Custom, Excise & Service Tax Tribunal
Cce, Hyderabad-Iii vs M/S. Itc Ltd on 18 July, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench Division Bench Court I Appeal No.E/914/2006 (Arising out of Order-in-Appeal No.29/2006 (H-III)CE dt. 29/05/2006 passed by CC&CE(Appeals), Hyderabad) For approval and signature: Honble Mr. Madhu Mohan Damodhar, Member(Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? CCE, Hyderabad-III ..Appellant(s) Vs. M/s. ITC Ltd. ..Respondent(s)
Appearance Shri Guna Ranjan, Superintendent(AR) for the appellant.
Shri Karan Talwar, Advocate for the respondent.
Coram:
Honble Mr. Madhu Mohan Damodhar, Member(Technical) Date of Hearing:18/07/2016 Date of decision:18/07/2016 FINAL ORDER No._______________________ [Order per: Madhu Mohan Damodhar] The facts of the case as put forth by the appellant/Department are as follows:-
M/s. ITC Limited., hereinafter referred to as respondent/assessee, are manufacturers of Paper and Paper board and are availing CENVAT Credit, inter alia, on Furnace Oil, transformer oil, Lubricant Oil and Grease. The Department issued a show cause notice dated 23.09.1994 proposing denial of CENVAT credit on all four items, and confirmed the same in Order-in-Original dated 9.11.1995. Aggrieved with the said order, M/s ITC Limited filed an appeal before the Commissioner (Appeals) vide Order-in-Appeal No.386/96(H)CE dated 24.9.1996 set aside the order and allowed the CENVAT credit on all four items. The Department appealed against the said Order-in-Appeal, before the CESTAT. The Order-in-Appeal was stayed vide Tribunal Stay Order No. 135/1997 dated 14.3.1997. The respondents reversed an amount of Rs.6,76,350/- in their CENVAT account, under protest. Two Show Cause Notices were issued covering the period October 1996 to January 1997 for Rs.10,21,939/- and February 1997 to July 1997 for Rs.2,22,850/-. Tribunal allowed the Department appeal vide Order No.129/98 dated 27.01.1998 and disallowed the credit. Tribunal disposed of the reference application against the final order no. 129/98 filed by the respondents vide Referral Order No. 232/1998 and Miscellaneous Order No. 827/1998 dated 08.02.1999 and referred the matter of eligibility of CENVAT credit on lubrication oil and grease before Honble High Court of Andhra Pradesh (R.C.No. 75 /1999). In the meantime, the aforesaid two show cause notices were adjudicated vide Order-in-Original dated 31.01.2006 which ordered recovery of CENVAT Credit of Rs.12,44,789/- along with interest at applicable rates and adjustment of an amount of Rs.6,76,350/- already paid to the Department under protest. Against the OIO, assessee went in appeal before Commissioner (Appeals) who held that the claim of the assessee in respect of furnace oil has attained finality as the department has not filed any appeal, and contested only for three items viz., transformer oil, lubricant oil and grease. The Commissioner (Appeals) further observed that as the department has not filed appeal with regard to transformer oil and also as the Honble Tribunal did not refer it to the Honble High Court of Andhra Pradesh, there is no dispute in respect of credit on transformer oil and held that the Order-in-Appeal No.386/96(H) CE dated 24.9.1996, w.r.t. the two items viz., lubricant oil and grease holds good; that as the duty involved on all three items were debited by the assessee, there is no further revenue to be realised till the Tribunal orders otherwise, on the basis of opinion of the Honble High Court of Andhra Pradesh.
2. Aggrieved by the order of Commissioner(Appeals), the Department is in appeal before this Tribunal to set aside the said order and issue order for de novo in the matter with directions to keep it pending till High Court decides the issue under reference to it.
3. During the hearing Shri Guna Ranjan, learned AR, reiterated the grounds of the department appeal.
4. On behalf of the respondent, learned advocate Shri Karan Talwar reiterated the grounds of appeal filed by the appellant and further pointed out that the reference made by the department to the Honble High Court has been dismissed.
5. In the circumstances, the matter will have to be decided by this Tribunal as if no reference had been made to the Honble High Court on the legal correctness or otherwise of holding that lubricating oil and grease used in the respondent assessees factory are not eligible for the benefit of Modvat credit in terms of Rule 57A.
6. I find that the issue is no longer res integra and has been considered by the Larger Bench of the Tribunal in CC&CE, Meerut-I Vs. Modi Rubber Ltd. [2000(119) ELT 197 (Tri. LB)]. The relevant portion of the order is reproduced below:-
14. We have already noted the precise function of? the lubricants as stated by Ld. Consultant vide para (5) of this order. We agree with his submissions on the point. Unless the machinery of the assessees are lubricated with the lubricants, heat will be generated on account of mechanical friction between the working surfaces of the machinery leading to adverse consequences affecting the process of manufacture as rightly submitted by Ld. Consultant. The friction and the resultant heat are also sure to cause damage to the machinery. These facts would suffice to hold that lubrication of the machines and machinery is essential for their working and, for that matter, for the smooth process of manufacture of final products. Ld. DR's plea that the lubricants are used only for better operation of the machines is not tenable. Again, it does not matter whether the goods are used in the machinery or for the purpose of the machinery. Lubrication of the machinery is an activity which is concerned with or pertaining to the manufacture of the finished goods. It is rather integrally connected with the manufacture. The use of lubricants in the machinery is certainly in or in relation to the manufacture of the finished products.
15. It follows from the foregoing discussion that? the question whether lubricants used for lubrication of machinery employed for the manufacture of finished products are 'inputs' within the meaning of this term under Rule 57A requires to be answered in the affirmative by squarely following the ratio of the decision of this Tribunal in Union Carbide India Ltd. (supra). Accordingly, we hold that the lubricants in question were used in or in relation to the manufacture of paper products and the same qualified to be inputs for the purpose of Modvat credit under Rule 57A during the relevant period.
16. In the light of our decision, the views taken in? the cases of Pragati Paper Mills (supra), Black Diamond Beverages Ltd. (supra) and Sipta Coated Steel Ltd. (supra) have to be accepted as correct in law.
17. We shall now advert to the contra decision of? the Tribunal in the case of Kanoria Sugar & General Mfg.Co. Ltd. (supra) which was strongly relied on by Ld. JDR. In that case, the Single Member Bench formulated the issue to this effect: whether the lubricating oils and greases used for maintenance of the machinery used for manufacture of sugar and molasses qualified to be inputs for the purpose of Modvat credit under Rule 57A. The Bench observed that Rule 57A did not define 'input' and sought to draw a line between inputs which were essential for the manufacture of the final products and those which were not so essential. According to the Bench, inputs which are essential for the manufacture of the final products are eligible for the modvat credit under Rule 57A regardless of whether they are used directly or indirectly or whether they are lost in the process of manufacture or whether they are visible or not in the end-products. Other inputs which are not essential for the manufacture would not qualify as 'inputs' for the purpose of modvat credit. On this basis, learned Single Member held that the lubricants in question which (according to Ld. Member) were used only for the better operation of the machinery fell outside the category of essential inputs and hence, did not qualify for Modvat credit under Rule 57A. Though Ld. Member was right in his observation that lubricants and greases were not in the exclusion category, it was not correct to observe that Rule 57A did not define 'inputs'. The definition of 'inputs' is inbuilt in the rule as we have already observed. The finding of the Bench to the effect that the lubricants were used for better operation of the machinery was not only inapposite to the issue formulated by it but also was erroneous inasmuch as the said goods used for lubrication of the machinery were essential for manufacture of the finished products. The Bench sought to draw a line between essential inputs and non-essential ones and classified lubricants in the category of the latter. Such a drawing of line itself was not essential for deciding the issue.
7. In the light of the discussions hereinabove and also drawing sustenance from the ratio of the Larger Bench decision supra, I am of the considered opinion that the appellants are eligible for Modvat credit on the impugned items under erstwhile Rule 57A of Central Excise Rules, 1944. In consequence, the appeal filed by the Department is dismissed.
(Operative part of this order was pronounced in court on conclusion of the hearing) (MADHU MOHAN DAMODHAR) MEMBER(TECHNICAL) Raja..
7