Firms can claim Cenvat credit on industrial washing machines

We are manufacturers and exporters of bulk drugs. In our factory we have purchased an industrial washing machine which is used to wash the uniform of our factory workers. Our factory is adhering to all rules and regulations prescribed by the Drugs & Cosmetics Acts, 1945? Will CENVAT credit on washing machines used in factory applicable to us?
- Jaywant Patole
Rule 2(a) of Cenvat Credit Rules defines Capital Goods as follows —
(A) “Capital goods” means the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Excise Tariff Act;
(ii) Pollution control equipment;
(iii) Components, spares and accessories of the goods specified at (i) and (ii);
(iv) Moulds and dies, jigs and fixtures;
(v) Refractories and refractory materials;
(vi)  Tubes and pipes and fittings thereof; and
(vii) Storage tank,
used —
(1) In the factory of the manufacturer of final products, but does not include any equipment or appliance used in an office; or
(2) For providing output service;
(B) Motor vehicles registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act 1994.
(C ) dumpers or tippers, falling under chapter 87 of the first schedule to the central excise tariff act, 1985 (5 of 1986), registered in the name of provider of output service for providing taxable services as specified in sub clause (zzza) and (zzzy) of clause 105 of section 65 of the said finance act. Industrial washing machines fall under chapter 84 of the Central Excise Tariff Act (CETA) and hence you shall be able to claim Cenvat credit of the same as capital goods.

For example, in the case of  commissioner  of C. Ex.& ST , LTU , Bangalore versus Micro Labs Ltd, 2010 ( 18 )  STR 771 ( Tri- Bang), the respondent utilised CENVAT  credit on industrial washing machines falling under the chapter 84  of CETA  & used  for washing  uniforms  of  employees.

The department denied the credit on the machines contending that the same are not used in the manufacture of final products. The matter was decided in favour of the responded by the deputy commissioner, LTU as well as the commissioner (appeals).

The department relied upon India Cements Ltd  versus CCE , Trichy  2006 ELT 170  ( Tri – Chennai )  where  it was held  that any capital goods,  which do not take part in the process  of manufacture are not eligible for Cenvat credit. According to the assessee, industrial  washing  machines fall within the definition  of ‘capital goods’  as defined in rule  2 ( a ) of the Cenvat credit rules, 2004. Further, the commissioner (appeals) found that requirement of clean cloth is mandatory as per Rule 5.4 of the Drugs & Cosmetics Acts, 1945.

The assessee also relied upon case of Toyota Kirloskar Motor versus CCE, Bangalore –III , 2002(148)  ELT  402 ( Tri-Bangalore) wherein the tribunal  held that industrial washing machines fall under Rule  2 (a) and as they are used  in factory of manufacture, Cenvat credit is admissible.

The writer is with M Sheth & Co, a chartered accountancy firm in Mumbai and can be reached at mshethco@yahoo.co.in