Tax, LTU. v. ABB Ltd wherein a similar issue was decided in favour of the assessee. Accordingly,the bench confirmed that the good specified falls within the definition of “capital goods.”
With regard to the assessees’ eligibility for CENVAT credit, it was noted that the definition of ‘capital goods’ under Rule 2(b) of Rules, 2002 and Rule 2(a) of Rules, 2004 is exhaustive in the sense that it clearly specifies what ‘capital goods’ would mean.
The items which fall under certain chapters of Central Excise Tariff Act are specifically mentioned in Rule 2(b)(i) of Rules, 2002 and Rule 2(a)(A)(i) of Rules, 2004. Then comes pollution control equipment’, moulds and dies, jigs and fixtures, refractories and refractory material, tubes and pipes and fittings thereof and storage tank. All these things, if used in the factory of manufacturer of final products, or, for providing output service, would mean ‘capital goods’. However, it would not include any equipment or appliance used in office.”
“There is one more aspect, i.e., Rule 2(b)(iii) of Rules, 2002 and Rule 2(a)(A)(iii) of Rules, 2004, which say that in respect to items mentioned in Rule 2(b)(i) and (ii) of Rules, 2002 and Rule 2(a)(A)(i) and (ii) of Rules, 2004, components, spares and accessories of the goods specified thereunder would also fall within the category of ‘capital goods’. Having failed to point out application of any other provision under Rule 2 (b) of Rules, 2002 and Rule 2(a) of Rules, 2004, the stress on the part of Assessee was on the term ‘components’ under Rule 2 (b)(iii) of Rules, 2002 and 2(a)(A)(iii) of Rules,2004 and it was contended that ‘Welding Electrodes’, being used for maintenance and repair of machineries and factories, would fall in the category of “components”, hence would be entitled for CENVAT Credit being ‘capital goods’. We find that ‘capital goods’ as defined under Rule 2(b) of Rules, 2002 and 2(a) of Rules 2004, in substance, are pari-materia with the’capital goods’ specified in Rule 57Q of Rules, 1944 and there is no substantial difference therein”, the division bench comprising of Justice Sudhir Agarwal and Justice Ravindra Nath Mishra observed.
Further, the bench noted the decision in Central Excise Appeal No. 135 of 2005 (M/s Upper Ganges Sugar & Industries Ltd. v. Commissioner Customs & Central Excise) wherein the Court decided against the assessee.
Read the full text of the order below.
