Custom, Excise & Service Tax Tribunal
S.K.S. Ispat & Power Limited vs C.C.E., Raipur on 16 September, 2016
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R.K.Puram, New Delhi COURT-I Date of hearing: 8.8.2016 Date of Pronouncement:16.09.2016 Excise Appeal No.173 of 2009 Arising out of the order-in-original No. Commr/RPR/88/2008 dated 16.10.2008 passed by the Commissioner , Central Excise, Raipur. S.K.S. Ispat & Power Limited .. Appellant Vs. C.C.E., Raipur .. Respondent
Appearance:
Present Shri B.L. Narasimhan, Advocate, for the appellant/assessee Present Shri R.K. Manjhi, A.R. for the Respondent/Revenue Coram:
Honble Mr. Justice (Dr.) Satish Chandra, President Honble Mr. Ashok K. Arya , Technical Member Final Order No.53591/2016 Per Ashok K. Arya:
This is an appeal against the impugned order dated 16.10.2008 passed by the Commissioner, Central Excise and Customs, Raipur.
2. The impugned order has disallowed the cenvat credit totally amounting to Rs.11,45,87,210 and has imposed equivalent penalty on the appellant. The impugned order also confirmed duty of central excise amounting to Rs.60,27,728/- and has also imposed equivalent penalty on the appellant.
3. The appellant has been represented by the ld. Advocate Shri B.L. Narasimhan who in respect of the issue of Admissibility of Cenvat Credit on iron & Steel items like angles, channels, beams, plates etc. used for fabrication of varous structure(s) supporting capital goods like boiler, coal handling mill, rolling mils inter alia submitted as follows:
(i) The appellant manufactures iron and steel products falling under Chapters 72 and 73 of the First Schedule to the Central Excise Tariff Act, 1985;
(ii) The appellant is using iron and steel items namely angles, channels etc. for manufacture of structures supporting capital goods like boiler, coal handling mills;
(iii) The appellant availed cenvat credit based on detailed records maintained in respect of quantity of iron & steel products like angles, channels, beams etc. used in various projects in the factory; and copies of certificates issued by Chartered Accountant and Chartered Engineer were enclosed with the appeal.
(iv) In respect of the quantity of the items used in civil or other ineligible activity, cenvat credit was not availed.
(v) Cenvat credit was not availed also on quantity of steel used in foundation for erection and installation of various equipments and capital goods.
3.1 The learned Advocate in respect of issue of denial of benefit of Notification No.67/95-CE submitted as follows:
(i) The duty has been demanded on angles, channels, beams manufactured and captively consumed denying exemption under Notification No.67/95-CE by the Commissioner on the ground that the appellant did not provide exact use and place of use of such items saying that the appellant did not maintain stock account of inputs and capital goods manufactured within the factory and did not furnish ER-1 return declaring particulars of such manufacture and clearance for captive consumption and the appellant did not manufacture any capital goods as covered under the definition under Rule 2(a) of Cenvat Credit Rules.
4. The ld. Advocate further submitted as follows:
(i) Extended period of limitation was invoked alleging suppression of material facts.
(ii) Duty demand on iron and steel manufactured and captively consumed denying Notification No.67/95-CE is not sustainable since the details were provided in ER-1 return and details of accounts were maintained and finding to the contrary in the impugned order is erroneous and not sustainable.
(iii) cenvat credit has been correctly availed on the impugned iron and steel item as inputs used for manufacture of various parts/components/ accessories of specified capital goods falling under Chapters 82, 84 and 85 of First Schedule to Central Excise Tariff Act, 1985 in as much without the supporting structures, erection and installation of huge machinery would not be possible and such machinery cannot be operated.
(iv) As per Explanation 2 to Rule 2(a) of Cenvat Credit Rules, 2002/Rule 2(k) of Cenvat Credit Rules, 2004, inputs include goods used in the manufacture of capital goods which are further used in the factory of manufacturer. Since the impugned goods have been used to manufacture parts/components/ accessories of various capital goods within the factory of the Appellant, as per said explanation, Cenvat credit would be admissible on iron and steel items in the present case.
(v) The Appellant submits that steel is to be considered as used in or in relation to manufacture of dutiable final products since without use of such steel, activity of setting up of plant could not have been completed.
(vi) Activities undertaken like cutting, bending, etc., amount to manufacture and that dutiability of resultant product would be at a stage before its use as part of immovable structure as held by Larger Bench of Honble Tribunal in Mahindra & Mahindra Ltd. v. CCE [2005 (190) ELT 301 (Tri-LB)].Since the impugned items have been used for fabrication of various parts / components of specified capital goods, their eligibility for credit is to be decided at the stage before they become part of immovable goods and subsequent use with capital goods which are embedded to earth would be of no consequence. Applying the said ratio, credit taken in the present case is sustainable.
(vii) Even though the word plant was omitted from definition of capital goods, since goods like furnace, conveyor, generator, compressor, etc., are specified goods falling under Chapter 82, 84 and 85 of Central Excise Tariff, credit availed on the impugned iron and steel items for fabricating their parts, components and accessories would be eligible for credit.
(viii) It is reiterated that credit on the impugned items is available as inputs since they were used in the manufacture of capital goods i.e. parts of specified capital goods which were further used in the factory. Alternatively, credit will be admissible as capital goods under the category of components, spares and accessories of specified capital goods.
(C) The appellant also relied on the following decisions:
* JayaswalNeco Ltd. v. CCE, 2015 (319) ELT 247 (SC) * CCE, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd., 2010 (255) ELT 481 (SC) * CCE, Tiruchirapalli v. India Cements Ltd., 2012 (285) ELT 341 (Mad.) * CCE, Tiruchirapalli v. India Cements Ltd., 2014 (305) ELT 558 (Mad.) * CCE v. India Cements Ltd, 2014 (310) ELT 636 (Mad.) * India Cements Ltd. v. CCE, 2015 (321) ELT 209 (Mad.) * Petropole India Ltd. v. CCE, CESTAT, New Delhi Order dated 18-5-2016 * ThiruArooran Sugar v. CCE, 2015-TIOL-1734-HC-MAD-CX * CCE, Belgaum v. Doodhaganga Krishna SSKN., 2013 (297) ELT 361 (Kar.) * UOI v. Associated Cement Company Ltd., 2011(267) ELT 55 (Chhattisgarh) * UOI v. Associated Cement Company Ltd., 2015 (317) ELT 44 (Chhattisgarh) * CCE. V. A.P.P. Mills Ltd., 2013 (291) E.L.T. 585 (Tri. - Bang.) * CCE v. SLR Steels Ltd., 2012 (280) E.L.T. 176 (Kar.) * Monnet Ispat& Energy Ltd. v. CCE, 2015 (330) E.L.T. 711 (Tri. - Del.) * The India Cements Ltd. v. CCE, 2015-TIOL-2715-CESTAT-MAD * Omax Auto v. CCE, 2014 (314) E.L.T. 439 (Tri. - Del.) * Jodhpur Alloys Pvt. Ltd. v. CCE, 2013 (292) E.L.T. 448 (Tri. - Del.) * CCE v. Hi-Tech Power & Steel Ltd., 2015 (315) E.L.T. 428 (Tri. - Del.) * Simbhaoli Sugars v. CCE, 2016-TIOL-550-CESTAT-ALL * CCE v. Jindal Steel & Power Ltd., 2015 (330) E.L.T. 708 (Tri. - Del.) * Mundra Ports & Special Economic Zone Ltd. v. CCE, 2015 (39) S.T.R. 726 (Guj.) * Ultratech Cement Ltd. v. CCE, 2016 (332) E.L.T. 356 (Tri. - Del.) * VST Industries v. CCE, 2015 (330) E.L.T. 565 (Tri. - Bang.) * Shree Narmada KhandUdyogSahakariMandli Ltd. v. CCE, 2015 (329) E.L.T. 820 (Tri. - Ahmd.) * ITC Ltd. v. CCE, 2012 (285) E.L.T. 292 (Tri. - Chennai) * CCE v. Orion Ferro Alloys Pvt. Ltd., 2010 (259) E.L.T. 84 (Tri. - Del.) * Diamond Power Infrastructure Ltd. v. CCE, 2015 (40) S.T.R. 825 (Tri. - Ahmd.) * SAIL v. CCE, 2008 (222) E.L.T. 233 (Tri. - Kolkata) * Hindustan Copper Ltd. v. CCE, 2006 (206) E.L.T. 276 (Tri. - Del.) * CCE v. Jindal Steel & Power Ltd., 2006 (201) E.L.T. 598 (Tri. - Del.) * Tata Engineering And Locomotive Co. Ltd. v. CCE, 2005 (191) E.L.T. 209 (Tri. - Mumbai) 4.1 The Appellant also submits that quantification of duty demand is not correct as submitted in the Appeal Memorandum and substantial duty demand is hit by time bar. Since detailed records were maintained and credit availed is as per law, no penalty is imposable and no interest is recoverable.
5. The Revenue has been represented by Authorised Representative, Shri R.K. Manjhi, who reiterated the findings of the Commissioner, given in the impugned order dated 16.10.2008.
5.1 The learned D.R., Shri Manjhi further inter alia submitted that as follows:
(i) The appellant is contesting the impugned order on merits and limitation.
(ii) Appellant is not eligible for cenvat credit on structural items on the basis of findings of adjudicating authority.
(iii) The reliance is placed on the following decisions:
* Vandana Global Ltd. vs. C.C.E., Raipur 2010 (253) ELT 440 (Tri-LB).
* Daya Sugar vs. C.C.E., Meerut I 2015 (316) ELT 394 (All.) * Dwarikesh Sugar Industries Ltd. vs. C.C.E., Meerut 2016 (334) ELT 58 (All.) * Bharti Airtell Ltd. vs.C.C.E., Pune III 2014 (35) STR 865 (Bom.) * Tower Vision India Pvt. Ltd. vs.C.C.E. Rohtak 2016 TIOL 639 (CESTAT Del.-LB.
* Commissioner of Customs and Central Excise , Ghaziabad vs. Rathi Steel & Power ltd. 2015 (321) ELT 200 (All.) * Balmer Lawrie Co. Ltd. vs. Commissioner of Central Excise, Belapur 2014 (301) ELT 573 (Tri-Mumbai)
6. Both sides have been heard in detail. The facts of the case and the submissions as well as case law cited by the appellant as well as the respondent have been carefully considered.
7. The appeal involves mainly two issues. The first issue is admissibility of cenvat credit on iron and steel items (structural steels) used for fabrication of various structures of plants and machineries at site and /or in manufacture of structures supporting capital goods like boiler, coal handling mill, rolling mill, furnaces, conveyors, chimneys etc. The second issue is duty demand on angles, channels, etc. manufactured and captively consumed in fabrication of structures of capital goods where benefit of Notification No.67/95-CE dated 16.3.95 has been denied to the appellant.
7.1 In the case of first issue where cenvat credit has been denied on iron and steel items like angles, channels etc. , it is necessary to refer to the Rule 2(k) of Cenvat Credit Rules, 2004 which defines inputs. It would be appropriate to reproduce Rule 2(k) of Cenvat Credit Rules, 2004 along with the Explanations:
2(k) input means
(i) all goods , except light diesel oil, high speed oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oil, greases, cutting oils, coolants, accessories of the final products cleared along with the final products, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose used in the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output services;
Explanation 1. The light diesel oil, high speed diesel oil or Motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2.- Inputs include goods used in the manufacture of capital goods, which are further used in the factory of the manufacturer;
For the present facts, it is necessary to consider the definition of input along with Explanation 2. Here in the definition of input, all the goods (except the exclusions given) are included if they are used in or in relation to the manufacture of final product or for any purpose used in the factory of production. Further, Explanation 2 to Rule 2(k) makes it clear that input would include all such goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. In other words, if certain inputs have been used within the factory of production for manufacturing capital goods and if the said capital goods are further used in the said factory, such goods would rightly be called as input within the definition of Rule 2(k) of Cenvat Credit Rules, 2004. The wordings of the above definition/meaning make it clear that if goods are covered as input under the said definition and used in manufacture of final products or in manufacture of capital goods, considering the Explanation 2, the cenvat credit would be admissible, if the other conditions , if any, of eligibility of cenvat credit are fulfilled in their case.
8. The Revenue has submitted that as per definition of capital goods given in Rule 2(a) of Cenvat Credit Rules, 2004, iron and steel items (for structural use) like angles, channels, beams etc. have been used in the manufacture of structural items supporting capital goods like boiler, coal handling mills etc.; and these supporting structures cannot be called capital goods under the said definition of capital goods. Revenue further submits that for such inputs i.e. structural steel items like angles, channels, etc. cenvat credit is not admissible to the appellant. On the other hand, the appellant has submitted that they rightly availed the cenvat credit on such iron and steel (structural steel items), when the said items were used as inputs for manufacture of parts, components, accessories of specified capital goods falling under Chapter 82, 84, and 85 of the First Schedule to the Central Excise Tariff Act, 1985 and inasmuch as without supporting structures, erection and installation of huge machinery would not be possible and such machinery cannot be operated.
8.1 Revenue further submits taking support from the decision of the Larger Bench of the Tribunal in the case of Vandana Global Ltd. 2010 (253) ELT 440 (Tri-LB) and other decisions listed in their written submissions mentioned in the para 5.1 above that the appellant is not eligible for cenvat credit on the findings of the impugned order. The appellant however submits that the submissions and the arguments of the Revenue do not have any sufficient force for sustaining the impugned order in the face of the Honble Supreme Courts decision in Rajasthan Spinning & Weaving Mills Ltd. 2010 (255) ELT 481 (SC) and other decisions listed by them as mentioned earlier in this order in para 4.
8.2 Revenue argues that structural steel items like angles, channels, beams, etc. have been used for manufacturing supporting structures for capital goods like boilers, coal handling mills, and said supporting structures cannot be called capital goods, and/or goods even; therefore, for the said inputs cenvat credit is not admissible.
8.2.1 But we are unable to comprehend that when there are no supporting structures for capital goods like boilers, coal handling mills, how would these capital goods/equipments operate? In other words, in order to make such capital goods like boilers, coal handling mills, conveyors etc. fully operational (for further use in manufacture of final products in a factory), supporting structures fabricated/erected for installation of capital goods like boilers etc. are must and, therefore, are to be clubbed with and, kept in the category of capital goods or they be in the category of accessory to capital goods. It is justified that one should have discriminating view regarding eligibility of cenvat credit for steel items etc. used for fabrication and manufacture of various structures of plant and machineries including supporting structures for the capital goods. But when said structures are specifically meant to make the capital goods like boilers, coal handling mills etc. fully operational and when the said boilers etc. are integral part of the manufacturing operations of steel plant (factory), where iron and steel products are manufactured, one cannot say that subject steel items (structural steels like angles, channels, beams, plates etc.) are not cenvatable items in case of the said steel manufacturing plant /factory.
8.2.2 We emphasise that one cannot be oblivious to the basic requirements of making any machinery or engineering goods fully usable/operational. For example an household item like a washing machine or a T.V. may need some screws/stand/cables etc. to make them usable/operational. Therefore, such screws/stand/cables have to be categorized as essentials of said washing machine/T.V. and when an order is placed for purchase of a washing machine/T.V. we naturally tend to place order (if not supplied along with the washing machine/T.V.) for such essentials in order to make use of said washing machine/T.V. By using same analogy, it is necessary to examine if the subject structural steel items are finally essential accessory to related capital goods or are essential (input) used in or in relation to manufacture of final products or for any other purpose, within the factory of production. Further in terms of the wordings of Explanation 2 to Rule 2(k) of Cenvat Credit Rules, 2004, it is necessary to examine if subject structural steel items are essential (input) used in the manufacture of capital goods which are further used in the factory (steel plant) of manufacturer of steel, who is the appellant.
8.3 We find that Honble Madras High Court in the case of C.C.E., Tiruchirapalli vs. India Cements Ltd. 2012 (285) ELT 341 (Mad.), has held that structural steel items used for structure of plant comprising concrete foundation, concrete silos for storing raw materials would be eligible items for claiming cenvat credit. In this regard the Honble High Courts observations in the said case are reproduced below:
7.?.. As far as the other items, namely, Rebar Coils, CTD Bars, TOR Steel and Cement are concerned, as to whether they are capital goods or not, the Tribunal having regard to the law laid down by the Apex Court in Jawahar Millss case, has liberally construed the above Rule and factually found that these are the items, which are used for the purpose of construction of the plant comprising of concrete foundations, concrete silos for storing raw materials, clinker and cement, pre-heater tower structure, load centres etc. Having regard to the above factual findings, the Tribunal had found that these items are not used for civil construction, but for the construction, which are absolutely necessary for establishing a manufacturing unit for cement.
8.?The question as to how Rule 57Q should be interpreted came up recently before the Apex Court in the judgment reported in 2010 (255) E.L.T. 481 (Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd.). In paragraphs 12 and 13, while applying the user test and following the Jawahar Millss case, the Apex Court has held that even though steel plates and M.S. Channels used in the fabrication of chimney would fall within the ambit of capital goods.
8.4 Further in the case of of C.C.E., Tiruchirapalli vs. India Cements Ltd. 2014 (305) ELT 558 (Mad.), the assessee was held to be entitled to the claim of modvat credit in the case of structural steel items like M S plates, angles, channels and HR sheets used for civil construction activity. The Honble Madras High Court, in the above case has again quoted the Honble Supreme Courts decision in the case of C.C.E., Jaipur vs. Rajasthan Spinning & Weaving Mills - 2010 (255) ELT 481 (SC). The Honble Supreme Court in the said case sustained the CESTAT order holding that steel plates and MS channel used in the fabrication of chimney for diesel generating set (by treating these items as capital goods) are admissible items for cenvat credit. For the present facts also on the issue of admissibility of cenvat credit on the subject structural steel items, we use the same reasoning of applying the user test as mentioned by the Honble Supreme Court in the case of Rajasthan Spinning and Weaving Mills and we hold that subject structural steel items like angles, channels, beams are eligible for cenvat credit here.
8.4.1 Here, we would like to refer to Honble Supreme Court in the case of Commissioner of Central Excise, Coimbatore vs. Jawahar Mills Ltd. 2001 (132) ELT 3 (SC). In this case the Honble Supreme Court has discussed the issue of taking modvat on capital goods under Rule 57Q of erstwhile Central Excise Rules, 1944. The Honble Supreme Court observes that definition of capital goods is very wide and inter alia observed that such capital goods may not be used for producing final product and only requirement is that the same should be used in the factory of manufacturer. The Honble Supreme Court in this case inter alia states that the modvatability of an item, and whether the item has been used for capital goods or not would be decided mainly upon user of the said capital goods. In other words, the manufacturers user of the said capital goods will determine whether the modvat (presently called cenvat credit) could be claimed with reference to the said items. The same user test has been quoted and applied by Honble Supreme Court in the case of Rajasthan Spinning & Weaving Mills (supra) where steel plates and MS channels used in the fabrication of chimney were held admissible for claiming cenvat/modvat. In this regard, the observations made by the Honble Supreme Court in the case of Jawahar Mills (supra) are given below:
4. The aforesaid definition of Capital goods is very wide. Capital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances. Any of these goods if used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final product would be Capital goods, and, therefore, qualify for availing Modvat credit. Per clause (b), the components, spare parts and accessories of the goods mentioned in clause (a) used for the purposes enumerated therein would also be Capital goods and qualify for Modvat credit entitlement. Clause (c) makes moulds and dies, generating sets and weigh bridges used in the factory of the manufacturers as capital goods and thus qualify for availing Modvat credit. The goods enumerated in clause (c) need not be used for producing the final product or used in the process of any goods for the manufacture of final product or used for bringing about any change in any substance for the manufacture of final product and the only requirement is that the same should be used in the factory of the manufacturer. Thus, it can be seen that the language used in the explanation is very liberal.
Further, the Honble Supreme Court in the case of Rajasthan Spinning & Weaving Mills (supra), inter alia observed as under:
12.?Inter alia observing that capital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances if any of these goods is used for producing or processing of any goods or for bringing about any change in the substance for the manufacture of final product, although this view was expressed in the light of the afore-noted definition of capital goods in the said Rule, which is not there in Rule 57Q, as applicable in the instant case, yet the user test evolved in the judgment, which is required to be satisfied to find out whether or not particular goods could be said to be capital goods, would apply on all fours to the facts of the present case, in fact, in para 6 of the said judgment, the court noted the stand of the learned Additional Solicitor General, appearing for the Revenue, to the effect that the question whether an item falls within the purview of capital goods would depend upon the user it is put to. 8.5 We have considered all the submissions along with case laws including Larger Bench decision of CESTAT in the case of Vandana Global (supra), given by the Revenue; however in our considered view , in the light of the Honble Supreme Courts decision in the case of M/s Rajasthan Spinning & Weaving Mills (supra) and Honble Madras High Court decision in the cases of C.C.E., Tiruchirapalli vs. India Cements Ltd. 2012 (285) ELT 341 (Mad.) and C.C.E., Tiruchirapalli vs. India Cements Ltd. 2014 (305) ELT 558 (Mad.) , the stand taken by the Revenue is not acceptable for the facts present for the case in hand.
8.6 Further, considering the observations made by the Honble Supreme Court in the case of Jawahar Mills and Rajasthan Spinning & Weaving Mills (supra) and after applying the user test we are of the considered view that the subject items namely, angles, channels, beams etc. would be eligible for the cenvat credit.
8.7 In view of the above discussion, the appeal on this issue is allowed with consequential relief.
9. The second issue in the appeal is the denial of exemption benefit of Notification No.67/95-CE for the items like angles, channels, beams manufactured and captively consumed for fabrication of structural goods by the appellant. The adjudicating authority namely the Commissioner has denied the benefit of exemption Notification No.67/95-CE dated 16.3.95 mainly on the ground that the appellant did not maintain stock account of inputs and so-called capital goods manufactured within the factory nor did they furnish any ER-1 return to declare the particulars of such manufacture and captive clearance.
9.1 On the other hand, the appellant argues that they submitted all details of iron and steel items manufactured and captively consumed in the form of ER -1 return and also submitted that the details of records were being maintained but the same was not considered by the authorities below.
9.2 From the language of the Notification, prima facie, it appears that the appellant is entitled to the benefit of Notification No.67/95-CE as the iron and steel items like angles, channels, beams etc. have been claimed to be captively consumed in the fabrication of structure of capital goods. When the details submitted by the appellant was not examined by the Commissioner then we are of the view that matter needs fresh adjudication. Hence, this matter is remanded to the original adjudicating authority who will decide the issue de novo after examining all the records of evidence of use and consumption of subject items, if not already produced, the same are to be produced by the appellant before the original adjudicating authority within one month from the date of receipt of this order and thereafter within next two months, the original adjudicating authority shall pass appropriate orders.
10. The appeal is partly allowed in above terms.
(Pronounced in the open Court on 16.09.2016)
(Justice Dr. Satish Chandra) President
(Ashok K. Arya)
Technical Member
scd/
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