Custom, Excise & Service Tax Tribunal
Nayara Energy Ltd vs Rajkot on 4 December, 2023
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
Excise Appeal No. 10662 of 2022 - DB
(Arising out of OIO-RAJ-EXCUS-000-COM-001-2022-23 dated 02/06/2022 passed by
Commissioner of Central Excise, Customs and Service Tax-RAJKOT)
NAYARA ENERGY LTD ........Appellant
Refinery Division P O Box No 24 Head P O Khambhalia
Jamnagar, Jamnagar, Gujarat
VERSUS
C.C.E. & S.T.-RAJKOT ......Respondent
Central Excise Bhavan, Race Course Ring Road...Income Tax Office, Rajkot, Gujarat- 360001 APPEARANCE:
Shri Kartik Dedhia, Advocate for the Appellant Shri P k Rameshwaram, Additional Commissioner (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C.L.MAHAR Final Order No. 12700/2023 DATE OF HEARING: 17.08.2023 DATE OF DECISION: 04.12.2023 RAMESH NAIR The present appeal is filed by appellant against the Order-in-Original No. RAJ-EXCUS-000-COM-001-2022-23 dated. 02.06.2022 passed by the Commissioner of CGST & Central Excise, Rajkot .
1.1 This is the second round of litigation before the Tribunal. Earlier, the Tribunal vide its Final Order No. A/12273/2021 dated 06.07.2021 remanded the case back to the adjudicating authority for reconsideration and for passing de-novo order. In pursuance to the direction of the Tribunal, the adjudicating authority has passed the impugned order whereby the Cenvat credit on Pipes used for laying of Pipeline connecting the Single Buoy Mooring with Crude Oil tank was denied. Being aggrieved, the appellant have filed the present appeal.
1.2 The facts of the case are that Appellant are operating a petroleum refinery and manufacturing various petroleum products. They had taken cenvat credit on pipes used for transporting crude from the Single Buoy Mooring ('SBM') set up in the sea to land fall point of refinery outside the 2 E/10662/2022-DB factory premises, during the period from Nov. 2006 to Nov. 2008. As per revenue, since the pipes were used outside the factory premises it cannot be termed as received and used in the factory of manufacture of final products.
Thus the appellant had wrongly availed the cenvat credit on the pipes used outside the factory premises. Therefore show cause notice dated 04.11.2009 was issued to the appellant for recovery of wrongly availed Cenvat Credit alongwith interest and penalty. The show cause notice was adjudicated vide OIO dated, 29.03.2011 whereby cenvat demand was confirmed with interest and penalty. Aggrieved from the said order, appellant filed the appeal before Tribunal and vide final order dated 06.07.2021 matter was remanded. In de- novo adjudication cenvat demand was confirmed vide impugned order. Hence the present appeal.
2. With this background, we have heard Shri Kartik Dedhia Learned Counsel for the appellant. He submits that Appellant is a refinery which was set up towards the end of 2006. The crude oil, which is the raw material for the refining activity of the appellant, is imported in large Oil tankers, which have to berth mid-stream and cannot cull alongside the berth. For unloading crude oil from such large tankers, Appellant had to import what is known as Single Buoy Mooring (SBM), which had been installed at some distance from the shore. From SBM to the storage tanks of the refinery, a pipeline had been laid, covering a large distance through forest, underneath the sea and over ground. The SBM was located a quite a distance, of around 12Kms, from the tanks of the refinery, where the crude oil was first stored and then taken for the purpose of refining. The SBM was connected through pipeline upto the storage tanks of the refinery and after discharge of the crude from the ships through the SBM, the crude oil was transported through the pipeline upto the storage tanks of the refinery. While registering the refinery under Central Excise in 2006, the department granted registration to the refinery, for the area, excluded the SBM. Therefore, the department is disputing the availment of credit for the pipes used for laying the pipeline connecting the SBM with COT.
2.1 He further submits that issue in dispute fall in a narrow compass and is squarely covered by the following Judgments:
Reliance Industries Ltd. Vs. Union of India [2008(360)ELT 244 (Bom.) ] Vikram Cement Vs. Comm. Of Central Excise, Indore -2006(194)ELT 3(SC) 3 E/10662/2022-DB Madras Cement Ltd. Vs. Commissioner of Cx. Chennai -2010(257)ELT 321 (SC) Jaypee Bela Plant Vs. Commissioner of Central Excise, Bhopal -
2005(180)ELT 31 (Tri. Del) Comm. Of C.Ex. Chennai Vs. Pepsico India Holding Ltd. -2001 (130)ELT 193 (Tri.-Chennai) Commissioner of Central Excise, Bhopal Vs. Hindustan Copper - 2016(342)ELT 282 (Tri. Del) OPG Metals Pvt. Ltd. Vs. Commissioner of Central Excise, Trichy - 2016(344)ELT 990 (Tri. Chennai) Hindalco Industries Ltd. Vs. Commissioner of C.Ex., Allahabad, 2014 (313)ELT 311 (Tri. Del) Mangalam Cement Ltd. Vs. Commr. Of CGST, Cus. & C.Ex. Jodhpur - 2019(369)ELT 1034 (Tri. Del.) 2.2 He also argued that demand is time barred and the department has invoked the extended period of limitation, alleging suppression of facts on the parts of the appellant. Since it was a case of bonafide belief and the issue was one of interpretation of law. In this circumstance the extended period of limitation could not have been invoked. He placed reliance on the following judgments:
Jaiprakash Industries Ltd. Vs. Commissioner of CE, Chandigarh, 2002(146)ELT 481 (SC) Gopal Zarda Udyog Vs. Commissioner of Central Excise, New Delhi -
2005(188)ELT 252 (SC)
3. Shri P.K. Rameshwaram Learned Authorised Representative appearing for the department reiterates the findings of the impugned order.
4. We have considered the submissions from both the sides and perused the records.
4.1 The point of dispute in this case is as to whether the Cenvat Credit on Pipeline used outside the registered factory premises is admissible or otherwise. We find the Learned Commissioner for denying the Cenvat Credit on disputed goods take the ground that SBM and pipeline connecting SBM 4 E/10662/2022-DB and refinery storage tanks are installed outside of the central excise registered factory premise of the Appellant and pipe corridor and SBM are not part of factory premises.
4.2 However, we find that it is necessary to first understand the nature and use of the goods in question, on that basis it can be construed whether the goods in question is qualified for admissibility of Cenvat Credit in conformation to Cenvat Credit Rules. We find that there is no dispute about the use of the disputed goods in relation to manufacture of goods by the appellant. SBM of the appellant is installed in sea and pipeline from SBM to refinery is running through sea, forest area etc. The pipeline connecting SBM and refinery. Undisputedly entire pipeline is used by the factory of the appellant company exclusively in the production of petroleum products.
4.3 The entire case of the department for denial of the Cenvat credit on the pipeline installed from SBM to refinery is that the same was installed outside the factory of the appellant .However there is no dispute that the said pipeline was used for conveyance of crude petroleum oil from the SBM to the refinery and the said crude oil is used in the manufacturing activity. Therefore, in our view as regards fact that the pipeline is used in relation to manufacture of final product is not under dispute, the only dispute is said pipeline is installed outside the factory premises of the pipeline.
4.4. The very same issue has been considered by the Apex Court in the case of Vikram Cement v. CCE, Indore reported in 2006 (194) E.L.T. 3 (S.C.) and 2006 (197) E.L.T. 145 (S.C.). The Apex Court in the case of Vikram Cement v. CCE, Indore reported in 2006 (194) E.L.T. 3 (S.C.) while dealing with the question as to whether the explosives used in the mines to produce lime stone for use in the manufacture of cement and clinker in the factory situated at some distance away from the mines, would be eligible for Cenvat credit in terms of the provisions of Rule 57A of the Central Excise Rules, 1944, held that the Cenvat credit in respect of explosives used in the mines for blasting purpose to produce lime stone would be admissible if the mine is the captive mine and that utilization of input only within the factory premises is not necessary.
4.5. Subsequently this Tribunal dealing with the identical issue in the case of Hindalco Industries Limited (Supra) passed the following order:-
5E/10662/2022-DB "6. The point of dispute in this case is as to whether the inputs and capital goods used for generation of power in Renusagar Power Plant, would be eligible for Cenvat credit, even though the power plant is not located within the factory premises and it is located at distance of about 40-50 kms. from the factory. There is no dispute about the fact that though initially the power plant was owned by M/s Renusagar Power Company, this company has been amalgamated with the appellant company in the year 1993 and the merger had been affirmed by the Hon'ble High Court during that year. Thus during the period of dispute, the Renusagar power plant was fully owned by the appellant company. We also find that there is no dispute that except for use of some power generated by the I power plant in the Renusagar Power Plant township, the entire power generated is used in the factory of the appellant company for production of aluminium.
While the department relying upon Larger Bench's judgment of the Tribunal in the case of Vikas Industrial Gas v. CCE, Allahabad (supra) pleads that the captive power plant located far-away from the factory cannot be treated as part of the factory and inputs and capital goods used therein would not be eligible for Cenvat credit, the appellant rely upon the two judgments of the Apex Court in the case of Vikram Cement v. CCE, Indore reported in 2006 (194) E.L.T. 3 (S.C.) and 2006 (197) E.L.T. 145 (S.C.). The Apex Court in the case of Vikram Cement v. CCE, Indore reported in 2006 (194) E.L.T. 3 (S.C.) while dealing with the question as to whether the explosives used in the mines to produce lime stone for use in the manufacture of cement and clinker in the factory situated at some distance away from the mines, would be eligible for Cenvat credit in terms of the provisions of Rule 57A of the Central Excise Rules, 1944, held that the Cenvat credit in respect of explosives used in the mines for blasting purpose to produce lime stone would be admissible if the mine is the captive mine and that utilization of input only within the factory premises is not necessary. In para 4 of this judgment with regard to the admissibility of Cenvat credit in respect of the inputs used for the generation of power or steam for use in the factory, the Apex Court interpreting the provisions of Rule 57B observed as under :-
"It appears to us on a plain reading of the clause that the phrase "within the factory of production" means only such generation of electricity or steam which is used within the factory would qualify as an intermediate product. The utilization of inputs in the generation of steam or electricity not being qualified by the phrase "within the factory of production" could be outside the factory. Therefore, whatever goes into the generation of electricity or steam, which is used within the factory would be an input for the purpose of obtaining credit of duty payable thereon. As far as explanation is concerned, the inputs are restricted to the inputs notified under Section 57A. There is no dispute that 6 E/10662/2022-DB both explosives and lime stone are notified under Section 57A for manufacture of final product viz. cement."
6.1 In this judgment, the Apex Court over-ruled its earlier judgment in the case of CCE v. J.K. Udaipur Udyog Ltd. - 2004 (171) E.L.T. 289 (S.C.). case of Vikram Cement v. CCE, 6.2 The Apex Court in its subsequent judgment in the Indore reported in 2006 (197) E.L.T. 145 (S.C.) again held that the explosives, lubricating oil and capital goods used in the mines for mining of lime stone which is used in the cement factory located at some distance away would be eligible for Cenvat credit, if the mines are captive mines so that they along with the factory constitute one integrated unit. Same view has been taken by the Apex Court in case of Madras Cements Ltd. v. CCE reported in 2010 (257) E.L.T. 321 (S.C.).
6.3 We are of the view that the ratio of the above-mentioned judgments of the Apex Court is squarely applicable to the facts of this case, as the Renusagar Power Plant, which is a captive power plant of the appellant company, together with the cement factory of the appellant company constitute one integrated unit and it is not disputed that except of small quantity of electricity generated being used in the Renusagar township, the remaining quantity is used in the appellant's factory for production of aluminium. Therefore, the Cenvat credit in respect of capital goods and inputs used in the captive power plant located at Renusagar cannot be denied just because the power plant is located at some distance from the factory.
6.4 We also find that the Apex Court in the case of State of U.P. v. Renusagar Power Company reported in 1988 (4) SCC 59 has held that Renusagar Power Plant had no separate and independent existence apart from and independent of Hindalco (the appellant) and therefore the Renusagar Power Plant has to be treated as captive power plant of Hindalco.
7. However, since, admittedly, some quantity of electricity generated is used in the township and is not used in the factory of the appellant company for manufacture of excisable goods, to that extent, the input duty credit would not be admissible in view of judgment of the Apex Court in the case of CCE v. Solaris Chemtech Ltd. [2007 (214) E.LT. 481 (S.C.)). However, for determining the quantum of input duty credit, which would be inadmissible on this ground, the matter would have to be remanded to the original Adjudicating Authority.
8. In view of the above discussion, the impugned order is set aside and the matter is remanded to the original Adjudicating Authority for re-quantification of the Cenvat credit demand, keeping in view our above observations."
7E/10662/2022-DB 4.6 We also find that the disputed issue is also squarely covered by the Judgment of Hon'ble Bombay High Court in the case of Reliance Industries Ltd. Vs. Union of India (Supra) wherein the Hon'ble high court held as under:
"SPM and all connected and related items - "capital goods" used & usable :
12. The concept and the definition of "capital goods" has been elaborated in many cases and specifically the expression "used in the manufacture" and/or "used in the manufacture of goods". In view of above position of facts and law, we have noted that both the Authorities, including CESTAT have recorded that SPM system is used by the appellants in pumping raw material through the pipeline directly to the tanks. This mooring system is the part of the Offshore Terminal located off-Suvali Coast. This system performs the function of facilitating the berthing of ocean going vessels (carrying fed stock for Cracker Plant) for pumping the raw material through the pipelines directly to the tanks. The anchor piles and chain stoppers hold the mooring system afloat. The function of the item is to facilitate berthing of the vessel. The law materials namely Naphtha, Paraxylene and other petroleum products were pumped through SPM to various plants for consumption. There is no issue further that this pipelines run underwater on the sea bed for about 4.85 kms and are then buried underground for another 7.15 kms to reach the RIL tank farm. These pipelines are then connected to the tank farm through metering stations No. 2 and 3 from where additional pipelines are laid to divert the material to various tanks. Admittedly, the SPM buoy is located in Posn.
Latitude 21 Deg 08 min 56.508 sec N, Longitude 072deg 34 min 25.943 sec E in Gulf of Khambat at a distance of approx. 5 kms from Suvali and about 12 kms from tank farm. These tank farms are located within the factory premises and are part of the ground plan submitted to the Central Excise department for registration. The appellants build a jetty for loading and unloading operation of raw material and final products. Huge amount is invested in the Hazira Complex. Various capital goods on which they avail capital goods have been purchased for this mechanism. The appellants imported a complete Single Point Mooring system along with anchor chain, chain stoppers, anchor piles and anchor pipes and other related items such as offshore bands, half shell brackets, node pipes, etc., parts thereof. The Bill of Entries and SPM system, machinery falls under the ambit of 98.01 heading. All in all, this is a complete single point mooring (SPM) including anchor pipelines, chain stoppers, anchor piles. All are integrated part and parcel of the whole mechanism. Every component, machinery used and usable being integrated part for the purpose of producing a final product.
8E/10662/2022-DB
13. The submission that SPM system is not used for producing or processing of any goods or its is not integral part for bringing any changes in substance for the manufacture of final products, as contended by the respondents, is unacceptable position in view of above.
14. There is no claim that SPM system is used for producing or processing of any goods directly, but it is specific case that it is integral part of system being a part of the offshore terminal located off Suvali coast. Admittedly, this system performed the function of facilitating the berthing of ocean going vessels for pumping the raw material through the pipelines directly to the tanks. The anchor piles and chain stoppers hold the mooring system afloat. There is no issue that the same holds goods in respect of the offshore bends, half shell brackets, anode pipe NPS offshore line pipe, ERW steel pipes. Therefore, the submission that SPN is independent and distinct function of its own, in the facts and circumstances and in view of the law so mentioned about, cannot be stated to be only an extension of machinery situated in the factory. In our view, this part/machinery falls within the ambit of "capital goods" being admitted and integrated part of and falls within the ambit of machinery, equipment, apparatus, tool of appliances, used for producing or processing of any or for bringing about change any substance in the manufacture of the final product. SPM independently cannot bring about in any change in substance for the manufacture of the final product. The crux is, in view of above, that it is integrated and connected part of whole of machinery/plaint/equipment falls within the ambit of "capital goods".
15. This is in the background that the Authorities themselves have given the benefit of other "capital goods" like wires, cables, pipes, tubes, etc. Therefore, for the same reason, according to us, this SPM system and connected apparatus, equipments also meet the parameters of definition of "capital goods" under Rule 57Q of the Act.
16. We have to consider the technology and machinery which are available for bringing the raw material for final product/produce. This may be of any nature, including transportation and/or such other mechanism. SPM system as noted, is regularly used for supply of so-called raw material which ultimately, leads to the factory and products are finally processed and produced that resulted into final products. We are inclined to observe that SPM system in question for the reason so recorded falls within the ambit of "capital goods" in the form of components, spares and accessories as reiterated in Madras Cements v. Commissioner of Central Excise (supra).
9E/10662/2022-DB
17. The appellants, in the present case, is not claiming that items used in making those SPM system to manufacture it. The scheme is that SPM system and its integrated part which is on going mechanism supported by the spares and accessories. Therefore, the Supreme Court judgment in Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III - (2014) 15 SCC 625, cannot be extended to deny the claim of the appellants. The case of M/s. Bharati Airtel Limited is also not applicable in the facts and circumstances of the case, as in the present case actual SPM system is in use and required to be used for specific purpose so referred above. This is keeping in mind, the nature of business and final product produced/processed after obtaining this raw material through SPM system.
18. We have also noted that the Authority while passing the impugned order has relied upon a judgment which is overruled - 2004 (171) E.L.T. 289 (S.C.).
19. The Apex Court in Jayaswal Neco Limited v. Commissioner of Central Excise, Raipur
- (2015) 11 SCC 568 = 2015 (319) E.L.T. 247, while considering the same provisions and the concept of "capital goods" defined under the Act and the Rules elaborated as under :
"7. It is clear from the reading of the definition of capital goods that when machines, machinery, plants, equipment, etc., are used for producing or processing any goods or bringing about any change in any substance for the manufacture of final product, it would qualify as 'capital goods' and MODVAT credit thereon would be permissible. The question that arises for consideration is as to in what manner such machines, machinery, plants, equipment, etc., are to be used for the purpose stated therein.
8. A direct answer to this question is given by this Court in M/s. J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and Anr. - 1965 (1) SCR 900. In this case, the test which was enunciated by the Court is :
"8 Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be impossible or commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods".
"7 .... For goods to answer that description, it is not necessary that they must of necessity be goods which are used as "ingredient or commodity in the creation of goods", or which are "directly and actually needed for turning out or making of the goods." (AIR p. 1312, para 7) 10 E/10662/2022-DB 15 The aforesaid process squarely meets the test laid down by this Court in M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd.'s case. - AIR 1965 SC 1310 : (1965) 1 SCR 900. It is clear that the railway tracks are installed not only within the plant, but the main objective and purpose for which the capital expenditure on laying these railway tracks is incurred by the appellant is for transporting hot metal in ladle placed on ladle car from blast furnace to pig casting machine through ladle car where hot metal is poured into pig casting machine for manufacture of pig iron. It is clear from the above that the use of railway tracks inside the plant not only form the process of manufacturing, but it is inseparable and integral part of the said process inasmuch as without the aforesaid activity for which railway tracks are used, there cannot be manufacturing of pig iron.
16 We find from the order of the Commissioner that in spite of taking note of the aforesaid use of the railway tracks and accepting the same as correct, the Commissioner denied the relief to the Appellant on an extraneous ground, i.e., railway tracks were used for other purposes as well, namely, apart from conveying hot metal and hot pigs, it was used for carrying raw materials and finished goods as well. This can hardly be a ground to deny the relief inasmuch as by incidental use of the railway tracks for some other innocuous purpose, it does not lose the character of being an integral part of the manufacturing process. The Commissioner has further observed in his order that the railway track is not utilised directly or indirectly for producing or processing of goods or bringing about any change for manufacture of final product. This conclusion, obviously, is completely erroneous and amounts to misreading of the process. Such an error has occurred because the Commissioner did not keep in mind the principle of law laid down by this Court in M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd.'s case, - AIR 1965 SC 1310 : (1965) 1 SCR 900 highlighted above."
20. In Vikram Cements v. CCE, 2006 (194) ELT 3 (S.C.) (supra), the Supreme Court has specifically held that explosives in the mines are used for manufacture of final products and hence Modvat credit cannot be denied even though not used in the factory. The impugned order, therefore, based upon the overruled judgment of CCE (supra) required to be set aside on this ground also as this case goes to the root of reasoning given by the learned Authority while rejecting the claim of the Appellant.
Conclusion :
21. SPM system is of no use, if not connected to the other equipment, machineries for bringing in the raw material as done in the present case. SPM is integrated and integral part though situated outside the factory, but useful and helpful to produce final 11 E/10662/2022-DB products. SPM where liquid cargo is discharged from a tanker, is an extension of a factory for the purposes of "capital goods" in question. The Appellate Authority/Tribunal, failed to take note of the judgments cited by the appellants and so recorded in the above paragraph in this matter. We are of the view, keeping in mind the facts and circumstances and the judgments so referred above, that appellants' case fall within the ambit of "capital goods" and, therefore, entitled for the benefit so claimed. We are inclined to observe that the expression "used in the manufacture of goods" take within its ambit in integral process and equipments connected with its ultimate production of goods. The material, equipments, in question are integral part of the manufacturing process and hence falls within the ambit of "capital goods". Merely because SPM system is not specifically within the factory, but it is outside the factory, still required to be treated as "capital goods" used for manufacturing of final products, in the facts and circumstances of the case. Hence the Order :"
5. We find that in this case the disputed pipeline have been installed by the appellant for connecting the Single Buoy Mooring with Crude Oil Tanks and which is ultimately used by the appellant for manufacturing their final product which has been cleared on payment of duty. Therefore, relying on the case laws cited by the appellant which are squarely applicable to the facts of this case, we are of the considered view that the appellant has correctly availed the credit on pipelines.
6. In view of the above discussion and finding, we are of the view that the impugned order cannot be sustained and accordingly, it is set aside. The appeal filed by the appellant is allowed with consequential relief.
(Pronounced in the open court on 04.12.2023)
(RAMESH NAIR)
MEMBER (JUDICIAL)
(C. L MAHAR)
MEMBER (TECHNICAL)
Raksha