The primary aim of the Cenvat credit is to avoid the cascading effect and ensure no break in the Cenvat chain. With this objective, whole analysis of categorizing the goods into inputs, Capital goods is done to fit an item into either of the categories in order to avail the Cenvat credit. Some of the items may not be literally used in the manufacture of the product but, qualifies the actual essence of the meaning of Cenvat Credit Rules per se; one of such category items are Safety shoes, Gloves and Helmets used in the factory.
Analysis of the input definition of the Cenvat credit Rules prior to 2011 and after 2011:
The clause (i) of the rule 2(k) of the Cenvat Credit rules, 2004 defines inputs means all the goods except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained or not in the final products or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel. or for generation of electricity or steam used in or in relation to the manufacture of the final products or for any other purpose, within the factory of production
The clause (i) of the rule 2(k) of the Cenvat Credit rules, 2004 defines the Input means ‘all the goods used in the factory by the manufacturer of the final product’
The input definition prior to 2011 with the phrases like all the goods, used in or in relation to the manufacture, directly or indirectly, contained or not in the final products or not makes the input definition exhaustive to cover all the aforesaid category of items.
With regards to the new definition, the phrase all the goods used in the factory which may accommodate the aforesaid category of items in this clause as these are used in the factory for indispensable necessity to perform their job. However there are school of thoughts which also hinders to avail Cenvat credit on the Safety shoes, Gloves and Helmets used in the factory:
1. The categorizing of the items under the personal employee benefit which is in exclusions part of the Inputs definition of the Cenvat Credit Rules, 2004 and
2. No literal coverage of these items in the inputs category.
Case Law Analysis
1. This issue was discussed in before Delhi Tribunal 2014 in the case M/s Steel Authority of India ltd. Vs CCE &, Raipur (2014 (1) ECS (140) (Tri – Del), wherein, it was held that the usage of safety shoes in the assessee’s factory where it is an indispensable necessity to work on the hot plates and ensuring health of workers is mandate as per section 7A(2) (c) of the Factories Act, 1948 the health of the workers is mandate and hence the revenue’s contention to disallow the credit was not appreciated.
2. In the case of CCE, Chandigarh Vs Joyco india pvt. ltd. wherein it was observed that the gloves have no role to play in or in relation to the manufacture of the chewing gums, and gums can be manufactured in a factory and high standard can be maintained without the use of the gloves also and hence it was held that that hand gloves cannot be treated as integral part of process of manufacture of the final product by the respondents and confirmed the demand.
The ideal way is to fulfill the main essence of the meaning of the Cenvat Credit not mere meaning of inputs, Capital goods. Further the Cenvat credit on these items may be questioned if these are not qualifying the indispensable necessity but for mere use. Further eligibility of the Cenvat Credit on these items without any hindrances from the government would encourage the safety measures of the employees.