Custom, Excise & Service Tax Tribunal
Yes vs Represented By : Shri V Sridharan (Sr. ... on 6 February, 2014
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad COURT Appeal No. : E/464/2010-DB, E/844/2011-DB, E/196/2012-DB Arising out of : OIO No. 38-40/Commr/2009 dated 3.12.2009. Passed by : The Commissioner, CE., Rajkot. For approval and signature : Mr. H.K. Thakur, Hon.ble Member (Technical) Mr. M.V. Ravindran, Hon.'ble Member (Judicial) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Appellant (s) : M/s Sanghi Industries Ltd Represented by : Shri V Sridharan (Sr. Adv.) Shri Anand Nainavati (Adv.) Respondent (s) : CCE., Rajkot
Represented by : Shri K Shivakumar (AR) Shri S K Mall (AR) CORAM :
Mr. H.K. Thakur, Hon.ble Member (Technical) Mr. M.V. Ravindran, Hon.'ble Member (Judicial) Date of Hearing : 30.10.2013 Date of Decision : 06.02.2014 ORDER No. A/10149-10151/2014 dated 06.02.2014 Per : Mr. H.K. Thakur ;
These appeals are directed against Orders in Original Nos. 38-40/ COMMR./ 2009 dated 03/12/2009, 14-28/ COMMR./ 2011 dated 06/04/2011, 83/ COMMR./ 2011 dated 02/12/2011 passed by the Commissioner, CCE, Rajkot.
2. Since the issues involved in all these appeals are same, therefore, all these appeals are being disposed of by a common order.
3. The relevant facts of the case in brief are that the appellant group companies, inter-alia, are engaged in the manufacture of clinker and cement. The cement plant was conceptualized to be divided into two sections i.e. Clinker unit at Village Motiber Taluka of the Abdasa of Kutch District and the Grinding unit at Village Akri of the Abdasa of Kutch District. The Clinker unit was set up in the year 1997-98. The appellant set up a captive power plant at a distance of about 14 kilometer from the Clinker unit, as there was no state grid nearby to cater to the needs of electricity for the project. The appellant also set up a de-mineralization water plant (DMW plant) and Administrative Office at the Clinker unit. In the year 2001, the appellant set up its Grinding unit for the manufacture cement out of cement clinker manufactured at their Clinker unit. Around 95 percent of the clinker produced by the Clinker unit of the appellant is used in the Grinding unit to manufacture cement. The appellant also set up captive jetty at the Grinding unit to receive raw materials through sea and to export clinker and cement. On scrutiny of the ER-1 Returns filed by the appellant, the Departmental Officers found that the appellant had been availing irregular CENVAT Credit on furnace oil/ lubricants etc., as the inputs on which cenvat credit is taken are actually used in the power plant outside appellants Clinker unit, and that they had been supplying electricity from the power plant to the Grinding unit, Clinker unit, jetty and their residential colony. Therefore, show cause notices were issued to deny the CENVAT Credit, on the above inputs and the jurisdictional Commissioner adjudicated the same as per details below:
Show Cause Notice dated Proposed demand (Rs.) Order in Original passed by the Commissioner.
Demand confirmed (Rs.) Demand dropped (Rs.) 31.07.2008 6,13,56,601 38-40/ COMMR./ 2009 2,50,26,083 3,63,30,518 02.02.2009 3,77,91,260
-do-
1,36,44,387 2,41,46,873 28.04.2009 15,76,16,543
-do-
6,41,13,285 9,35,03,258 TOTAL 25,67,64,404 10,27,83,755 15,39,80,649 3.1 Adjudicating Authority dropped the demand of Rs. 15,39,80,649/- accepting appellants submissions that credit of duty paid on inputs used for generation of electricity supplied to the Clinker unit was admissible, although the appellant had not followed any job work formalities. He, however, denied the CENVAT Credit on inputs used for generation of electricity supplied to the Grinding unit, jetty of the appellant and the residential colony. Adjudicating authority also imposed penalty on the appellant besides recovery of interest at appropriate rate.
In the case of Orders in Original No. 14-28/ COMMR./ 2011 dated 06.04.2011, the Adjudicating Authority confirmed demand of Rs. 15,39,25,149 along with interest and dropped the demand of Rs. 15,77,75,663/- in respect of inputs used for generation of electricity supplied to the Clinker unit and also confirmed the demand of Rs. 9,87,045/- along with interest in respect of iron & steel items used for fabrication of capital goods. In the case of Order in Original No. 83/ COMMR./ 2011 dated 02.12.2011, the adjudicating authority confirmed demand of Rs. 86,48,837/- along with interest in respect of inputs used in generation of electricity supplied to the Grinding unit, residential colonies, DMW plant and the Administrative block and also imposed penalties.
4. Shri V Sridharan (Sr. Adv.) and Shri Anand Nainavati (Adv.) appearing on behalf of the appellant, inter-alia, made the following arguments:-
(a) That the issue as to whether credit in respect of inputs/ fuel consumed at power plant is admissible or not is already settled in favour of the appellant in their own case vide case law Sanghi Industries Vs. CCE, Rajkot [2006 (206) ELT 575], and Sanghi Industries Vs. CCE, Rajkot Final Order No. A/ 1106/ WZB/ 06/ WZB/ C-III/ EB dated 30.05.2006.
(b) That the Honble Tribunal has already decided this issue in appellants favour holding that appellants power plant can act as a job worker for the Clinker unit in terms of Rule 4(5)(a) of the CENVAT Credit Rules, 2004. That the adjudicating authority has also held in the impugned Orders in Original that the power plant could be considered as a job worker for the Clinker unit but could not act as job worker to Grinding unit/residential colony/jetty/DM water plant etc. as grinding unit is not the supplier of fuel etc., to power plant for conversion to electricity, and that the entire credit had been availed by the Clinker unit. It was their case that the entire credit had been taken by the Clinker unit because it was set up first and thereafter administrative block was also set up at Clinker unit only. All the invoices were issued by the suppliers at the address of Clinker unit. He submits that in the present matters inputs can be treated to have been sent by the Grinding unit directly to the job worker. Ld. Sr Advocate Shri Sridharan, relied upon the case laws Indorama Textiles Itd. Vs. CCE, [2007 (220) ELT 471] (Tri. Mumbai), CCE, Nagpur Vs. Indorama Textiles Limited [2007 (260) ELT A382 (Bom) and CCE Vs. Indorama Textiles Limited [2010 (260) ELT A83 (SC)] and argued that it is a case of revenue neutrality as clinker unit could have cleared the clinker to the grinding unit under Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rules 2004 and also removed the goods on payment of duty from the job worker. It was his case that for procedural violations substantial benefit of cenvat credit can not be denied as the same is a revenue neutral exercise. It was also argued that the electricity supplied to the grinding unit is not a sale of electricity and that the ratio of Supreme Court laid in the case M/s Maruti Suzuki Ltd, vs CCE Delhi III [2009(240)ELT641(SC)], is not applicable to the facts of this case.
(c) That despite separate registrations of the Clinker unit and the Grinding unit under the central excise law the Clinker unit, Grinding unit, Power Plant, DM water plant, Jetty, are parts of the same factory in as much as all these units and the connecting roads are on the same piece of land belonging to and in the exclusive possession and control of the appellant company. He drew our attention to the following case laws in this regard during the course of hearing :
i) Sanghi Industries vs. CCE., Rajkot [2006(206)ELT.575)Tri.Del.)]
ii) Central coalfield Ltd vs. CCE., Jamshedpur [2001(137)ELT 752 (Tri. Kolkatta)
iii) South Eastern Coalfields Ltd., vs, CCE., MP [2006(200)ELT.357 (SC)]
iv) Finolex Industries Ltd vs. CCE, Pune II [2003(156)ELT 96 (Tri. Mumbai)]
v) Jaypee Rewa Cement vs. CCE., MP- [2001(133)ELT 3 (SC)]
vi) Vikram Cement vs. CCE, Indore [2006(194) ELT 3(SC)]
vii) CCE., Nagpur vs Ubdirama Textiles Ltd., - [2010(260)ELT 382 (Bom)]
viii) Haldia Petrochemicals Ltd vs CCE., Haldia [2006(197)ELT 97(Tri. Del.)]
ix) Maruti Suzuki Ltd., vs. CCE, Delhi III [2009(240)ELT 64(SC)]
x) Ramala Sahakari Chini Mills Ltd., vs. CCE., Meerut 1 [2010(260)ELT 321(SC)]
xi) Grauer & Well (India) Ltd vs. CCE, Baroda [1994(74)ELT 481(SC)].
xii) Dhampur Sugar Mills Ltd vs. CCE, Meerut [2001(129)ELT 73(Tri.Delhi)]
xiii) Ultratech Cement Ltd vs. CCE., Bhavnagar [2009(243)ELT.575(Tri. Ahmd)]
xiv) Balarampur Chini Mills Ltd vs. CCE., Allahabad [2002(149)ELT 286(Tri. Del)]
xv) Union of India vs. Balrampur Chini Mills Ltd [2004(177)ELT.71(All)]
(d) That appellant has already surrendered the benefit of Rs 40,00,11,585/- with respect to exemption No.39/2001-CE dt. 31.07.2001.
(e) That CENVAT Credit cannot be denied to the extent electricity used in DM water plant and in the Administrative block which are located within the premises of the Clinker unit and has to be treated as a use in or in relation to the manufacturer to clinker. It was also argued that captive jetty is a part of the grinding factory and proportionate credit attributable to electricity supplied to jetty cannot be said to be inadmissible as the same is a use in or in relation to the business activities of the appellant.
5. Shri K Sivakumar (AR) and Shri S K Mall (AR) appearing on behalf of the Revenue made, inter-alia, the following arguments:
(a) That the learned commissioner has already allowed proportionate credit of inputs used in the generation of electricity supplied to the Clinker unit. That the issue of wheeling out of power to Grinding unit, Jetty, and residential colonies is not covered by the appellants own case reported as 2006 (206) ELT 575 (Tri. Ahmd.)
(b) That since the other units of the appellant viz., Clinker unit, Grinding unit, Power plant, Desalination plant and the jetty are not located in the clinker unit, therefore, these cannot be treated as parts of one factory. The appellant have themselves obtained separate registrations for their Clinker unit and Grinding unit. The appellant also treated its Grinding unit as a separate unit for claiming area based exemption under notification number 39/ 2001 CE dt 31.7.2001. That case laws cited by the appellant are not applicable to the facts and circumstances of the case in hand in view of the following case laws :
(i) M/s Rollatainers Ltd vs CCE Delhi III [2004(170)ELT 257 (SC)]
(ii) M/s Sintex Industries Ltd vs CCE [2013(287)ELT 261(Guj)]
(iii) CCE Ludhiana vs M/s Vardhman Industries Ltd [2007(219)ELT 65 It was thus argued by the Revenue that three separate registered units has to be treated as three separate factories and not one factory.
(c) That the inputs of Clinker unit used for generation of electricity supplied to the Grinding unit are not eligible for CENVAT Credit to the Clinker unit as the same are not used in or in relation to the manufacture of clinker in the Clinker unit from where the cenvatable inputs were sent.
(d) That as the jetty is not part of the Clinker unit, CENVAT Credit of the inputs used in the generation of electricity supplied to the jetty is not admissible to the Clinker unit.
(e) That the electricity generated and supplied to the Clinker unit, which sends inputs to the Power plant, can only be termed as captive consumption. The electricity supplied to the Grinding unit, is not out of any inputs sent by grinding unit to the Power plant and cannot be considered as captive consumption and that the Power plant is not a job worker of the Grinding unit.
(f) That the Honble Supreme Court has held in the matter of Collector Vs. Solaris Chemtech Limited - 2007 (214) ELT 481 (SC) - that credit of inputs used in generation of electricity consumed by residential colony of factorys workers families, schools etc. is not admissible.
(g) That the Grinding unit has started availing proportionate CENVAT credit on inputs in question with effect from June, 2012.
(h) That the credit of Rs. 9,87,045/-pertaining credit taken on angles, channels, CTD bars etc. is correctly denied was denied on the ground that the same were for construction and hence ineligible for capital goods credit in view of Larger Bench decision in M/s Vandana Global Ltd vs. CCE., Raipur [2009(238)ELT 420(Tri.-LB)].
(i) That the judgment of Supreme court in the case of M/s Maruti Suzuki Ltd., vs CCE, Daman [209(240)ELT 641 (SC)] is squarely applicable to the present case and credit has been correctly denied to the appellant in view of the law laid down by the Supreme Court.
6. Heard both sides, perused the case records and the written submissions made by both sides.
7. The issues involved in these appeals are the following :
i) whether cenvat credit of Rs 9,87,045/- availed by the appellant; with respect to angles, channels, CTD bars etc used in the construction inside the factory is admissible or not.
ii) whether cenvat credit of inputs fuels/oils sent by clinker unit to the captive power plant for generation of electricity, is admissible under the provisions of cenvat credit Rules 2004 with respect to electricity supplied to :
a) the DMW plant and administration block situated within the clinker unit.
b) The residential colony of the clinker unit.
c) The grinding unit and the jetty situated at a distance of 14 km from the clinker unit.
8. Appellant has argued that as per their own case reported as [2006 (206) ELT 575 (Tri. Del.)] the Power plant can be a job worker of the appellant and that the inputs sent by the appellant to the job worker power plant, for generation of electricity brought back to the appellant for manufacture of final product, were held to be eligible for CENVAT Credit. We find that the DMW unit and the Administrative Block, are situated within the Clinker unit of the appellant and use of electricity is these units has to be considered as a use in connection with the manufacture of final product clinker. Therefore, proportionate credit of inputs sent by the Clinker unit to the Power plant under Rule 4(5)(a) corresponding to generation of electricity used in the DMW plant and Administrative Block, will be eligible as CENVAT Credit in the same manner as has been held by this Tribunal in the appellants own case reported as 2006 (206) ELT 575 (Tri. Del.). However, CENVAT Credit is not available with respect to such quantities of inputs which have been used by the Clinker unit for supplying electricity to the DMW plant for making de-mineralized water for the Gujarat Water Board for supplies to nearby villages.
9. We also find that CENVAT Credit of inputs used at the Power plant for generation and supply of electricity to residential colonies within the Clinker unit, is also not admissible in view of the Honble Supreme Court decision in the case of Collector Vs. Solaris Chemtech Limited - [2007 (214) ELT 481 (SC)].
10. So far as denial of cenvat credit on inputs used for generation of proportionate electricity supplied to units other than clinker unit is concerned, Revenue has relied upon the judgment of apex court in the case of M/s Maruti Suzuki Ltd., vs CCE Delhi III [2009(240)ELT 641(SC)] to argue that electricity sent to the sister concerns is not admissible for input credit. Appellant on the other hand has argued that all the units should be treated as the same factory as the transmission lines and roads linking these units are under the possession and control of the appellant. However, in view of the judgments relied upon by the Revenue, as mentioned in Para 5(b) above, such units situated faraway can not be treated as one factory once different registrations have been obtained by the appellant for all the three units. Hon. Supreme Court in the case of M/s Rollatainers Ltd., vs CCE Delhi III (Supra) laid the following law in para 7 & 8 of this judgment :
7.?There is no two opinion that both the factories are near to each other and it is owned by the same owner and the common balance sheet is maintained. But, by this can it be said that both the factories are one and the same ? The definition of the factory as defined in Section 2(e) of the Central Excise Act, 1944, reads as under :
(e) factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on;
8.?Simply because both the factories are in the same premises that does not lead to the inference that both the factories are one and the same. In the present case, from the facts it is apparent that there is no commonality of the purpose, both the factories have a separate entrance, there is a passage in between and they are not complimentary to each nor they are subsidiary to each other. The end product is also different, one manufactures duplex board and the other manufactures paper. They are separately registered with the Central Excise Department. The staff is separate, their management is separate. It is also not the case of revenue that end product of one factory is raw material for the other factory. From the above facts it is apparent that there is no commonality between the two factories, both are separate establishments run by separate Managers though at the apex level it is maintained by the appellant company. There are separate staff, separate finished goods. Simply because both the factories may have common boundaries that will not make it one factory. Accordingly, we are of the opinion that the view taken by the Tribunal does not appear to be well-founded and likewise, the view taken by the Commissioner, Central Excise. Accordingly, we allow both these appeals, set aside the order of the Tribunal passed on June 7, 2002 as well as the order passed by the Commissioner, Central Excise, New Delhi-III on September 28, 2001 in both the appeals. No order as to costs. 10.1 In view of the above law interpreted by the apex court grinding unit can not be considered as the same factory extension of the clinker unit and appellants contention on this account needs to be rejected.
11. It was argued by the appellant that the judgment of M/s Maruti Suzuki Ltd vs CCE Delhi III is not applicable to their case because the electricity is not sold to the sister concern which was a fact in the case before Apex Court when deciding the case of M/s Maruti Suzuki Ltd (Supra). In the present proceedings there is no evidence on record that electricity is sold by the clinker unit to the grinding unit. It is further observed that this distinction was recently brought to the notice of Hon. Madras High Court in the case of CCE., Chennai I vs M/s SRF [2013 (298)ELT 521 (Mad.)] where the following observations were made by Madras High Court in Para 17 and 18 :
17. The Learned Counsel for the assessee distinguished the judgment of the Supreme Court in Maruti Suzuki Ltd vs Commissioner of Central Excise, Delhi III (2009) 9 SCC 193 = 2009(240)ELT 641 (SC) on the ground that the issue in the said judgment relates to the entitlement of credit on eligible inputs utilized in generation of electricity to the extent to which excess electricity cleared at the contractual rates in favour of sister units, vendors, joint ventures etc., which was sold at price. However, in the case of hand, electricity was wheeled out only in favour of sister units and as such, there was no element of sale.
18. The order passed by the CESTAT does not contain any discussion about the contention now raised by the assessee or the distinguishing features. CESTAT by following the earlier decision of the Tribunal, held that the assessee is entitled to credit inspite of the fact that electricity so generated was used in the other units also. The CESTAT has not decided the question as to whether the electricity supplied to the other units of the assessee situated in different premises are also entitled to the credit. The sale made to the other concern was also not made referred to the order passed by the Tribunal.
12. Appellant has also agitated that procedural irregularities or non-compliance can not be made the grounds for denying admissible cenvat credit when electrify supplied has been used for making goods on which duty is payable. It was argued that Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rule 2004 the clinker unit could have sent clinker under job work to the grinding unit and cleared the final goods on payment of duty from the grinding unit. The said Rule 4(5)(a) and Rule 4(6) the Cenvat Credit Rules 2004 are reproduced below :
Rule 4 : Conditions for allowing CENVAT credit. (5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service.
(6) The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker.
13. From the above provisions of Cenvat Credit Rue 2004 it is evident that Cenvat Credit of inputs will be admissible to an assessee when the inputs are sent to a job worker and after undertaking the required manufacturing processes the final products can also be cleared on payment of duty from the premises of the job worker subject to imposition of certain conditions. In the procedures prescribed under the Cenvat Credit Rules 2004, therefore, provisions exist to allow the credit of inputs sent to a job worker when such inputs are used outside the factory premises of the manufacturer taking cenvat credit, however subject to some conditions. In the case of appellant power plant has been held and accepted by the adjudicating authority to be a job worker of the clinker unit. On the same analogy grinding unit could also act as a job worker of clinker unit for manufacturing cement. In such situations both the clinker and the electricity supplied to the grinding unit by the power plant can be treated as inputs supplied to job worker (grinding unit) for which credit has been taken by the clinker unit. As all the registered units belong to the same group of companies, therefore, what has not been done by the appellant is not following properly the prescribed procedures. Alternately, appellant could have sold proportionate electricity generating fuel to its grinding unit by reversing proportionate Cenvat credit which could have been availed as cenvat credit by the grinding unit as per the law laid down by CESTAT, Mumbai in the case of M/s Indo Rama Textiles Ltd vs CCE, Nagpur [2007(220)ELT 471 (Tri. Mumbai)] relied upon by the appellant.
14. From the above observations and the case laws relied upon by the appellant, it is inferred that procedures existed at the relevant time to avail cenvat credit on inputs sent to the power plant as job worker. The only irregularity committed by the appellant was that they did not follow the prescribed procedures. It has been a settled position of law now that a substantial benefit of cenvat credit cannot be denied for not following the prescribed procedures when it is not disputed that inputs on which credit is taken have been utilized for manufacture of final product on which Central Excise Duty has been paid/payable. In the case of sister concerns such captive consumption of materials become a case of revenue neutral exercise. It is not the case of the Revenue that electricity supplied to the grinding unit and its jetty has been diverted elsewhere. Further, it is economical in the modern competitive working to have a larger power plant catering to power requirements of various units of the same group of companies rather than having small power plants for each unit. Accordingly, cenvat credit with respect to inputs, sent to the power plant by the clinker unit for generation of electricity sent to grinding unit, can not be denied to the appellant for not following the prescribed procedures of Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rules 2004 which allowed the appellant to send the clinker to grinding unit under job work and then clear the finished goods from the job workers factory premises when diversion of inputs/electricity is not alleged by the Revenue.
15. So far as cenvat credit of Rs 9,87,045/-on the structural items like angles, channels, CTD bars etc., is concerned, it is observed that Larger Bench in the case M/s Vandana Global Ltd vs. CCE. Raipur (supra) has held such credit to be inadmissible and has thus been correctly denied to the appellant.
16. Based on the above observations, appeal filed by the appellants with respect to cenvat credit taken on structural items (Para 15 above), electricity supplied to DMW plant used for supplying de-mineralized water to Gujarat Water Board (Para 8 above) and electricity supplied to residential colonies of the appellant (Para 9 above) is rejected. Appeal of the appellant with respect to Credit of inputs used for generating and supplying electricity to the grinding unit of the same group companies is allowed. As the issue of admissibility of cenvat credit on this inputs in the present proceedings was highly contentious and debatable this case is not fit for imposing penalties upon the appellant where credit is disallowed and are accordingly set aside.
(Pronounced in the Court on 06.02.2014) (M.V. Ravindran) (H.K. Thakur) Member (Judicial) Member (Technical) swami 2