Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Nagpur vs Kec International Ltd on 27 January, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. APPEAL No. E/1482/10-Mum (Arising out of Order-in-Appeal No. SR/182/NGP/2010 dated 15.6.2010 passed by Commissioner of Central Excise (Appeals), Nagpur) For approval and signature: Honble Mr. S.S. Garg, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No 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 Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Commissioner of Central Excise, Nagpur Appellant Vs. KEC International Ltd. Respondent Appearance: Shri S.V. Nair, Assistant Commissioner (AR), for appellant Shri Archit Agarwal, C.A., for respondent CORAM: Honble Mr. S.S. Garg, Member (Judicial) Date of Hearing: 19.1.2016 Date of Decision: 27.1.2016 ORDER NO
The present appeal is directed against the order of the Commissioner (Appeals) dated 15.6.2010 vide which the Commissioner (Appeals) has dismissed the appeal of the Revenue and set aside the order-in-original.
2. Briefly the facts of the case are that the respondent is engaged in the manufacture of transmission line towers and parts thereof falling under Chapter Heading No.73082011 of the Central Excise Tariff Act, 1985 and avails cenvat credit facility under Cenvat Credit Rules, 2004. The process of manufacturing transmission line towers mainly consists of two major activities i.e. fabrication and galvanizing. During the scrutiny of the records of the assessee, it was observed that the assessee had taken cenvat credit on barbed wire falling under Chapter Heading No.73130010 of CETA supplied by M/s. Reliance Wire Products, Atgaon, Thane. The barbed wire is a bought-out item and supplied in the same form to their buyers as it is and neither any process on such barbed wire is carried out in the assessees factory nor the barbed wire is used in the factory. The barbed wire is used for fencing the lower part of the transmission line tower after erection of the same at site to discourage general public to climb such transmission tower. The barbed wire is nothing but used for safety and security of the transmission tower and has nothing to do with the functioning of the tower. It has further been alleged that the respondent in most of the cases, except M/s. Powergrid Corporation of India Ltd., does not supply the barbed wire for sale/erection of transmission line tower. Separate invoice is prepared for clearance of such barbed wire from the factory of the assessee and cleared separately from the factory. During the period from June 2004 to March 2009, the assessee had availed cenvat credit of duty on such barbed wire to the tune of Rs.18,67,656/-. The barbed wire supplied to the buyer by the assessee does not qualify as input for the purpose of availing cenvat credit and therefore a show cause notice dated 4.8.2009 was issued. The adjudicating authority vide order-in-original dated 30.11.2009 disallowed the cenvat credit wrongly availed and ordered its recovery along with interest and also imposed equal penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Further, a penalty of Rs.2,00,000/- has also been imposed under Rule 25(a) & (d) of the Central Excise Rules, 2002. Being aggrieved by the order, the assessee filed appeal before the Commissioner (Appeals) who vide his order-in-appeal dated 15.6.2010 set aside the order-in-original and allowed the appeal keeping in view the definition of input in terms of Rule 2(k) of the Cenvat Credit Rules, 2004 and also relying upon a number of judicial precedents. The present appeal has been filed by the Revenue against the order-in-appeal.
3. The learned AR submitted that a plain reading of the definition of input as contained in Rule 2(k) of the Cenvat Credit Rules, 2004 reveals that the order-in-appeal in extending the benefit of cenvat credit on barbed wire is contrary to the provisions as contained in the Cenvat Credit Rules, 2004 as it cannot be considered as input. He further submitted that the input is eligible for cenvat credit only if used in or in relation to the manufacture of final products. He also submitted that in the present case, barbed wire is neither used in or in relation to final product whether directly or indirectly nor is contained in the final product and there is no nexus with the manufacturing process. He further submitted that barbed wire is not supplied by the assessee to all its customers but only to M/s. Powergrid Corporation of India Ltd. and that too in terms of the contract entered between the assessee and the customer and moreover it is optional and mandatory to supply the barbed wire with the transmission towers. He also submitted that accessory is something that is extra or additional item, and adjunct to main item. It may add to purpose of the main item but it can also be for more convenient use of the main item. He also submitted that barbed wire is not essentially required for the operational needs of the transmission line tower and therefore does not fall in the category of accessory of the final product. He further submitted that the decisions relied upon by the Commissioner (Appeals) are not applicable to the instant case in view of the following cases:-
(i) NGEF Ltd. vs. CCE, Bangalore reported in 1995 (77) ELT 238 (T);
(ii) CCE, Chennai vs. Sundaram Brake Linings reported in 2010 (19) STR 172 (T).
4. On the other hand, the learned counsel for the respondent submitted that barbed wire is an accessory of the tower and therefore the same is cleared along with the final product and has to be regarded as input. Thereafter, the learned counsel referred to the various definitions of the word accessories and the meaning assigned to it by various judicial pronouncements and a gist of which is as under:-
(a) An object or device that is not essential in itself but that adds to the beauty, convenience or effectiveness of something else;
(b) An extra piece of equipment useful but not essential or that can be added to something else as a decoration;
(c) Accessories means items which enhance the functioning and operation of the main goods whether it is plant, machinery of equipment.
4.1 He further submitted that barbed wire is an anti-climbing device and the same is highly useful in protecting electric tower sub-station from any human or animal climbing and safeguards them from any damage threat. The transmission wire connected on the top of the tower contains very high voltage power and if any person who tries to climb on the tower, the high voltage transmission of the wire will catch the person as a magnet even from six feet below and the said person will be burnt on the spot and such instance would hamper the smooth operation of the tower. He also produced the agreement entered into by the respondent with its various customers to show that barbed wire being anti-climbing device is specifically mentioned in all the agreements entered into by the respondent with all its customers. In all the agreements, barbed wire is specifically mentioned as anti-climbing device and therefore the accessories to be delivered along with the tower. He further submitted that the conditions laid down by the Tribunal in the case of Jayshree Industries vs. CCE reported in 1993 (63) ELT 492, are fully satisfied in this case and therefore barbed wire being accessory is covered in the definition of input contained in Rule 2(k) of the Cenvat Credit Rules, 2004. He also submitted that the invoices issued by the respondent to sell the towers specifically included the value of the barbed wire in the assessable value. Duty has been paid on the whole amount including the value of the barbed wire. He further submitted that in such situations, the respondent is entitled to cenvat credit of duty paid on barbed wire as held in the following judgments:-
(i) Jayshree Industries vs. CCE reported in 1993 (63) ELT 492 (T);
(ii) Ultrapack vs. CCE, Hyderabad reported in 2005 (192) ELT 540 (T);
(iii) CCE, Surat vs. Bothra Exports Pvt. Ltd. reported in 2006 (205) ELT 562 (T).
4.2 He further submitted that the department never raised any objection while including the value of barbed wire in the assessable value and therefore the respondent is entitled to take credit of duty paid on barbed wire applying the ratio of the judgment rendered in the case of Bothra Exports Pvt. Ltd. cited supra. He also submitted that the entire transaction is revenue neutral because the company has made payment of the duty at the time of clearance which includes the value of bought out items which are not subject to any duty as the value of the bought out items are not included in the assessable value. On this aspect, the respondent relied upon the following judgments:-
(i) CCE, Aurangabad vs. Somaiya Organo Chem reported in 2007 (213) ELT 130 (T);
(ii) New Chemi Industries Ltd. vs. CCE, Daman reported in 2008 (230) ELT 505 (T);
(iii) CCE vs. Textile Corpn. Marathwada Ltd. reported in 2008 (231) ELT 195 (SC).
4.3 He further submitted the following judgments to support his argument that penalty should not be levied when the issue involved is interpretation of statutory provisions:-
(i) Sona Wires Pvt. Ltd. vs. CCE, Raipur reported in 1996 (87) ELT 439 (T);
(ii) Aquamall Water Solutions Ltd. vs. CCE, Bangalore reported in 2003 (153) ELT 428 (T).
5. I have heard the learned counsel for the parties and perused the material record.
6. The only question to be decided by me in this case is whether the respondent is entitled to claim cenvat credit on barbed wire being accessory to the transmission tower and whether the said accessory falls in the definition of input as contained in Section 2(k) of the Cenvat Credit Rules, 2004. Here it is necessary to reproduce the definition of input as contained in Rule 2(k):-
2(k) "input" means-
(i) all goods, except light diesel oil, high speed diesel 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 oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, 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, within 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 service; A perusal of the definition of input clearly shows that the input means and includes accessories of the final product cleared along with the final product.
6.1 Further, the Honble Supreme Court in the case of Annapurna Carbon Industries Co. vs. State of Andhra Pradesh (AIR 1976 SC 1418) held as under:-
Para 10. We find that the term?accessories is used in the schedule to describe goods which may have been manufactured for use as an aid or addition. A sense in which the word accessory is used is given in Websters Third New International Dictionary as follows : an object or device that is not essential in itself but that adds to the beauty, convenience or effectiveness of something else. Other meanings given there are : supplementary or secondary to something of greater or primary importance, additional, any of several mechanical devices that assist in operating or controlling the tone resources of an organ. Accessories are not necessarily confined to particular machines for which they may serve as aids. The same item may be an accessory of more than one kind of instrument. 6.2 I also take note of another decision of the Honble Supreme Court in case of M/s. Mehra Brothers v. Jt. Commercial Officer - 1991 (51) E.L.T. 173 (S.C.), wherein while holding car seat covers as accessories to motor vehicles and thus exigible to sales tax, the Honble Court observed as under :
......In our view the correct test would be whether the article or articles in question would be an adjunct or an accompaniment or an addition for the convenient use of another part of the vehicle or adds to the beauty, elegance or comfort for the use of the motor vehicle or a supplementary or secondary to the main or primary importance. Whether an article or part is an accessory cannot be decided with reference to its necessity to its effective use of the vehicle as a whole. General adaptability may be relevant but may not by itself be conclusive. Take for instance Stereo or Air-conditioner designed and manufactured for fitment in a motor car. It would not be absolutely necessary or generally adapted. But when they are fitted to the vehicle, undoubtedly it would add comfort or enjoyment in the use of the vehicle. Another test may be whether a particular article or articles or parts, can be said to be available for sale in an automobile market or shops or places of manufacture; if the dealer says it to be available certainly such an article or part would be manufactured or kept for sale only as an accessory for the use in the motor vehicle. Of course, this may not also be a conclusive test but it is given only by way of illustration. Undoubtedly some of the parts like axle, steering, tyres, battery etc. are absolutely necessary accessories for the effective use of the motor vehicle. If the test that each accessory must add to the convenience or effectiveness of the use of the car as a whole is given acceptance many a part in the motor car by this process would fall outside the ambit of accessories to the motor car. By observing so, the Honble Supreme Court held that car seat covers are accessories as an addition; an adjunct; an accompaniment for comfortable use of the motor vehicles or for adding elegance to the seat.
6.3 Similarly, in case of M/s. Pragati Silicons Pvt. Ltd. v. CCE Delhi - 2007 (211) E.L.T. 534 (S.C.), the term accessory was considered and various definitions of the same appearing in the same was taken note of. The term accessory as defined in The New Collins Concise Dictionary of the English Language (1982) as a supplementary part or object, as of a car, appliance, etc. Other definitions for the accessory are found in the Advanced Law Lexicon (3rd edition, 2005) and include the following:
Something of secondary or subordinate importance :
Something contributing in subordinate degree to a general result or effect; an adjunct or accompaniment; 6.4 Further, I find that the Tribunal observed in the case of Jayshree Industries cited supra, that in case of items supplied along with certain gadget, the item would qualify for credit in the light of the Honble Supreme Courts judgment in the case of CCE vs. Jay Engineering Works reported in 1989 (39) ELT 169 (SC), provided the answers to the following questions are in the affirmative:-
(a) Whether the items are essentially required for the operational needs of the gadget;
(b) Whether they are compulsorily supplied with the gadget at the point of delivery through the factory gate;
(c) Whether its value is included in the value of the gadget at the factory gate.
7. Now the question is whether in the case of respondent, all the essential requirements are fulfilled or not. In my opinion, all the conditions are fulfilled in this case inasmuch as barbed wire is essentially required for smooth operation of the transmission tower and secondly, as per the terms and conditions of the agreements, it is necessary for the company to supply barbed wire along with transmission tower and thirdly, the description list of the goods sold is attached with the invoice copy, which clearly shows that the value of the barbed wire has been included in the assessable value and the duty has been paid on the whole amount. Since all the conditions are fulfilled, therefore in my considered opinion, the respondent is entitled to the credit of duty paid on barbed wire as held in the case of Ultrapack cited supra.
8. Further, I find that the respondent supplied barbed wire to all its customers and as per the terms and conditions of the agreement, the price of barbed wire is included in the assessable value. The learned counsel for the respondent placed reliance in the case of Coca-Cola India Pvt. Ltd. vs. CCE, Pune reported in 2009-TIOL-449-HC-MUM, wherein the Honble Bombay High Court has held that burden of service tax may be borne by the ultimate consumer and not by any intermediary and if the value of the input or input service has been included in the assessable value, then credit should not be denied.
9. Therefore, keeping in view all the facts and circumstances and the law cited, the appeal of the Revenue is liable to be dismissed and I accordingly dismiss the appeal and uphold the decision of the Commissioner (Appeals).
(Pronounced in Court on 27.1.2016) (S.S. Garg) Member (Judicial) tvu 1 13