Customs, Excise and Gold Tribunal - Bangalore
The Commissioner Of Customs And Central ... vs Satavahana Ispat Ltd. And Ors. on 26 March, 2007
Equivalent citations: 2007(119)ECC347, 2007ECR347(TRI.-BANGALORE)
ORDER S.L. Peeran, Member (J)
1. In all these 10 appeals the common question of law and facts are involved, hence they are taken up together for disposal as per law. The revenue and the party both are aggrieved with the respective orders. The issue involved in the matter is as to whether the assessee is eligible for Cenvat credit in respect of welding electrodes used in the repair of capital goods in the factory. The Commissioner (A) while deciding the matter in assessee's favour in which the revenue is aggrieved have contended that assessee is not eligible for the benefit of Cenvat credit in respect of welding electrodes and they cite the larger bench judgment rendered in the case of Triveni Engg. and Industries Ltd. v. CCE, Meerut 2005 (186) ELT 158 (Tri.-LB).
2. The learned advocates contentions is that this judgment is rendered per curiam to the ruling rendered in the case of India Sugars and Refineries Ltd. v. CCE, Bangalore 2006 (74) RLT 61 (CESTAT-Ban.) which has referred to 3-Member Larger Bench judgment of the Tribunal in the case of Jaypee Rewa Plant v. CCE, Raipur 2003 (57) RLT 739; Mira Silk Mills v. CCE, Mumbai 2003 (56) RLT 152 (LB); CCE, Meerut-I v. Modi Rubber Ltd. 2000 (38) RLT 718 (LB); Union Carbide India Ltd. v. CCE, Calcutta-I 1996 (15) RLT 144 (LB), Punjab and Haryana High Court ruling rendered on this very issue in the case of CCE, Chandigarh-II v. National Fertilizers Ltd., Bathinda and Anr. 2002 (79) ECC 758 (P & H) and the following supreme Court judgments.
(a) CCE, Calcutta-II v. Eastend Paper Industries Ltd.
(b) Indian Farmers Fertilizers Co-operative Ltd. v. CCE, Ahmedabad 1996 (15) RLT 498
(c) Steel Authority of India Ltd. v. CCE AIR 1986 SC 2544
(d) Collector v. Ballarpur Industries Ltd.
(e) J.K. Cotton Spinning and Weaving Mills company Ltd. v. Sales Tax Officer 1997 (91) ELT 34
(f) Dokka Samuel v. Dr. Jacob Lazarus Chelly Besides the Patna High Court judgment rendered in the case of Collector v. Tata Engineering & Locomotive Company Ltd. 1999 (31) RLT 800 (Patna).
2.1 The Counsels further pointed out that in all these present cases the period is subsequent to the amendment brought to the Cenvat Credit Rules which has been referred to by the Commissioner in the revenue appeals wherein the definition of capital goods has been given in Rule 2(b) of CE Cenvat Credit Rules 2004 and further defines that capital goods means Rule 2
(a) "Act" Means Central Excise Act, 1944
(b) "Capital Goods" means
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii) used in the factory of the manufacturer of the final products but does not include any equipment or appliance used in an office.
The Commissioner (A) after examining this aspect has noticed that credit is available to an item which is used in the factory of the manufacturer of final products. He has noted that although Rule 2 (b) (i) of Cenvat Credit Rules 2002 does not refer to welding electrodes but the same are well covered under 2 (b) (iii) of the said Rules, which covers all components, spares and accessories of goods specified at (i) and (ii) of Rule 2 (b). The Commissioner (A) also referred to the Tribunal ruling rendered in the case of CCE, Chandigarh v. Oswal Fats and Oils and DCL Polysters Limited v. CCE, Nagpur .
2.2 The learned Counsels also pointed out that the Supreme Court in the case of Jaypee Rewa Plant v. CCE have clearly stated that once the goods are used in the factory then they are eligible for the benefit of Cenvat credit. Therefore, it is pointed out that the judgment of Triveni Engg. and Industries Ltd. (supra) does not deal with all the aspects dealt with by the Supreme Court in their judgment and other 3-Member Larger Bench judgment cited supra. All these matters have been seen in detail in the case of India Sugars and Refineries Ltd. (supra).
2.3 The learned advocate Shri Shivadass arguing for M/s. Rashtriya Ispat Nigam Limited (RINL) also pointed out that one more issue is involved in their case inasmuch as Cenvat credit has been denied on gasses as well as on inputs used in manufacture of capital goods which were in turn used in the factory for production. He refers to the Board's Circular No. 31/90-CX.8 dated 31.5.1990 and the Larger Bench judgment rendered in the case of CCE v. Modi Rubber Ltd. and Jaypee Rewa Plant v. CCE 2003 (57) RLT 739. He submitted that inputs used for manufacture of capital goods are covered by Explanation Rule 2 to Rule 2 of Cenvat Credit Rules, 2002 and credit cannot be denied. Likewise, credit on capital goods is covered by the definition in Rule 2(b)(i) of Cenvat Credit Rules, 2002 and so also with regard to the second installment of capital goods utilized. He also submitted that credit on gases is covered by the Board's circular and the citations referred to. Therefore, he submits that appeal is also required to be allowed.
3. The learned JCDR arguing for the revenue contended that the revenue appeals are required to be allowed and parties' appeals should be rejected in view of the 3-Member Larger Bench judgment rendered in the case of Triveni Engg. and Industries (supra).
4. We have carefully considered the submissions and noted the points referred including the citations. It is necessary to extract the findings recorded by the Tribunal in the case of India Sugar and Refineries Ltd. (supra) with regard to the eligibility of credit on welding electrodes, oxygen gas and acytelene gas used for welding punctured pipes carrying hot sugar juice during manufacture of sugar. This judgment was rendered in the light of several Larger Bench judgment of Tribunal, High Courts judgments of Punjab & Haryana and Patna and Supreme Court judgments. The findings recorded in Para 4 and 5 are reproduced herein below.
4. On a careful consideration of submissions made by both sides and on perusal of the entire judgments, it is seen from the Larger bench judgment rendered in the case of Jaypee Rewa Plant v. CCE, Raipur (supra) that the Larger Bench has held that Welding Electrodes and Gases used in fabrication/manufacture of Capital Goods for captive consumption is not eligible for the benefit of Modvat credit. This Larger bench, noting the ruling of Apex Court judgment rendered in the case of J.K. Cotton Spinning and Weaving Mills Company Ltd. v. Sales Tax Officer 1997 (91) ELT 34(SC), took a view that the repairs and maintenance of machinery are not normally done when the process of manufacture of goods with such machinery is under way. It also held that the process is not a part of, or integrally connected with, the process of manufacture of final product. This Larger Bench did not take into consideration, the earlier Larger Bench decision rendered in the case of CCE v. Modi Rubber Ltd. headed by the then President Justice K. Sreedharan and the other members as were in Jaypee Rewa Plant. In Modi Rubber Ltd.'s case, it was held that unless the machinery of the assesses 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. On that premise, they held 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. It has been held that lubrication of the machinery is an activity which is concerned with or pertaining to the manufacture of the finished products. It has further been held that it is rather integrally connected with the manufacture and that the use of lubricants in the machinery is certainly in or in relation to the manufacture of the finished products. This reasoning should have been adopted in Jaypee Rewa Plant but the very Member who wrote the order in CCE v. Modi Rubber Ltd., has given a different interpretation in Jaypee Rewa Plant. In order to resolve the controversy, the matter is required to be again referred to still Larger Bench but, however, in terms of Larger Bench judgment rendered in the case of Mira Silk Mills v. CCE comprising of same Members as in the case of Jaypee Rewa plant, wherein it has taken a view that when the Tribunal takes a decision without referring to case-law, then it would be an error apparent on the face of the record in terms of Apex Court judgment rendered in the case of Dokka Samuel v. Dr. Jacob Lazarus Chelly . It has also held that the High Court decision will prevail over the Tribunal decision even if it is a Larger bench decision. It has also held that the decision of Apex Court will prevail under Article 141 of the Constitution. In the light of this observation, we have to see as to whether the ruling of Jaypee Rewa Plant is a good law or not. The Punjab & Haryana High Court, in the case of CCE, Chandigarh-II v. National Fertilizers Ltd. (cited supra) has held in paras 7 to 9 as follows:
7. We have considered the arguments of Mr. Sehgal. The steam generation and its ultimate generation of electricity is a part and parcel of the composite process, which produces the final product, i.e. fertilizer. For the effective running of any plant, maintenance and overhauling of the machinery is necessary. It is an integral part in the process of production. Similar question came up for adjudication before their Lordships of the Apex Court in Collector of Central Excise, Calcutta-II v. Eastend Paper Industries Ltd. , where it was held "Where any particular process...is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, articles required in that process, would fall within the expression 'in the manufacture of goods'." Similar question also arose in Indian Farmers Fertilizer Co-operative Ltd. v. Collector of Central Excise, Ahmedabad , wherein the Apex Court has held:
9. That leaves us to consider whether the raw naptha used to produce the ammonia which is used in the effluent treatment plant is eligible for the said exemption. It is too late in the day to take the view that the treatment of effluents from a plant is not an essential and integral part of the process of manufacture in the plant. The emphasis that has rightly been laid in recent years upon the environment and pollution control requires that all plants which emit effluents should be so equipped as to rid the effluents of dangerous properties. The apparatus used for such treatment of effluents in a plant manufacturing a particular end product is part and parcel of the manufacturing process of that end product. The ammonia used in the treatment of effluents from the urea plant of the appellants has, therefore, to be held to be used in the manufacture of urea and the raw naptha used in the manufacture of such ammonia to be entitled to the said exemption.
The same view was also expressed by the Apex Court in Steel Authority of India Ltd. Etc. v. Collector of Central Excise .
8. As a sequel to the above discussion, it is held that the furnace oil, which was used in the manufacture of steam, which in turn was further used in the generation of electricity during the shut-down period, was entitled to the concessional rate of duty.
9. In the end result, the reference petition filed by the revenue is dismissed in limine.
5. As can be seen from the above finding that for the effective running of any Plant, maintenance and overhauling of the machinery is necessary and it is an integral part in the process of manufacture. The Punjab & Haryana High Court has referred to earlier two Supreme Court judgments (i) CCE v. Eastend Paper Industries Ltd. and (ii) Indian Farmers Fertilizers Cooperative Ltd. v. CCE. The ratio of the Punjab & Haryana High Court, and the other two Supreme Court judgments noted therein, have not been referred to by the Larger Bench in the case of Jaypee Rewa Plant. Thus the findings rendered in the case of Jaypee Rewa Plant, denying the benefit of Modvat in respect of welding electrodes and Gases, is contra to the judgments rendered by the Punjab & Haryana High Court and the Supreme Court judgments noted therein. In terms of the Punjab & Haryana High Court and the Supreme Court judgments noted therein, maintenance and overhauling of machinery is an integral part in the process of production. Therefore, the decision of the Larger Bench, rendered in the case of in CCE v. Modi Rubber Ltd. (supra), holds that lubricating oils and greases used for the purpose of lubricating the machines and machinery is to be taken as a process for the manufacture of final product, as it is essential for their working and integrally connected with the manufacture. This Larger Bench has referred to the Supreme Court judgment rendered in the case of Collector v. Ballarpur Industries Ltd. , Collector v. Eastend Paper Industries Ltd. (supra) and also that of the Patna High Court judgment rendered in the case of Collector Tata Engineering & Locomotive Company Ltd. 1999 (31) RLT 800 (Patna). A combined reading of the P&H High Court judgment and the Modi Rubber Ltd. Case clearly supports the plea that Welding Electrode pipelines carrying hot sugar juice is also a process of manufacture and it is an integral part in the process of production of filial goods. Another Larger Bench, in the case of Union Carbide India Ltd. v. CCE , has held that the words Inputs 'in relation to the manufacture' has been used to widen and expand the scope so as to attract goods which do not enter directly or indirectly into the finished product but are used in any activity concerned with or pertaining to the manufacture of final goods. On the premise of this reasonin, the Larger Bench has held that Copper Wire used in welding process in the manufacture of metal containers should be considered as an eligible input and not to be treated as a tool, machinery or appliance. Therefore, the Larger Bench ruling of Union Carbide India Ltd. and the Larger Bench judgment rendered in the case of Modi Rubber Ltd. having been rendered in the light of the Apex Court judgment and the definition of the term 'Input' and the ratio of these rulings clearly overrules the Larger Bench judgment of Jaypee Rewa Plant. In the result, applying the ratio of the Punjab & Haryana High Court judgment noted supra, which in turn refers to two Supreme Court judgments, and by following the ratio of the Larger Bench judgments rendered in Modi Rubber Ltd. and Union Carbide Ltd., the appellant's plea is required to be accepted. The inputs viz. Welding Electrodes, Oxygen Gas and Acetylene Gas used for welding the punctured pipes carrying the hot sugar juice should be treated as part of process of manufacture and hence they are eligible inputs for the manufacture of the final product. The appeal is allowed with consequential relief, if any.
4.1 As can be seen from the above extraction that the issue is fully discussed in the light of the Supreme Court judgments and High Court judgments, therefore, the judgment cited by learned JCDR that is in the case of Triven Engg. & Industries Ltd. does not discuss the issue in detail and has not dealt with earlier judgments of Supreme Court, High Courts and Tribunals. Therefore, the contention raised by the counsels that the Larger Bench judgment of Triveni Engg. and Industries Ltd. (supra) has been referred as per curiam to the judgments of Supreme Court, High Court and Larger Bench of Tribunal is a correct point and is upheld. Furthermore, the judgment of rendered in the case of Triveni Engg. and Industries Ltd. (supra) does not refer to the amended rules which clearly permits the appellants to avail the benefit of Cenvat credit, if the inputs are used in the factory. While in the earlier rules it was required to have been used in the manufacture of final products i.e. the subtle difference is discussed by the Commissioner (A) in all the revenue appeals in the context of changed law. The contention raised by the assessee's is required to be upheld. As a consequence, we hold that assessees are eligible to avail cenvat credit in respect of welding electrodes in the light of the judgments cited by the counsels noted supra and findings rendered by us in the case of India Sugars and Refineries Ltd. (supra). The revenue appeals are dismissed and party's appeals on this point are allowed.
4.2 In so far as the appeals of RINL is concerned, the another issue besides the claim of benefit of Cenvat credit on welding electrodes is pertaining to eligibility of credit on inputs used for manufacture of capital goods, this issue is covered by the Explanation 2 to Rule 2 of Cenvat Credit Rules 2002 and the authorities have not clearly seen this point. In so far as the credit availed on capital goods is concerned, the same is also covered by Chapter Headings specified in Rule 2(b)(i) of Cenvat Credit Rules 2002. So far as credit on gases are concerned, the issue is covered by the Board's Circular No. 31/90-CX.8 dated 31.5.1990 and two judgments cited by the learned Counsel on this point. The appeals of RINL are also allowed. In the result, the revenue appeals are dismissed and parties' appeals are allowed.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)