Custom, Excise & Service Tax Tribunal
Vijayanagar Biotech Ltd vs Visakhapatnam - G S T on 26 August, 2019
(1) Appeal No. E/30211/2019
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Single Member Bench - Court - I
Central Excise Appeal No. 30211/2019
(Arising out of Order-in-Appeal No. VIZ-EXCUS-001-APP-021-18-19, dated 27.04.2018
passed by Commissioner of Customs, Central Excise & Service Tax (Appeals),
Visakhapatnam)
Vijayanagar Biotech Limited .. APPELLANT
Kothakopperla Village,
Pusapatirega (Mandal),
VIZIANAGARAM District - 535 204.
Andhra Pradesh
VERSUS
Commissioner of Central Tax, .. RESPONDENT
Visakhapatnam GST GST Commissionerate, Port Area, VISAKHAPATNAM - 530 035.
Andhra Pradesh APPEARANCE:
Shri G. Prabhakara Sastry, Advocate for the Appellant Shri C. Mallikharjun Reddy, Superintendent/AR for the Respondent.
Coram:
Hon'ble MR. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL) FINAL ORDER No. A/30737/2019 DATE OF HEARING: 19.07.2019 DATE OF DECISION: 26.08.2019 [ORDER PER: MR. P. VENKATA SUBBA RAO)
1. This appeal is filed by appellant against Order-in-Appeal No. VIZ-
EXCUS-001-APP-021-18-19, dated 27.04.2018. This is the second round of litigation after the matter was earlier remanded vide Final Order No. 21727/2014, dt. 16.09.2014 to the original authority, without expressing (2) Appeal No. E/30211/2019 any opinion and leaving all matters open and with a direction to reconsider the manufacturing process once again and the use of machinery by the appellants, afresh.
2. The appellant herein is a manufacturer of Maize Starch and Dextrine falling under CETH 1108 11200 and 3505 1090 of the first schedule of Central Excise Tariff Act, 1985. They are registered with the Central excise Department and avail CENVAT Credit under CCR 2004. A show cause notice dated 19.11.2010 was issued to the appellants by the Revenue seeking to disallow CENVAT Credit on capital goods availed by them on the following items on the ground that as per Rule 6(4) of CCR 2004, no CENVAT Credit shall be allowed on capital goods which are used exclusively for the manufacture of exempted products:
i) Decanter for Gluten
ii) CPD (Flash Dryer) used for drying the Gluten.
iii) Tubular Dryer or Rotary Dryer used for drying maize fibre/Germ
taken by them during the period November 2007 to April 2008.
3. It has been alleged in the show cause notice that the appellants manufacture both dutiable as well as exempted products. While starch is a dutiable product, Gluten, maize fibre and Germ are exempted products. In the manufacturing process, starch gets separated from the maize at some stage beyond which the other exempted products are also processed and (3) Appeal No. E/30211/2019 packed and sold. As per Rule 6(4) of CCR 2004, no CENVAT Credit shall be allowed on capital goods which are used exclusively for the manufacture of exempted goods and on verification by the Department it was found that the appellant had wrongly availed CENVAT Credit on the aforesaid three capital goods which are used exclusively for the manufacture of exempted products, beyond the stage at which they get separated from the dutiable product. In other words it is the position of the Revenue that after the dutiable product viz; Starch has been separated from the process, these exempted products get processed using the aforesaid three capital goods and on which they have wrongly availed CENVAT Credit on capital goods with an intent to wrongly availing CENVAT Credit. Accordingly, a demand was raised to recover the aforesaid CENVAT Credit under Rule 14 of CCR 2004 read with proviso to Section 11A(1) of Central Excise Act, 1944 along with interest under section 11 AB. It was also proposed to impose penalty under section 11AC of Central Excise Act, 1944.
4. After the matter was remanded, the original authority re-examined the entire manufacturing process which he described as follows:
"PROCESS DESCRIPTION:
Initially they take corn approximately at 14% moisture and corn will be cleaned through cleaning machine and separate cobs and dust etc. Corn fed into the steeping vats and maintain 50 - 52 degree centigrade with SO2 water for 44 - 50 hours to achieve final moisture of corn 30 - 40%.
Germ separation:
After steeping, steeped maize fed into the Grinder 1 & 2 for separating the Germ through Germ cyclone. Along with Germ, Starch and Protein liquid is also going along with Germ to Germ filter and Squeezer (squeezing machine) for reducing the moisture and rest of starch and protein liquid goes to main process and semi wet germ (55% moisture) will be goes to Tubuler dryer for drying and packing.
(4) Appeal No. E/30211/2019
Fibre separation:
Rest of the material like Starch, protein and Fibre fed into the fine milling. In this process all the ingredients are completely grinded and finally it goes to the multi stage (fibre separation area). Liquid (starch and protein) again it goes to process and after squeezing, Fibre will dry through Tubular Dryer or Rotary Dryer and will be packed. After squeezing the fibre the moisture content of the fibre is 55%, due to its perishable nature they have to dry immediately through Tubular Dryer or Rotary Dryer to reduce moisture to the level of 5%.
Gluten (Protein Flour) Separation:
Rest of Starch and Protein passes through different separation equipments like Main stream Thickner, Primary Separator, gluten Decanter.
During separation of Starch and Gluten (Protein), the Gluten has very low solid content approximately 2 - 3%, without Gluten Decanter they cannot concentrate the Gluten and run the plant.
After concentration of liquid Gluten, it goes through the vacuum filter for further reducing the moisture and left over liquid contains fine Gluten and again it goes to the main process for recovery. Finally semi wet Gluten (Protein flour) obtained from the vacuum filter 60% moisture content Gluten goes to the CPD Flash dryer and obtained final moisture 10% and packed.
After vacuum filter gluten cake moisture is 60%, as protein (Gluten) is perishable product we have to dry through CPD Flash Dryer to achieve moisture 10%.
Starch Separation:
Finally they get the liquid Starch and this will go through nine different stages for better refining and starch liquid passes through centrifuge machine and finally dry it through the dryer and get Native Starch. Centrifuge overflow and filtrate water again goes to the main process. In modified starches they add chemical in the liquid starch stage for reaction in separate tanks to maintain the different parameters. Finally, after reaction with chemicals, starch liquid goes through the centrifuge machine and finally dry through starch dryers.
This process is totally integrated with main process and all the by products which they are separating in liquid form with density difference. So in every process during separation, some starch and protein liquid go along with the by product. During squeezing and filtration process the liquid again and again reprocessing to the main process for recovery of Starch and Gluten (Protein Flour)."
5. Accordingly, he confirmed the demand for recovery of CENVAT Credit along with interest and imposed penalties as proposed in the show cause notice
6. Aggrieved, the appellant appealed to the first appellate authority who affirmed the order of the lower authority. Hence this appeal.
(5) Appeal No. E/30211/2019
7. Ld. Counsel for the appellant submits that the process of manufacture in their factory is a continuous one and an integrated one and therefore they should not be denied CENVAT Credit on the disputed capital goods. He sought to rely on the order of the Principal Bench of CESTAT in the case of Rana Sugar Ltd. vs. CCE, Ludhiana [2012(11)TMI 299-CESTAT, New Delhi] in which it is held that in case the capital goods/inputs were used in the process of manufacture of intermediate exempted goods which were further used in the manufacture of dutiable products, CENVAT Credit cannot be denied. With respect to the specific three capital goods, he submitted as follows:
" a) DECANTER FOR GLUTEN: Gluten is an intermediate stage in the manufacture of starch and it is subjected to the decantation for obtaining pure starch which is dewatered and starch is processed and packed for sale. Hence the decanting cannot be treated as used for manufacture of gluten, but it is a process for manufacture of starch.
b) CPB (Flash DRYER) USED FOR DRYING THE GLUTEN: Flash Dryer is used for extracting process water and protein flour from the process material and unless the water along with starch is extracted and used in the system neither gluten nor substantial process of starch refining can be completed. In a process involving multiple operations, it is not possible to earmark any equipment for any one product and separation of water containing starch and obtaining clean water from other process is a basic requirement for obtaining the finished excisable goods namely, starch.
c) TUBULAR DRYER OR ROTARY DRYER USED FOR DRYING MAIZE FIBRE/GERM: Tubular Dryer or Rotary Dryer is used for drying of Maize Fibre/Germ. Drying of the products at both intermediate stage and also at dutiable goods stage are same and are part of the manufacturing process. In the above background the capital goods employed as above are eligible for availing CENVAT Credit on them as per the role played mainly in recovery of starch from the process material functions, rendered by each of the item as explained above."
8. After hearing, both sides were given one week to make additional submissions, if any. Accordingly, an unsigned copy of the written notes was (6) Appeal No. E/30211/2019 sent by the Ld. Counsel which explained the process of manufacturing of various products and the equipment used at each stage, as follows:
"The Maize seed contain 64% starch and the same is sought for recovery by employing the following:
Processes Nature of Equipment % of starch REMARKS carried out process used recovered First Stage Cleaning Seed drum, NIL IT IS THE FIRST seed cleaner, STAGE OF destoners MANUFACTURE Second Sweeping Vats, NIL THE SEEDS ARE Stage Circulation TREATED WITH HOT pumps and WATER AND KEPT FOR 4 - 5 HOURS heat SOAKING exchangers, SO2 burner Third Stage Milling 2 stage NIL THE SWOLLEN SEED Grinders, Germ IS GROUND INTO Cyclones, Fine SLURRY Grinding Fourth stage Fiber washing 7 stage NIL FROM SLURRY IT IS pressure screen FILTERED Fifth stage Separation MST, PS, 70% THE STGARCH TO of starch GT starch SOME EXTENT IS from with OBTAINED gluten impurities @ 40% moisture Sixth stage Washing of 9th stage 99.6% Pure THE STARCH starch with raw starch with SEPARATED IS TO water to 40% moisture BE MADE FREE OF remove the fine is obtained at IMPURITIES LIKE layer of gluten the last stage GERM, GLUTTEN which would not AND FIBRE WHICH be removed IS COMPLETED AT from the THE LAST STAGE separation stage Seventh Gluten drying Vacuum drier, Gluten (65% The starch of over stage cage mill drier protein+25% 10% is further starch+10% recovered from moisture) waste by washing stilting and cage mill dryer.
Eighth stage Starch Drying Centrifuge and Starch @ 12% The Final produce Flash Drying moisture and offered for sale is 0.4% gluten with 0.4% Gluten.
Ninth Stage Fiber and Germ Screw press All remnant Also fibre and Germ
drying and bundle starch is are removed by
drier recovered to washing and drying
the maximum the process water
extent containing starch is
recycled to recover
more starch.
By the processes, an average of 63% starch of 99.5% purity at 12% moisture is recovered and is offered for sale.
(7) Appeal No. E/30211/2019
9. Ld. DR, on the other hand, reiterates the findings of the lower authorities and asserts that the case of Rana Sugar Limited (supra) stood on a different footing as the issue was whether the CENVAT Credit can be denied on capital goods used for manufacture of intermediate products which are exempted but which are further used in the manufacture of dutiable final products. The present case is different. Although the process is integrated one, starch is separated by the appellant from the maize corn and after the separation the other by-products namely Gluten and Maize Germ etc. come out. Thereafter, these exempted products are further dried and processed to pack and market them. What is sought to be denied is only the credit used on such goods which have been procured and used only for the processing of these exempted products after their separation from the main product. Therefore, the appellant is clearly not entitled to CENVAT Credit on these capital goods and they have wrongly availed CENVAT Credit with an intent to avail ineligible CENVAT Credit and accordingly the impugned orders are correct and require no interference.
10. I have considered the arguments on both sides and perused the records. The lower authority has explained the process lucidly. The disputed capital goods are used at the following stages.
i) Decanter for Gluten - for Decanter for Gluten after separating free from the starch. Thereafter Gluten is done concentrating through vacuum filters and dried and packed.
(8) Appeal No. E/30211/2019 ii) CPD (Flash Dryer) used for drying the Gluten - it is used for drying
gluten after it has been decanted in the Gluten Decanter.
iii) Tubular Dryer or Rotary Dryer or Rotary Dryer used is used to squeeze the fiber to reduce the moisture content from 55% to 5% making it suitable for further processing and packing.
11. The case of Rana Sugar Limited (supra) sought to be relied upon by the appellant was on a different footing where the sugar factory was manufacturing denatured alcohol which is dutiable and the intermediate product in the process of manufacturing was ethyl alcohol which was exempted. It has been held by the Tribunal that CENVAT Credit on the inputs and capital goods used in the manufacture of exempted intermediate product cannot be denied when the final product is dutiable. In the present case, the starch is the dutiable final product and gluten maize germ are final products which are exempted. What is sought to be denied is CENVAT Credit of capital goods on such machinery which is used for processing the exempted products after they are separated from the raw material. Ld. Counsel for the appellant sought to impress upon the Bench that the entire process is an integrated one and therefore CENVAT Credit cannot be denied on the capital goods. Even if the process is an integrated one, if a separate machinery is used for processing the exempted products after it has been separated from the main product or raw material and such machinery is used only for processing exempted products, CENVAT Credit cannot be availed by the appellant in view of the explicit provisions of Rule 6(4) of CCR (9) Appeal No. E/30211/2019 2004. I have also gone through the table submitted by the Counsel for the appellant cited above but the equipment indicated therein do not include the three equipments in dispute. Therefore, this argument does not carry their case any further.
12. In view of the above, I find that the impugned order does not call for any interference and it needs to be upheld and I do so.
13. The impugned order is upheld and the appeal is rejected.
(Pronounced in open court on 26.08.2019) (P. VENKATA SUBBA RAO) MEMBER (TECHNICAL) vrg