Custom, Excise & Service Tax Tribunal
Bramhani Industries Ltd vs Tirupati on 24 December, 2019
CUSTOMS EXCISE & SERVICE TAX APPLELLATE
TRIBUNAL
REGIONAL BENCH AT HYDERABAD
DIVISION BENCH - COURT NO. I
Excise Appeal No. 450 of 2011 [DB]
[Arising out of Order-in-Original No. 19/2010 (C.EX) dated 23.12.2010,
Commissioner, CE, Tirupati]
M/s Bramhani Industries Limited
Chidananda Urs. B.G.
Advocate
#520, Amruth Nivas
7th Main, 13th Cross,
RMV II Stage, Dollars Colony
Bangalore - 560 094. ...Appellant
Vs.
The Commissioner of Central Excise
Tirupati Commissionerate
9/86-A, Amaravathi Nagar,
West Church Compound,
M.R. Palli, Tirupati - 517 501. ...Respondent
WITH Excise Appeal No. 624 of 2011 [DB] M/s Bramhani Industries Limited Chidananda Urs. B.G. Advocate #520, Amruth Nivas 7th Main, 13th Cross, RMV II Stage, Dollars Colony Bangalore - 560 094. ...Appellant Vs. The Commissioner of Central Excise Tirupati Commissionerate 9/86-A, Amaravathi Nagar, West Church Compound, M.R. Palli, Tirupati - 517 501. ...Respondent AND Excise Appeal No. 2344 of 2011 [DB] M/s Bramhani Industries Limited Chidananda Urs. B.G. Advocate #520, Amruth Nivas 7th Main, 13th Cross, RMV II Stage, Dollars Colony Bangalore - 560 094. ...Appellant 2 E-450, 624, 2344 (DB) Vs. The Commissioner of Central Excise Tirupati Commissionerate 9/86-A, Amaravathi Nagar, West Church Compound, M.R. Palli, Tirupati - 517 501. ...Respondent APPEARANCE:
Shri Shankar Bala, Chartered Accountant for the Appellant Shri A.V.L.N. Chary, Superintendent for the Respondent CORAM :
HON'BLE MR. P.VENKATA SUBBA RAO, MEMBER (TECHNICAL) HON'BLE MRS. RACHANA GUPTA, MEMBER (JUDICIAL) DATE OF HEARING : 21.11.2019 DATE OF DECISION :24.12.2019 FINAL ORDER NO. A/31156-31158/2019 RACHNA GUPTA The present is the common order disposing three appeals, appellant & issue involved in these appeals being common.
The facts in brief relevant for adjudication of present appeal are as follows:
The appellants herein are engaged in manufacture of iron and steel products and their unit was still under construction at the time of the show cause notice. The appellant also availed CENVAT Credit on capital goods and input services. During the scrutiny of ERI Returns of the assessee, it was observed by Superintendent of Central Excise Proddatur Range that during the month from September, 2008 to June, 2009, the appellants have taken the CENVAT Credit on rails falling under Chapter 73 of the Tariff. The said rails have been utilised in the construction of railway-line from Muddanur Railway Station to the factory premises of the appellant which was to run for merely 10 3 E-450, 624, 2344 (DB) kms. Department formed an opinion that neither the rails are capital goods nor the goods manufactured thereof i.e. the railway-line is excisable. Also the rails are not the goods to be used in the factory of the manufacturer of final products, but were to be used outside the factory. Hence, the availment of CENVAT Credit thereupon is not available. With this observation, a show cause notice bearing No. 72 dated 06.10.2009 was served upon the appellant proposing reversal of irregularly availed CENVAT Credit amount of Rs. 6,28,37,098/-
alongwith the reversal of the CENVAT Credit for an amount of Rs.
1,59,42,153/- was proposed. The interest at appropriate rate and the proportionate penalties were also proposed vide the said show cause notice. The said proposal was confirmed vide the order-in-original No. 19/2010 dated 29.10.2010. Bering aggrieved the appellant is before this Tribunal.
2. We have heard learned Counsel for the parties, it is submitted on behalf of the appellant that the credit has been denied by the adjudicating authority below on the ground that the rails cannot be classified as capital goods as they are not forming the part of the manufacturing unit. The said finding is impressed upon as wrong. It is submitted that the impugned railway-line is actually the extension of the factory, it rather constitutes one integral unit together with the factory. Learned Counsel has relied upon the decision of hon'ble Apex Court in the case of Vikram Cement Vs. CCE reported in 2006(197) ELT 145 (SC) wherein it was held that when capital goods are integral to the manufacture of excisable goods they become integral part of the unit and capital goods installed there would become eligible for CENVAT Credit. The decision of Hon'ble Apex Court in the case of CCE Vs. Manikgarh Cement Ltd. reported in 2005 (190) 4 E-450, 624, 2344 (DB) ELT 7 (SC) was also relied upon wherein it was held that the ropeway which connects the mines with the factory is eligible for CENVAT Credit. Subsequent thereto Rajasthan High Court in the case of Aditya Cement Vs. Union of India reported in 2008 (221) ELT 362 (Raj.) is also impressed upon wherein it was held that Iron & Steel used as parts and components of the machinery used in manufacturing cement, railway track materials needed for transporting fuel are essential for manufacturing in the plant. Such components and parts of machines are eligible for the credit. It was also held therein that the railway track materials needed for transporting fuel are essential for manufacturing in plant. Also railway-track used for transportation of coal & product of cement. Since without supply of fuel the plant does not function and, therefore, railway track cannot be kept out of consideration for availing moderate credit. The same is not being used directly for the manufacture of cement is held irrelevant consideration.
3. Learned Counsel for appellant further impressed upon that the adjudicating authority below has denied the CENVAT Credit on the rails holding that they have not been listed under the definition of capital goods. But this argument for the period prior to 07.07.2009 is not sustainable in law. The credit on such structural items can be denied only after 07.07.2009 that too when such structures are used for laying foundation and for building supporting structure. None is the case with respect to rails in the present case. It is further submitted that the adjudicating authority has wrongly relied upon the decision of the larger bench of this Tribunal in the case of Vandana Global Vs. Commissioner of Central Excise reported as 2010 (253) ELT 440 (Tribunal Larger Bench) as the said decision already stands set 5 E-450, 624, 2344 (DB) aside by the Hon'ble High Court, Chhattisgarh and the appeal thereof has also been dismissed. With these submissions learned Counsel has prayed for the order to be set aside and the appeal to be allowed.
4. While rebutting these arguments, it is submitted by learned DR that there is no infirmity in the finding of the order-under-challenge as that since the rails and pipes were not used in the factory of assessee. The appellant, therefore, is not entitled to avail the CENVAT Credit . It is submitted that, infact the manufacturing has till date not been started by the appellant in the impugned premises. Once there is no final product, the impugned rails meant for transport of raw-material and final product, have rightly been denied to be called as the goods used in or in relation to manufacture of the final products. Above all, the impugned rails cannot be categorised as the capital goods justifying these findings and reliance upon the decision of Vandana Global (supra), learned DR has prayed for the dismissal of the appeal.
5. After hearing the rival contentions of the parties and perusing the entire records therein, we are of the opinion as follows :
To present appeal the department has denied the availability of CENVAT Credit to the appellant with respect to the following items in both appeals on the following grounds:
Appeal No. E/450/2011:
NATURE OF CREDIT AVAILED GROUNDS ON WHICH CREDIT IS DENIED a. Rails used in construction of 1. Credit on capital goods can be railway allowed only if it fits into the definition of 'capital goods' under rule 2(a) of CCR, 2004.
2. Credit can be allowed if 10 Km 6 E-450, 624, 2344 (DB) long railway line Railway Station to the Factory premises constitutes one integral unit together with the factory of the assessee as per the decision of the Apex Court in Vikram Cement reported in 2006 (197) ELT 145 (SC). [para 58]
3. Assessee contention is that the railway line is to be considered as extension of the factory. It was not argued/established that such railway line constitute one integral unit together with the factory of the assessee. [para 58]
4. The railway line being part of the plant cannot be accepted as definition does not allow credit on parts of plant but only on parts of machinery and parts and accessories thereto [para 58]
5. That it is not included in the inclusive part of the definition of capital goods [para 59] b. Flange Pipe, valve and Same findings as above for credit bends, sluice valve, moor availed on inputs used in construction pumps, hydrant valve and of Pipeline for drawing water.
ball valve etc., which was used in the construction of Pipeline for drawing water from Mylavaram Dam to the Factory Premises. The length of the pipeline is 15 kms.
c. Capital goods viz.l steel 1. The details regarding usage of tubes, cables, weigh bridge goods have not been furnished as equipments, transformer some of the items are general copper wound, power purpose items like structural steel distribution, structural and could be used outside the steels, starter panels, factory premises. cement, EOT cranes, 2. That structural steels, cement Electronic weighing etc., have not been specifically machine, voice and data listed under the definition of components, water 'capital goods'.
treatment and foundation 3. That credit is availed on bolds. structural steel and cement which was not covered within the ambit of the definition of 'capital goods'.
[para 65]
4. Reliance placed on the decision of Larger Bench in Vandana Global Ltd., 2010 (253) ELT 440 (Trib-
LB)
5. The argument that the independent components should be construed as inputs for the 7 E-450, 624, 2344 (DB) setting up of plant is not accepted. That the input should have a direct nexus with the process of manufacture as held in Maruti Suzuki Ltd;, 2009 (240) ELT 641 (SC). The credit for these goods are taken as 'capital goods' and not as inputs is only an afterthought [para 67]
6. That explanation 2 to Rule 2 (k) inserted to Cenvat Credit Rules, 2004 is retrospective in nature and hence the credit is to be denied.
d. Inputs service of trave 1. That service being used in agency service, consulting ongoing construction of factory engineer service, insurance and that factory is not excisable service, transport service, and exemption is available vide security services, Notification No. 67/95-CE was the topographical survey allegation in SCN to deny the services, soil testing input servce credit. services etc. 2. Relies on the decision of Maruti Suzuki Ltd., 2009 (240) ELT 641 (SC) to hold that the inclusive part of the definition should also satsfy the ingeredients of the main part of the definition and therefore should establish that such service was used, directly or indirectly in or in relation to the manufacture of his final product or clearance of such products from the factory [para 63 to 66].
Appeal No. E/624/2011:
NATURE OF CREDIT AVAILED GROUNDS ON WHICH CREDIT IS DENIED a. Sleeper used in construction 1. Credit on capital goods can be of railway line from Muddanur allowed only if I fits into the Railway Station to the Factory definition of 'capital goods' under premises and credit availed on rule 2(a) of CCR, 2004.
Rails. 2. Credit can be allowed if 10 Km long railway line Railway Station to the Factory premises constitutes one integral unit together with the factory of the assessee as per the decision of the Apex Court in Vikram Cement reported in 2006 (197) ELT 145 (SC). [para 58]
3. Assessee contention is that the railway line is to be considered as extension of the factory. It was not argued/established that 8 E-450, 624, 2344 (DB) such railway line constitute one integral unit together with the factory of the assessee. [para 58]
4. The railway line being part of the plant cannot be accepted as definition does not allow credit on parts of plant but only parts of machinery and parts and accessories thereto [para 58]
5. That it is not included in the inclusive part of the definition of capital goods [para 59] b. Credit availed on various 1. That the assessee has not capital goods when the furnished any details/evidence assessee's unit is still under regarding usage of the goods construction and no within the factory of production. production of goods is taking 2. That credit is availed on place at the present. structural steels, cement which is not covered under the definition of capital goods under Cenvat Credit Rules, 2004.
c. Inputs service 1. Relies on the decision of Maruti Suzuki Ltd., 2009 (240) ELT 641 (SC) to hold that the inclusive part of the definition should also satisfy the ingredients of the main part of the definition and therefore should establish that such service was used, directly or indirectly in or in relation to the manufacture of his final product of clearance of such products from the factory (para 63 to 66].
Appeal No. E/2344/2011:
In addition to goods/input/input service in two above appeals following are the goods on which credit has been denied in this appeal :
(i) Butterfly valves and air release valves used in the pipeline from Mylavaram dam to factory premise.
(ii) Also transformers, water storage tank.
6. The substantial questions which arises for our consideration in these appeals, therefore, are :
9
E-450, 624, 2344 (DB)
(i) Whether the duty paid by the appellant on rails used in construction of railway-lines & sleepers, pipes, pumps, valves etc. are the capital goods/input and thus could be availed by the appellants as CENVAT Credit.
(ii) Whether the input services used for the construction of the appellants' manufacturing units are the input services which could be availed for by the appellants as CENVAT Credit.
7. To answer these questions, it is foremost necessary to look for the definition of capital goods, input & input services as contained in the CENVAT Credit Rules, 2004. The relevant provisions it reads as under:
Capital goods- Rule 2(a) of CCR, 2004 (A) the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, 4[heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] Old[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 the final products, but does not include any equipment of appliance used in an office or (2) For providing output service Inputs-Rule 2(k) of CCR, 2004
(i) all goods used in the factory by the manufacturer of the final product;
or
(ii) any goods including accessories, cleared alongwith the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or
(iii) all goods used for generation of electricity or steam [or pumping of water] for captive use; or
(iv) all goods used for providing any [output service; or]
(v) all capital goods which have a value upto ten thousand rupees per piece,] 10 E-450, 624, 2344 (DB) but excludes-
(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;
(B) any goods used for-
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;] (C) capital goods, except when-
(i) used as parts or components in the manufacturer of a final product; or
(ii) the value of such capital goods is upto ten thousand rupees per piece;] (D) motor vehicles;
(E) any goods, such as food items, goods used in a guesthouse residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and (F) any goods which have no relationship whatsoever with the manufacturer of a final product.
Input service -Rule 2(l) of CCR, 2004
(i) used by a provider of [output service] for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacturer of final products and clearance of final products, upto the place of removal,
8. A perusal of the aforesaid provision makes it very clear that goods which are used in the manufacture of capital goods which are further used in the factory of the manufacture are inputs. Therefore, the input is not necessarily to be used in the manufacture of final product. By virtue of explanation goods used in the manufacture of capital goods which are further used in the factory of the manufacturer of capital goods also falls within the definition of input. In 2009, this explanation has been amended to the effect as recorded above. Also definition of capital goods is not confined to cl. of Rule 2(a) CCR, 2004 but extends to all other clauses therein. As per clause (iii) thereof it is clear that if anything is component, spare & accessories to such input as may full under cl (i) of Rule 2(a) CCR, 2004, same also becomes capital goods. We find that 11 E-450, 624, 2344 (DB) the goods which are denied CENVAT Credit in these appeals are such without which the capital goods/inputs relevant to manufacture the final product cannot function. Thus, the goods under question also became the capital goods.
9. Thus, the intention of legislature becomes clear that all those inputs as used in manufacture or construction of capital goods are eligible for CENVAT Credit on the duty in purchase of such inputs/capital goods before 07.07.2009 this credit was available to all inputs/capital goods. However, post 07.07.2009 duty paid on the items which are used in construction of factory shed was not entitled to CENVAT Credit. We find that there is no denial for the rails/sleepers to partly within the manufacturing unit/factory of appellant. Irrespective it extends outward but admittedly is used for the transport of raw- material inside the factory for manufacturing final product. Thus is the part and parcel for the manufacturing unit composed of capital goods which cannot function without these rails. The case law relied upon by the learned Counsel for appellant support our findings. Further we find that there is no evidence on record to show that any of the capital goods as that of pipes, pumps etc. or other steel structures as mentioned in the above tables to have been used in construction of factory shed or for laying of the foundation. Those rather appear to have been used in connecting the machinery installed in the factory premises of the appellant which is meant for manufacture of the final product or are such as have been used as an integral part thereof.
10. Adjudicating authority below has given the amendment of 07.07.2009 the retrospective effect relying upon the decision of Vandana Global (supra), but we observe that the said decision is no more a good law. Honble High Court, Gujarat in Mundra Ports 12 E-450, 624, 2344 (DB) Special Economic Zone Ltd. Vs. CCE reported as 2015 (39) STR 726 (Guj.) has already held that the amendment made in CENVAT Credit Rules, 2004 which came into force on 07.07.2009 was not clarificatory amendment. Hence, the amendment could operate only prospectively. The opinion of larger bench in Vandana Global (supra) has been held to be based on conjectures and surmises. Otherwise also the 2009 notification, in no uncertain terms, states that it shall come into force from the date of its publication in the official gadget. Clearly, if, the intention would have been to simply clarify or to give it retrospective effect, it would have been brought into force from a date anterior to the date of publication of the notification. It becomes clear from this decision that the basis of the order-under-challenge cannot extend for the period prior 07.07.2009. The period in dispute except for in appeal No. 604 is the period 7 is the period prior 07.07.2009. Thus, it becomes clear that findings of adjudicating authority in both the said appeals is not sustainable. For the sake of convenience to this aspect, the relevant part of notification is as follows:
35.1 For the sake of convenience, the relevant part of the Notification is extracted hereafter:
"....1. (1) These rules may be called the CENVAT Credit (Amendment) Rules, 2009.
(2) They shall come into force on the date of their publication in the official Gazette.
2. In the CENVAT Credit Rules, 2004 (hereinafter referred to as the said rules), in rule 2, in clause (k) in Explanation 2, after the words "factory of the manufacturer", the following shall be inserted, namely:-
"but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods"
Notification No. 16/2009 - Central Excise (N.T.) New Delhi, the 7th July, 2009.
11. Honble High Court of Madras in the case of Thiru Arooran Sugars Vs. CESTAT, Chennai reported as 2017 TIOL 1357, Madras while relying upon the decision of Hon'ble Apex Court in the 13 E-450, 624, 2344 (DB) case of Commissioner of Central Excise, Jaipur Vs. Rajasthan Spinning & Weaving Mills Ltd. reported as 2010 (255) ELT 481 has held that MS Structural which sport the plant and machinery, which are, in turn, used in manufacture of final product are the integral part of such plant and machinery and as such satisfy the "user test" as held by Supreme Court in Rajasthan Spinning (supra) case. The assessee is entitled to get the benefit of CENVAT Credit on such goods as they fall within the scope of and ambit of both the rules i.e. 2(a) (A) and 2 (k) of CENVAT Credit Rules, 2004. The issue with respect to the rails/sleepers and the impugned other goods has already been decided in number of times, in favour of assesses. Tribunal, Hyderabad in Ultratech Cement Ltd. 2016 (339) ELT 127 has held that Monoblock Concrete Sleepers for rail track are eligible Cenvatable goods. Similar view has been taken by Tribunal, Delhi in the case of Jindal Steel & Power Ltd. Vs. CCE, Raipur 2016 (343) ELT 608. Tribunal, Kolkata in the case of TATA Steel Ltd. Vs.Commissioner of Central Excise, Jamshedpur 2016 (335) ELG 303 has in addition held that the railway sliding even it leads outside the factory premises but are the part and parcel of facility for transport provided inside the factory premises and the assessee are thus eligible for CENVAT Credit thereupon. Hon'ble Apex Court in the case of Vikram Cement Vs. Commissioner of Central Excise, Indore 2006 (197) ELT 145 (SC) has held that the repair and maintenance of pumps and pipes outside the factory premises having nexus with the manufacture of final products even if utilised outside the factory premises would be eligible for CENVAT Credit . Seen from all these decisions and for no evidence by the department that rails/sleepers and other goods have no nexus with the manufacture of cement, the final product of the appellant, we are of the opinion that the adjudicating authority has 14 E-450, 624, 2344 (DB) wrongly denied the availment of CENVAT Credit to the appellants while confirming the reversal of the credit already availed. The reasons taken by the authority for said denial, as mentioned above are not sustainable in view of above discussed case law.
12. Coming to the availability of CENVAT Credit on the impugned input services, the said issue also stands no more res-integra as was held by Tribunal, Bombay in Ultratech Cement Ltd. reported as 2010 (20) STR 683 that the input services with respect to the Thermal Power though situated outside the factory premises are Cenvatable due to the nexus thereof with the manufacture of the final product
13. The fact that manufacturing activity has not yet been started, to our opinion is also not sustainable to deny the CENVAT Credit to the appellant. There is no rule or statutory provision which makes the manufacturing unit to be functional or the registration thereof, a condition precedent for availing credit. The CENVAT Credit shall be available on the documents evidencing receipt of eligible inputs, capita goods or input services even before the date assessee started the manufacturing activity or obtained the service tax registration. The credits can very well be adjusted after the manufacturing is started or registration is taken. Hon'ble High Court of Karnataka in the case of Tavant Technologies India Pvt. Ltd. reported as 2016 TIOL 441, Karnataka, while relying upon its previous decisions in the case of m mPortal Wireless Solutions Pvt. Ltd. reported as 2011 TIOL 1928, Karnataka has held that for availing as well as refund of untilized credit registration of Service Tax is not required. 15
E-450, 624, 2344 (DB)
14. In view of the entire above discussion, we hereby hold that the adjudicating authority below has wrongly denied the CENVAT Credit to the appellant. The orders-under-challenge in three of these appeals are, therefore, hereby set aside. Consequent thereto three of these appeals stand allowed.
[Pronounced in the Open Court On 24.12.2019) (P. VENKATA SUBBA RAO) MEMBER (TECHNICAL) (RACHNA GUPTA) MEMBER (JUDICIAL) BK