Custom, Excise & Service Tax Tribunal
Prism Cement Unit-Ii vs Cce & St,Bhopal on 28 October, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing:20.10.2016
Date of Decision:28/10/2016
Excise Appeal No.55228/2013-EX(DB)
[Arising out of Order-in-Original No.50-52/Commr/CEX/ADJ/STN/2012 dated 8.10.2012 passed by the Commissioner, Customs ,Central Excise & Service Tax, Bhopal]
Prism Cement Unit-II Appellants Appellant
Vs.
CCE & ST,Bhopal Respondent
Appearance:
Rep. by Shri B.L. Narsimhan, Advocate for the appellant.
Rep. by Shri Amresh Jain, DR for the respondent.
Coram: Honble Mr. Justice (Dr.) Satish Chandra, President Honble Mr. B. Ravichandran, Member (Technical) Final Order No.54613/2016 Per B. Ravichandran:
The appeal is against order dated 8.10.2012 of Commissioner of Central Excise, Bhopal. By the impugned order, the Commissioner decided three show cause notices covering the period April, 2009 to June, 2011. The appellants are engaged in the manufacture of cement liable to central excise duty. During the impugned period, the appellants were setting-up a new cement plant adjacent to existing plant and machinery. The activities involved in setting up of the said new plants are as below:-
(a) Civil construction for housing machinery /equipments;
(b) Foundation for erection/commissioning of various machineries/equipments ;
(c ) Support structures of various machineries & equipments;
(d) conveyors and supports;
(e) storage tanks (cement silo, clinker silo, Ash Silo etc.);
(f) Fabrication of machinery/mechanical equipments, erection/commissioning ; and
(g) Fabrication of ancillary items viz. Hopper, Ducts, Chuts, Chimney, Expansion bellows, Pipe and other connecting/fitting etc.
2. The appellants availed cenvat credit of duty paid on steel items used in the above activities except at Sl.No.(a) above, upto 6.7.2009. Thereafter, they have availed credit of duty paid on steel items with reference to (d), (e) and (f) stated above and did not claim credit on (a), (b) & (c). In these circumstances, the department entertained a view that the appellants were availing cenvat credit, which are not eligible to them and accordingly issued three show cause notices to demand and recover cenvat credit availed on various steel items. The main ground for the demand is that these steel items were used in the fabrication of supporting structures and also in creation of immovable assets and as such, the appellants are not eligible for credit. The Original Authority decided these notices vide impugned order dated 8.10.2012. The Commissioner in the said order disallowed a credit of Rs.3,14,26,448/- and imposed equal amount of penalty on the appellants.
3. Ld. Counsel for the appellant submitted that the cenvat credit on steel items are admissible as inputs as well as capital goods. The reliance placed in the impugned order upon amendment dated 7.7.2009 to the definition of inputs in Rule 2 (k) of CCR is not applicable to M.S. Flats, Plates, etc., which are exclusively used for fabrication of capital goods. The appellants have already submitted a certificate from Chartered Engineer to substantiate their claim that such steel items have been used to fabricate and install capital goods only. It was submitted that the impugned order failed to appreciate the facts as narrated in the said certificate.
4. Ld. Counsel further submitted that the inputs in the form of various steel items were specifically used for the manufacture of specified capital goods falling under Chapter 82, 84 and 85 of the Central Excise Tariff. Without erection and installation and operation of these capital goods, the manufacture of cement is not possible. It was also submitted that though the steel items by themselves cannot be classified as capital goods, but by their respective usage inside the premises of the appellant, in fabrication of various capital goods and machinery have become accessories or components of such capital goods. Reliance was placed on the Honble Supreme Courts decision in the case of Rajasthan Spinning & Weaving Mills Ltd. 2010 (255) ELT 481 (SC).
5. Ld. Counsel submitted that emphasis on immovability of the machinery fabricated using the inputs due to their embedding in the earth is not a relevant criteria to decide the credit availability. Though they have already submitted that the goods fabricated are not immovable, further submission is made without prejudice to that. Reliance was placed on the decision of the Honble Karnataka High Court in the case of SLR Steels Ltd. 2012 (280) ELT 176 (Karnataka).
6. Ld. Counsel also submitted that the amendment to the definition of inputs w.e.f. 7.7.2009 has no relevance to the case in hand. Such amendment cannot be applied retrospectively as held by the Honble Gujarat High Court in Mudra Ports and Special Economic Zone Ltd. 2015-39-STR-726-Gujarat. The said view has been followed by the Tribunal in a many cases later.
7. Ld. AR supported the findings in the impugned order. He submitted that the various steel items used by the appellant have become part of immovable structure in the large fabrication involved in the creation of cement plant. These civil structures per se cannot be termed as capital goods. The goods, which are attached to the earth in a manner to make them immovable cannot be considered as capital goods. Consequently, any steel items used in conjunction with such immovable items cannot be allowed credit.
8. We have heard both the sides and perused the appeal records.
9. It is the case of the appellant that exclusion made w.e.f. 7.7.2009 as per the amended definition under Rule 2(k) of CCR is of no relevance to their case. The exclusion made is to the effect that the inputs used in the manufacture of capital goods elgible for credit shall not include cement, angles, channels, CTD bar, TMT bars and other items used for construction of factory shed, building or laying foundation or making structures for support of capital goods. The applicability of such exclusion for the period prior to 7.7.2009 has been examined by the Honble Gujarat High Court in the case of Mudra Port (supra).It was held that exclusion brought in by the amendment cannot be given retrospective effect. The Honble Madras High Court in Thiru Arooran Sugars 2015-TIOL-1734-HC MAD-CX held as under-
8. Learned Standing Counsel appearing for the Revenue heavily relied upon the decision reported in - 2011-TIOL-73-SC-CX (Saraswati Sugar Mills V. Comissioner of Central Excise, Delhi - III) in Civil Appeal No.5295 of 2003 dated 02.08.2011. However, we find that this Court has earlier considered the issue in C.M.A.No.1301 of 2005 dated 31.12.2012, wherein, while dismissing the appeal filed by the Revenue the Division Bench of this Court held as follows:
"8. Even though learned standing counsel appearing for the Revenue submitted that the judgment in the assessee's own case reported in AIT-2011-358-HC = 2011-TIOL-558-HC-MAD-CX (The Commissioner of Central Excise V. M/s. India Cements Limited) had been appealed against, as of today, there are no details; in any event, the fact herein is that the Revenue does not controvert the facts found by the Assistant Commissioner that the impugned goods were used for fabrication of structurals to support various machines like crusher, kiln, hoppers, pre-heaters conveyor system etc. and that without these structurals, the machinery could not be erected and would not function.
9. In the decision reported in AIT-2011-358-HC = 2011-TIOL-558-HC-MAD-CX (The Commissioner of Central Excise V. M/s. India Cements Limited), pointing out to Rule 57Q and the interpretation placed by the Apex Court in the decision reported in 2010 (255) E.L.T.481 = 2010-TIOL-51-SC-CX (Commissioner of Central Excise Jaipur V. Rajasthan Spinning & Weaving Mills Ltd.) and in particular Paragraph Nos.12 and 13, wherein the Apex Court had applied the user test by following the Jawahar Mills's case, this Court held that steel plates and M.S.Channels used in the fabrication of chimney would fall within the ambit of "capital goods". In the face of this decision in the assessee's own case there being no new circumstance or decision in favour of the Revenue, we do not find any good ground to take a different view herein too.
10. As far as the reliance placed by the Revenue on the decision reported in 2011 (270) E.L.T.465 (SC) = 2011-TIOL-73-SC-CX (Saraswati Sugar Mills V. Commissioner of C.Ex., Delhi-III) is concerned, we do not think that the said decision would be of any assistance to the Revenue, considering the factual finding by the Tribunal therein in the decided case that the machineries purchased by the assessee were machineries themselves. Thus, after referring to the decision reported in 2010 (255) E.L.T.481 = 2010-TIOL-51-SC-CX (Commissioner of Central Excise Jaipur V. Rajasthan Spinning & Weaving Mills Ltd.), the Apex Court held that in view of the findings rendered by the Tribunal that the machineries were complete and having regard to the meaning of the expression "components/parts", with reference to the particular industry in question, the Apex Court rejected the appeal filed by the assessee.
11. Thus going by the factual finding, which are distinguishable from the facts found by the Authorities below in the case on hand, we have no hesitation in rejecting the Revenue's appeal, thereby confirming the order of the Tribunal.
12. Learned standing counsel appearing for the Revenue pointed out that the Tribunal had merely passed a cryptic order by referring to the earlier decisions. We do not think that this would in any manner prejudice the case of the Revenue, given the fact that on the identical set of facts, the assessee's own case was considered by this Court and by following the decision reported in 2010 (255) E.L.T.481 = 2010-TIOL-51-SC-CX (Commissioner of Central Excise Jaipur V. Rajasthan Spinning & Weaving Mills Ltd.), the Revenue's appeal was also rejected. In the circumstances, this Civil Miscellaneous Appeal is dismissed. No costs. Consequently, C.M.P. No.16107 of 2005 is also dismissed."
9. From a perusal of the above said judgment, it is seen that there is no change in the circumstance and this Court had already considered the issue and held that the decision reported in - 2011-TIOL-73-SC-CX (Saraswati Sugar Mills V. Commissioner of Central Excise, Delhi - III) in Civil Appeal No.5295 of 2003 dated 02.08.2011 is distinguishable on facts. This Court applied the principles laid down in the decision reported in 2010 (255) E.L.T.481 = 2010-TIOL-51-SC-CX (Commissioner of Central Excise Jaipur V. Rajasthan Spinning & Weaving Mills Ltd.) and held in favour of the assessee.
10. Hence, following the principles laid down in the decision reported in 2010 (255) E.L.T.481 = 2010-TIOL-51-SC-CX (Commissioner of Central Excise Jaipur V. Rajasthan Spinning & Weaving Mills Ltd.) and the earlier decision of this Court in C.M.A.No.3101 of 2005 dated 13.12.2012, we are inclined to allow the appeal, thereby set aside theorder of the Tribunal. Accordingly, the above Civil Miscellaneous Appeals stand allowed. No costs. Consequently connected Miscellaneous petitions are closed.
10. Accordingly, the reliance placed by the impugned order on the decision of the Tribunal in Vandana Global Ltd. 2010 (253) ELT 440 (Tribunal-LB) for retrospective application of such exclusion is not legally tenable.
11. We note that the eligibility of steel items for cenvat credit has been a subject matter of decision by the Tribunal, Honble High Courts and the Honble Supreme Court in various cases. It has been held by the Tribunal consistently that the steel items when they were used in fabrication of capital goods and their accessories inside the manufacturing premises are eligible for credit. The principle of user test evolved by the Honble Supreme Court in Rajasthan Spinning and Weaving Mills (supra) has been applied in this regard. A reference can be made to the latest decision of the Tribunal in Singhal Enterprises vide Final Order No.53013 dated 12.08.2016. The findings are as under:-
13. Now we turn to the question, whether credit is admissible on various structural steel items, such as, MS Angles, Sections, Channels, TMT Bar etc., which have been used by the appellants in the fabrication of support structures on which various capital goods are placed? The same stands denied by the lower authority. The learned DR has sought disallowance of the same by citing the decision of the Larger Bench in the case of Vandana Global Ltd. (supra) and other judgments. Further, he has brought to our notice and emphasised the amendment carried out in Explanation-II to Rule 2(a) which defines the term input w.e.f. 07.07.2009. It has further been pleaded that the cenvat credit claimed for the period prior to this will be covered within the decision of the Larger Bench in the case of Vandana Global Ltd. (supra).
14. The Larger Bench decision in Vandana Global Ltd.s case (supra) laid down that even if the iron and articles were used as supporting structurals, they would not be eligible for the credit, considering the amendment made w.e.f. 07.07.2009 as a clarification amendment and hence to be considered retrospectively. However, we find that the said decision of the Larger Bench was considered by the Honble Gujarat High Court in the case of Mundra Ports & Special Economic Zone Ltd. 2015 (04) LCX0197, wherein it was observed that the amendment made on 07.07.2009 cannot be held to be clarificatory and as such would be applicable only prospectively.
15. We find that the controversy can be laid to rest by making a reference to the decision of the Apex Court in the case of CCE, Jaipur vs. Rajasthan Spinning & Weaving Mills Ltd. -2010 (255) ELT 481(SC), wherein the Honble Supreme Court has considered an identical issue of steel plates and MS channels used in the fabrication of chimney for diesel generating set. The credit stands allowed in the light of Rule 57Q of the erstwhile Central Excise Rules, 1944. In the said judgment, the Apex Court has referred to the user test evolved by the Apex Court in the case of CCE, Coimbatore vs. Jawahar Mills Ltd. -2001 (132) ELT 3 (SC), which is required to be satisfied to find out whether or not particular goods could be said to be capital goods. When we apply the user test to the case in hand, we find that the structural steel items have been used for the fabrication of support structures for capital goods. The appellants have argued that the various capital goods, such as, kiln, material handling conveyor system, furnace etc. cannot be suspended in mid air. They will need to be suitably supported to facilitate smooth functioning of such machines. It is obvious that the structural items have been suitably worked upon for this purpose. Accordingly, the goods fabricated, using such structurals, will have to be considered as parts of the relevant machines. The definition of Capital Goods includes, components, spares and accessories of such capital goods. Accordingly, applying the User Test to the facts in hand, we have no hesitation in holding that the structural items used in the fabrication of support structures would fall within the ambit of Capital Goods as contemplated under Rule 2(a) of the Cenvat Credit Rules, hence will be entitled to the Cenvat Credit.
12. We also note that emphasis was made by Revenue on the immovability of the capital goods, the fabrication of which was done using the duty paid items. We note that the capital goods as defined under Rule 2 (a) if CCR, 2004 includes apart from all goods falling under Chapter 82, 84, 85, 90, etc. Pollution Control Equipment, moulds, dies, jigs and fixtures, refractory and refractory materials, tubes and pipes and fittings thereof, storage tank, etc. For instance, it cannot be said that the credit on storage tank and other large capital goods will be allowed only if they are brought into the premises of the manufacturer as such in a movable condition. Storage tanks and pollution control equipments, etc are fabricated and integrated to the other machines of the plant in a factory. When a storage tank is linked to the other processing machine, the pipe and other fittings including their accessories, which hold such linkage will necessarily form part of the machinery and cannot be denied credit on the ground that they are fixed permanently. In any case, except for a summary assertion in the impugned order, it is not categorically established in the present case that all the steel items are used in creation of immovable assets only. On the contrary, the appellants submitted detailed certificate by a Chartered Engineer. We have perused the same. The said certificate records that upon physical examination, it was certified that the steel items have been used for fabrication of various equipments/accessories in various locations of the plant. A detailed list of the description of location and nature of use has also been provided. We have noted that the impugned order summarily concluded that the usage as mentioned in the chart submitted by the appellant clearly suggest that these items, which fabricated are only civil structures unique to civil plant. We are not able to accept such summary conclusion by the Original Authority. A perusal of the usage of the detailed summary as well as supporting photographs submitted by the appellant will show that the various steel items have been used in different manner in capital machinery or associated structure and can rightly be considered as accessories closely inter-connected to the capital goods for their function. The categorical assertion of facts by the appellant as supported by the Chartered Engineer Certificate should have been rebutted with evidences of such nature before making summary conclusion on the basis of the presumption. We find the original order is not legally sustainable.
13. As examined earlier, the various High Courts and Honble Supreme Court have been taking consistent view regarding these steel structures and their eligibility to cenvat credit, which is also being followed by the Tribunal in various decisions. As discussed above, we find that the impugned order cannot be sustained and the same is set aside. The appeal is allowed.
[Order pronounced on 28.10.2016] ( Justice Dr. Satish Chandra) President ( B. Ravichandran ) Member (Technical) Ckp.
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