Orissa High Court
Mr. Choudhury Satyajit Mishra vs M/S. Sps Steels Ltd. And Power Ltd on 24 November, 2021
Author: A. K. Mohapatra
Bench: A. K. Mohapatra
IN THE HIGH COURT OF ORISSA AT CUTTACK
OTAPL Nos.4, 33 and 34 of 2018
Commissioner, GST & Central
Excise, Rourkela
(In OTAPL Nos.4 and 34 of 2018) .... Appellants
and
Commissioner, GST & Central
Excise, Bhubaneswar
(In OTAPL No.33 of 2018)
Mr. Choudhury Satyajit Mishra,
Senior Standing Counsel
-versus-
M/s. SPS Steels Ltd. and Power Ltd.
(In OTAPL No.4 of 2018)
M/s. O.C.L. India Ltd., Cuttack .... Respondents
(In OTAPL No.33 of 2018)
M/s. O.C.L. India Ltd., Sundargarh
(In OTAPL No.34 of 2018)
Mr. Ravi Raghavan, Advocate
CORAM:
THE CHIEF JUSTICE
JUSTICE A. K. MOHAPATRA
ORDER
24.11.2021 Order No. Dr. S. Muralidhar, CJ.
25. 1. These appeals arise out of a common set of facts and involve the same questions of law. They accordingly disposed of by this common order.
Page 1 of 102. OTAPL No.4 of 2018 is directed against an order dated 12th July, 2017 passed by the Customs, Excise and Service Tax Appellate Tribunal, East Zonal Bench, Kolkata (CESTAT) in Excise Appeal No.232 of 2007 allowing structural materials as inputs and thereby allowing the Respondent CENVAT Credit in the sum of Rs.1,19,59,360.67.
3. While admitting this appeal on 17th July, 2019, the following questions of law were framed by this Court for consideration:
"(i) Whether under the facts and circumstances of the case, the Tribunal is justified in dismissing the appeal without considering the facts that the items claimed as inputs have been used for fabrication items of supporting structures of the capital goods?
(ii) Under the facts and circumstances of the case, when this supporting structures, fabricated and embodied to the earth and hence do not constitute as "Goods" under the statute, whether the Tribunal is right in law by allowing the CENVAT Credits on the disputed goods used for fabrication of the supporting structures for the Capital goods?
(iii) Under the facts and circumstances of the case, once these supporting structures dismantled, cannot be termed as excisable goods and as such will not come under the broad definition of capital goods as defined under Rule 2 of the CENVAT Credit Rules, 2004, therefore, whether the Tribunal is right in law by holding these disputed fabrication goods used for the supporting structures, as inputs of the Capital Goods?"Page 2 of 10
4. OTAPL No.34 of 2018 is directed against the order dated 30th November, 2017 passed by the CESTAT in Excise Appeal No.E/979 of 2011 deciding the said appeal involving same questions in like manner. The same questions of law as framed in OTAPL No.4 of 2018 have been framed by this Court while admitting OTAPL No.34 of 2018 on 6th March, 2020.
5. OTAPL No.33 of 2018 is an appeal by the Department against the order dated 30th November, 2017 passed by the CESTAT in Excise Appeal No.E/979 of 2011 and E/15 of 2012 again answering the questions in identical fashion. The same questions of law were framed by this Court while admitting this appeal on 6th March, 2020.
6. Since the facts are more or less similar, the facts in OTAPL 4 of 2018 alone are discussed. The Respondent Company had obtained a Central Excise Registration under Section 6 of the Central Excise Act, 1944 (CE Act) for the purposes of manufacturing of sponge iron and its derivative products. For manufacturing, the Respondent constructed/installed 4 100TPD Sponge Iron Plant and availed CENVAT Credit on input on various items during the relevant period i.e. from May to August, 2004. A part of the inputs included construction materials.
7. On 7th June, 2005, the Commissioner, Central Excise & Customs, Bhubaneswar issued a Demand-cum-Show Cause Notice to the Respondent inter alia on the following grounds:
Page 3 of 10"(i) The amount of Rs.1,20,61,289/- on inputs taken wrongly by the notice during the month from May, 2004 to August, 2004 shall not be recovered from them under Rule-12 of the Cenvat Credit Rules, 2002 read with the provisions of Section 11A of the Central Excise Act, 1944.
(ii) Interest at the appropriate rate shall not be recovered from them under Rule-12 of Cenvat Credit Rules, 2002 read with Section 11AB of the Central Excise Act, 1944; and
(iii) Penalty shall not be imposed on them under Rule-
13 of the Cenvat Credit Rules, 2002 for taking such wrong credit of duty on the inadmissible Iron & Steel material, welding electrodes etc. Contravening the provisions Rules, 2, 3 & 6 of the CENVAT Credit Rules, 2002."
8. The Respondent then appeared before the Adjudicating Authority and contended that the structural items had been used within the factory premises for manufacture of parts/components or capital goods, which have been classified as such under Chapter-84 of the Central Excise Tariff Act (CET Act) and, therefore, qualified as capital goods as defined under Rule 2 of the CENVAT Credit Rules, 2002 (2002 Rules). It was further contended that without the use of fabrication items, the relevant capital goods cannot be constructed and/or installed. Applying the user test, it was contended that the goods should be treated as inputs for manufacture of capital goods.
9. The Adjudicating Authority by an order dated 8th February, 2006 agreed with the Respondent and allowed CENVAT Credit Page 4 of 10 in the sum of Rs.1,19,59,307/-, for the inputs in relation to the manufacture of specified capital goods and further used in the factory of the manufacturer under the 2002 Rules. A sum of Rs.1,01,983/- was disallowed being the CENVAT Credit wrongly availed during the period from May to August, 2004. Correspondingly, a penalty of Rs.10,000/- was imposed.
10. The Department then filed an appeal before the CESTAT. By the impugned order, the CESTAT dismissed the Department's appeal inter alia observing as under:
"6. "On careful examination, we also rely on decision of Hon'ble Madras High Court in CCE, Salem Vs. Madras Aluminum Co. Ltd. 2017 (349) ELT 133 (Mad.) which also deals with the scope of credit on similar items and also application of the concept of support structure while deciding the dispute.
7. Ld. A.R. also relied on the decision of Hon'ble Supreme Court in the case of Saraswati Sugar Mills Vs. Commr. of C.Ex. Delhi-III [2011 (270) E.L.T. 465 (SC) and also the decision of Hon'ble Allahabad High Court in the case of Daya Sugar Vs. Commr. Of Central Excise, Meerut-I (2015)(316) ELT 394 (All.) We note that the decision of the Hon'ble Supreme Court in Saraswati Sugar Mills dealing with provisions of erstwhile Rule 57Q and Notification of 65/95-CE were also examined by the Hon'ble Madras High Court in the case of India Cements Ltd. [2011-
TIOL-558 HC-MAD-CX]. The observation of the Tribunal in the Lafarge India Pvt. Ltd. (supra) is relevant in this regard.
8. The Ld. A.R. Also relied on the decisions relating to Telecom Towers passed by Hon'ble Bombay High Court in the case of Bharti Airtel Ltd. Vs. CEE-Pune-
Page 5 of 10III reported in 2014 (35) S.T.R. 865 (Bom.). We note that the present case we are dealing with the eligibility of a manufacturer for credit on iron steel and items which are in fact found to be used in the fabrication of identifiable capital goods which are in turn used for manufacture of excisable goods. Bharti Airtel Ltd. deals with service provider and facts are not applicable to the case at hand.
9. In view of above discussion and analysis, we find that the impugned order has examined the issues in details and had arrived at sustainable conclusion in line with the ratio adopted by the Hon'ble Supreme Court, various High Courts and by this Tribunal also. Accordingly, we find no reason to interfere in the said order. The appeal is dismissed."
11. This Court has heard the submissions of Mr. Choudhury Satyajit Mishra, learned Senior Standing Counsel for the Appellants-Department and Mr. Ravi Raghavan, learned counsel for the Respondents.
12. Mr. Mishra placed reliance on the decision of the Supreme Court in Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi 2011 (270) E.L.T. 465 (S.C.) and urged that the CESTAT was in error in holding the structural inputs to be part of capital goods.
13. This Court has carefully examined the aforementioned decision of the Supreme Court of India. The facts there were that the assessee was the manufacturer of sugar and molasses and was availing MODVAT credit facility on the excise duty paid for Page 6 of 10 capital goods used in the factory for manufacturing process under Rule 57Q of the MODVAT Rules.
13.1. In April 1999, the assessee in order to modernize the manufacturing process of sugar and molasses installed new machineries replacing the old ones. Certain machineries like cane milling plant, clarification plant, evaporator and pan boiling plant, power generation plant etc., specified as capital goods required the support of structural items for their installation. Consequently, the assessee started the manufacturing iron and steel structures, after purchasing excise duty paid iron and steel sheets, angles, nuts and bolts etc. for installation of the said machineries. The assessee thereafter filed a declaration declaring the Iron and Steel structures as capital goods.
13.2 In response to a show cause notice of the Department pointing out that the Notification seeking exemption would not be applicable to the iron and steel structures, the assessee produced photographs to show that the iron and steel structures are components of machinery and quintessential for its effective functioning. Nevertheless, the Assistant Commissioner by an order dated 31st March, 2000, confirmed the duty and imposed a penalty.
13.3 The Assessee then went in appeal. The Commissioner (Appeals) confirmed the order of the Assistant Commissioner. The Assessee then went before the CESTAT. The penalty was Page 7 of 10 reduced by the CESTAT and the duty demand was affirmed. The Assessee then appealed to the Supreme Court.
13.4 It was observed by the Supreme Court that "in order to get the benefit of non excise duty on Iron and Steel Structures, it had to be established by the assessee that Iron and Steel Structures are utilized as component parts for the finished products, viz. vacuum pan, crystallizers, sugar grader, elevator, cooling tower etc." The Supreme Court then factually found that the iron and steel structures would not go into the composition of vacuum pans, crystallizers etc. and, therefore, do not satisfy the description of components.
13.5 The Assessee attempted to rely on a circular dated 2nd December, 1996 issued by the Central Board of Excise and Customs clarifying that the scope of the entry under Rule 57Q was not restricted only to the components, spares and accessories falling under Chapters 82, 84, 85 or 90 but covered "all components, spares and accessories of the specified goods irrespective of their classification". However, the Assessee was not permitted to advance the said argument since the circular in question on which reliance was placed was not produced by it before the CESTAT.
14. The Court finds however that in the present case the categorical finding on fact concurrently both by the Commissioner and the CESTAT is that the iron steel and items Page 8 of 10 were in fact used in the fabrication of identifiable capital goods which were in turn used for manufacture of excisable goods. Further, the circular dated 2nd December, 1996 issued by the CBEC fully supports the case of the Respondent. Therefore, the decision in Saraswati Sugar Mills is distinguishable on facts.
15. Reference could also be made to the decision in Commissioner of Central Excise, Jaipur v. M/s. Rajasthan Spinning & Weaving Mills Ltd. 2010 (255) E.L.T.481 (S.C.) where the Supreme court allowed MODVAT credit on steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set. In the said decision, the Supreme Court referred to the 'use test' evolved in Commissioner of Central Excise, Coimbatore v. Jawahar Mills Ltd. 2001 (132) E.L.T. 3 (S.C.). The Madras High Court in CCE, Salem v. Madras Aluminium Co. Ltd. 2017 (349) ELT 133 (Mad.) also deployed a similar test. The decision of the said Madras High Court in India Cements Ltd. 2012 (285) ELT 341 (Mad.) which has discussed the decision of the Supreme Court in Saraswati Sugar Mills is also relevant in this context.
16. The view taken by the CESTAT is consistent with the decisions of the Madras High Court in CCE, Salem v. Madras Aluminium Co. Ltd. and India Cements Ltd. (supra).
17. For the aforementioned reasons, the questions framed by this Court are answered as under:
Page 9 of 10a. Question (i) is answered in the affirmative by holding that the CESTAT was justified in dismissing the Department's appeal since the credit was claimed in respect of the inputs used for fabrication items supporting structures of capital goods. b. Question (ii) is answered in the affirmative by holding the CESTAT was right in law by allowing CENVAT Credit on the goods used for fabrication of supporting structure for capital goods. c. Question (iii) is answered in the affirmative by holding that the Tribunal was right in law in holding that the fabrication goods used for supporting structures were capital goods for which CENVAT Credit was allowable.
18. These appeals are accordingly dismissed, but in the circumstances, with no order as to costs. An urgent certified copy of this order be issued as per Rules.
(Dr. S. Muralidhar) Chief Justice (A. K. Mohapatra) Judge M. Panda Page 10 of 10