By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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CENVAT credit on raw material cannot be denied to manufacturer of final product, even if such raw material is used in another factory belonging to another assessee, provided, the CENVAT able input is used for common share under alliance agreement between such manufacturer and assessee and is for a continuous process of manufacturing dutiable goods.
Facts:
The assessee and two other companies entered into a “strategic alliance agreement” for the production of steel through integrated steel plant (ISP). ISP was producing the envisaged product. A supplier having its plant next to ISP, supplied oxygen and nitrogen in pipelines which was used as a raw material in ISP. The assessee used the said items as raw material and availed full CENVAT credit based on duty paid invoices although a part thereof was used by one of the alliance parties to manufacture certain items. The revenue alleged that since a portion of gases was being diverted to alliance Partner who was using the same to manufacture the products in its company, assessee would lose the benefit of CENVAT credit to that extent.
Held:
The High Court observed that by the Strategic Alliance Agreement, the corporate entities had entered into a joint venture agreement to manufacture steel products. It was also observed from the records that whatever was manufactured by the other alliance partner in the ratio agreed to between the parties was finally made over to the assessee for manufacture of final product. Thus, though there are three separate units with separate registrations, the entire raw material is being converted into final dutiable product in continuous; inter connected and integrated process conforming to the definition of a single factory u/s. 2(f) of the Central Excise Act. Relying upon the decision of High Court in the case of Vikram Cements vs. CCE [2006] 3 STT 230, the Court reiterated that a manufacturing unit can have one or more units to manufacture intermediary raw materials to manufacture a final product and dismissing revenue’s appeal held that CENVAT cannot be denied on the ground that credit is being availed by one factory and material inputs are used by three factories, because the CENVAT able input is being used for common share and continuous purpose of manufacturing dutiable goods.
