M/s ITC Ltd. v. Pr. Commissioner of Central Tax, Rangareddy-GST
CESTAT, Hyderabad Regional Bench | Excise Appeal No. 27150 of 2013 | Final Order No. A/30321/2026 | Decided 12.06.2026 | Coram: A.K. Jyotishi (TM) & Angad Prasad (JM)
Facts and Issues
Background: The appellant, M/s ITC Ltd. (Paperboards & Specialty Papers Division, Sarapaka, Telangana), is a manufacturer of paper and paperboards under the Central Excise Tariff Act, 1985. Oxygen and other industrial gases are required inputs in the pulp and paper manufacturing process. Accordingly, ITC entered into an agreement dated 27.09.2006 with M/s Inox Air Products Ltd., under which Inox supplied machinery, components, parts and accessories under cover of Central Excise invoices specifically naming ITC as consignee. ITC availed CENVAT Credit of Rs. 1,89,28,243/- on duty paid on these capital goods and inputs during October 2007 to April 2009 and disclosed the same in its statutory returns.
Issues: (i) whether duty-paid goods used in setting up the Air Separation Plant qualify as “capital goods” under Rule 2(a) of the CENVAT Credit Rules, 2004; (ii) whether alternatively they qualify as “inputs” under Rule 2(k); (iii) whether ownership by Inox disentitles ITC from credit; (iv) whether attachment of the plant to earth bars credit; (v) whether Rule 4(3) restricts credit to goods leased from financing companies; (vi) whether the impugned order travels beyond the Show Cause Notice; and (vii) whether the amendment to Rule 2(k) w.e.f. 07.07.2009 applies retrospectively to the period in dispute (October 2007 – April 2009).
Tribunal’s Reasoning and Decision (paras 20–33): On capital goods eligibility, the Tribunal followed JSW Ispat Steel Ltd. in extenso, holding that Rule 2(a) covers all duty-paid machinery/equipment falling under Chapters 82, 84, 85 and 90 and their components, spares and accessories. The mere fact that individual machines are assembled into a larger plant even one that is immovable does not destroy the identity of the constituent capital goods or bar credit on them; to hold otherwise would produce an absurd result inconsistent with the legislative purpose of relieving cascading taxation.
On ownership, the Tribunal held that the CENVAT Credit Rules prescribe only receipt and use in the factory and nowhere require that the assessee own the goods, following Pepsi Foods Ltd. (Punjab and Haryana HC) and affirming JSW Ispat. The Tribunal further noted that CBIC itself accepted the JSW Ispat decision as correct, and, citing the Bombay High Court in M/s Modernova Plastyles, observed that the Revenue’s continued agitation of an issue it had accepted as correct elsewhere violates the rule of law and equal applicability of law.
On Rule 4(3), the Tribunal held that the phrase “even if” makes the sub-rule enlarging, not restrictive: credit is available even when goods are procured from a financing company, but the rule does not confine credit to such cases following LeaMak Healthcare and Kalyani Seamless Tubes.
On immovability, the Tribunal held that attachment by nuts and bolts for operational stability does not make the plant immovable so as to bar credit on the individual capital goods, following KCP Ltd. and Indian Oil Corporation Ltd.
On the show cause notice ground, the Tribunal held that the Adjudicating Authority had confirmed the demand substantially on the new ground that Inox’s ownership disentitled ITC a ground not raised in the SCN thus travelling beyond the SCN and violating natural justice.
On the amendment to Rule 2(k), the Tribunal held that the 07.07.2009 amendment is prospective and cannot apply to the disputed period (October 2007 – April 2009), which is entirely anterior.
On limitation, the Tribunal held that credit was disclosed in statutory returns, the lease agreement was provided to the Department before the SCN, and the dispute is purely interpretational with no suppression or intent to evade, rendering the extended period unavailable. Since credit was admissible on merits and the demand was time-barred, interest and penalty did not survive.
Holding: The appeal was allowed and the Order-in-Original set aside in its entirety, with consequential relief. The Tribunal held: (i) duty-paid goods used in the Air Separation Plant are eligible for CENVAT Credit as capital goods and/or inputs; (ii) Inox’s ownership is irrelevant; (iii) Rule 4(3) does not restrict credit to financing-company lessors; (iv) operational immovability of the integrated plant does not disentitle the appellant from credit on the constituent capital goods; (v) the impugned order travels beyond the SCN; (vi) the Rule 2(k) amendment w.e.f. 07.07.2009 is prospective; and (vii) the entire demand is barred by limitation.