Custom, Excise & Service Tax Tribunal
Sree Rengaraj Ispat Industries Pvt Ltd vs Salem on 14 July, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I
Excise Appeal No. 40476 of 2015
(Arising out of Order-in-Original No. 09/2014 (COMMR.) dated 11.12.2014 passed by
Commissioner of Central Excise, No. 1, Foulks Compound, Anai Road, Salem - 636 001)
M/s. Sree Rengaraj Ispat Industries (P) Ltd. ...Appellant
SIPCOT Industrial Growth Centre,
Perudurai,
Erode - 638 052.
Versus
Commissioner of GST and Central Excise ...Respondent
Salem Commissionerate, No. 1, Foulks Compound, Anai Road, Salem - 636 001.
APPEARANCE:
For the Appellant : Shri Jai Kumar, Advocate For the Respondent : Shri M. Selvakumar, Authorised Representative CORAM:
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) HON'BLE MR. AJAYAN T.V., MEMBER (JUDICIAL) FINAL ORDER No. 40728 / 2025 DATE OF HEARING : 22.01.2025 DATE OF DECISION : 14.07.2025 Per Mr. VASA SESHAGIRI RAO Excise Appeal No. E/40476/2015 has been filed by M/s. Sree Rengaraj Ispat Industries (P) Ltd. (hereinafter referred to 'Appellant') assailing the Order-in-Original No. 09/2014 (COMMR.) dated 11.12.2014 passed by the Commissioner of Central Excise, Salem.2
2. Brief facts of the appeal are that the Appellant, M/s. Sree Rengaraj Ispat Industries (P) Ltd., are manufacturers of Sponge Iron and MS Billets falling under Chapter Heading 72 and are registered with Central Excise Department. On completing investigations a Show Cause Notice vide Serial No. 09/2014 dated 19.03.2014 was issued to the Appellants which culminated into the Order in Original No. 09/2014 dated 11.12.2014, confirming the entire demand of Rs.4,81,57,204/- invoking extended period and also appropriating an amount of Rs.6,33,676/- and interest of Rs.30,338/- paid during the investigation besides imposition of penalties under Section 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.
3. The Ld. Advocate Shri S Jaikumar appeared on behalf of the Appellant and argued issue wise as follows: -
i. Availment of CENVAT Credit of duty paid on various items including M.S. Plates, Channels, stairs and ladders, etc., received as capital goods;
ii. Availment of CENVAT credit of duty paid against commercial invoices;
iii. Availment of CENVAT credit of Service Tax paid on the services of testing of air in and around factory premises;3
iv. Availment of CENVAT Credit of Service Tax paid in respect of reimbursement to seller of coal under debit notes and v. Reversal of CENVAT credit availed on inputs and input services which were used in the manufacture of non-excisable goods viz. electricity wheeled out.
4.1 With respect to the availment of CENVAT Credit of duty paid on various items including M.S. Plates, Channels, stairs and ladders, etc., received as capital goods, and inputs to capital goods, the Ld. Counsel would submit that the Appellant had placed purchase orders with M/s. Cethar Vessels Ltd (hereinafter referred to 'CVL') for supply and erection of a Boiler, who in turn cleared the Boiler in SKD/CKD condition. It was submitted that as per the Excise invoices issued for the said supplies, the supplier has classified the same under Chapter 84. The said "Boiler Components, Parts and Accessories" were assembled at the site along with duty paid components procured by the Appellant from other vendors which is the normal trade practice. The impugned order confirms demand to the tune of Rs.70,23,759/- (Rs.34,42,471/- for supplies from CVL and Rs. 35,81,288/- for supplies received from other vendors) and seeks reversal of the same as these do not qualify as an 4 input in terms of Section 2(k) of the CENVAT Credit Rules, 2004.
4.2 The Ld. Advocate has drawn attention to Circular No. 966/09/2012-CX-1 dated 18.05.2012 and Circular No. 964/07/2012-CX-1 dated 02.04.2012, wherein it has been clarified that structural components which are to be used essentially as a part of Boiler System would be classifiable as parts of the Boiler classifiable under Heading 8402 of the Tariff and would be covered by the definition of inputs under Rule 2(k)(iii) of the Rules being parts and accessories of the Boiler. The said Circular has clarified that these structural components shall not be hit by the exclusion clause to the definition of inputs as these are not used for laying of foundation or making of structures for support of capital goods but are essentially parts of the Boiler. It was further submitted that, following the said Circular, this Tribunal in the case of M/s. Sri Sai Sindhu Industries Ltd.- [2016 (8) TMI 484-CESTAT HYDERABAD] and Steel Strips Wheels Ltd. [2022 (9) TMI 797 CESTAT CHENNAI] has allowed CENVAT credit to the structural components following the decision of the Hon'ble Madras High Court in the case of India Cements [2015 (3) TMI 661-MADRAS HIGH COURT].
54.3 The Learned Counsel would further submit that, the inputs having been classified under Chapter 84 by the supplier's jurisdictional authorities, the authorities at the receiver's end cannot question the classification. In support of the above, reliance was placed on the following decisions: -
a) Sarvesh Refractories (P) Ltd. [2007 (11) TMI 23-SC]
b) Mohan Breweries & Distilleries Ltd. [2010 (8) TMI 281 MADRAS HIGH COURT]
c) GKW Ltd. [2015 (1) TMI 374 CESTAT MUMBAI]
5. In respect of the CENVAT Credit availed on commercial invoices to the tune of Rs.73,841/-, the Ld. Counsel has conceded to the demand and during the hearing before the Tribunal submitted that they would not agitate the same. What is agreed to, needs no discussion.
6. In respect of availment of the CENVAT Credit of the service tax paid towards air testing services, he would submit that the Appellant had availed input service credit of Rs. 52,483/- on invoices issued by M/s. Envirocare India Pvt. Ltd. who had provided services of testing of air in and around factory premises. He has submitted that, it is the mandate of law to undertake sampling and analysis of hazardous waste and Pollution Control Equipment is considered as a Capital Good in terms of Rule 2(a)(A)(iii) of CENVAT Credit Rules, 6 2004 and hence, credit availed on the service of monitoring air pollution is very much eligible. Reliance in this regard was placed on the decision of CESTAT, Ahmedabad in the case of Coromandel International Ltd. [2024 (1) TMI 246 CESTAT AHMEDABAD] wherein CENVAT credit on effluent treatment service availed from the third-party agency was held admissible to the assessee.
7. With respect to availment of CENVAT Credit of Service Tax paid in respect of reimbursement to seller of coal under debit notes, the Ld. Advocate would submit that the CENVAT Credit was duly availed against the documents which contains substantive information as prescribed in Rule 9 of CENVAT Credit Rules, 2004. In this regard, reliance was placed on Vodafone Idea Limited [2022 (9) TMI 1285 CESTAT MUMBAI].
8.1 Finally, with respect to the allegation and demand on the reversal of CENVAT credit availed on inputs and input services which were used in the manufacture of non-excisable goods viz. electricity wheeled out, the Ld. Counsel would submit that the Appellants are engaged in manufacture of 'sponge iron' and during the process the raw materials used are required to be heated to a temperature of over 960 degrees Centigrade in the rotary kiln. 7 Subsequently, hot flue gas emerges which contains harmful gases like carbon-di-oxide and lots of impurities. All these would cause air pollution if left as such. Pollution control law requires that the hot flue gas is not to be left off as such and is required to be filtered and cooled to requisite temperature before letting it off in the atmosphere. For the purpose of carrying out the above pollution control activity of filtering and cooling, the Appellants have installed 'waste heat recovery boiler', 'electrostatic precipitator' and 'Silos' in their manufacturing unit. The water from the waste heat recovery boiler absorbs the heat of the flue gas and gets converted into steam. The said steam cannot be let out as it will cause global warming and serious harm to the environment. 8.2 As such, the steam is sent through pipeline to the stream turbine connected with electricity generators and electricity is generated. There are two 'captive power plants' in the Appellants' premises, 8 MW & 30 MW power plants. The former plant uses the steam so emerging from the manufacture of sponge iron and generates electricity. In the latter, coal is burnt and the flu gas emerging from the same is utilized for electricity generation. The power generated from the above plants are partly used captively for manufacture of dutiable products and partly wheeled out to TNEB/private parties for sale consideration. 8 8.3 The credit attributable to inputs used in manufacture of electricity w.r.t 30MW power plant has been reversed. However, as alleged in the SCN and confirmed in OIO, the Appellant has not reversed credit availed to the tune of Rs.3,87,29,140/- on inputs used in 8MW power plant as the input being 'flue off gases' generated in the instant case is a by-product in the process of manufacture of sponge iron. The mere fact that these gases are used in generation of electricity cannot justify the department's interpretation that these are Cenvatable inputs used for manufacture of non-excisable goods i.e., electricity. It is pertinent to note that the above facts were admitted as detailed in para 04.01 of the SCN.
8.4 It was submitted that the flue gas emerges on its own volition without feeding any inputs specifically for this purpose. Therefore, the credit of specified duty shall not be denied on the ground that a part of inputs is contained in any waste, refuse or by-product, etc. In this regard reliance was placed on the Appellant's own case reported in [2022 (6) TMI 555 - CESTAT CHENNAI] wherein the benefit of credit has been extended to the said by product, namely steam. In the instant case, the by-product (steam) is converted into electricity, a non-excisable commodity. It was 9 submitted that when credit is allowed in case of by-product, the question of reversal shall not arise in respect of the electricity that is generated using the said by-product. In this regard, reliance was placed on Hindustan Zinc Ltd. [2004 (178) ELT 255] and wherein it has been held mere fact of use of a by-product for conversion into further goods which were exempted, would not amount to use of modvatable inputs in manufacture of exempted product and consequently denial of credit.
8.5 It was further submitted that, when the CENVAT Credit is allowed to them vide their own case supra, which has attained finality, and there is no allegation that the Appellant has availed any credit subsequent to the generation of steam, it is not open for the Department to agitate the issue afresh.
8.6 The Ld. Advocate would further emphasize that extended period is not invocable as there is no proof of fraud or collusion or any willful mis-statement or suppression of facts as alleged by the Department. As the Appellant has filed periodical returns for manufacture and clearance of final products and details of Cenvat credit availed on inputs and capital goods in terms of Rule 12 of Central Excise Rules, 2002 and Rule 9(7) of Cenvat Credit Rules, any suppression 10 with intent to evade payment of duty can be attributed to their conduct nor there is any deficiency in legal compliance. Cenvat credit availed as reflected in periodical returns filed could be verified as stipulated by the Board vide Circular No. 818/15/2005-CX dated 15.07.2005.
8.7 It is further submitted that when the issue on hand is already a part of earlier period and proceedings, extended period of limitation cannot be invoked for the subsequent period.
8.8 The Ld. Advocate has submitted that the credit attributable to inputs used in manufacture of electricity w.r.t. 30MW power plant has been reversed. However, as alleged in the SCN and confirmed in OIO, SRIIPL has not reversed credit availed to the tune of Rs.3,87,29,140/- on inputs used in 8MW power plant as the input being 'flue off gases' generated in the instant case is a by- product in the process of manufacture of sponge iron. The mere fact that these gases are used in generation of electricity cannot justify the Department's interpretation that these are Cenvattable inputs used for manufacture of non-excisable goods i.e., electricity.
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9. Shri M. Selvakumar, the Ld. Authorized Representative appeared for the Department and has reiterated the findings of the Ld. Adjudicating Authority. In respect of the availment of CENVAT Credit on the various items availed as capital goods, he would place reliance on the ratio of the decision of the Larger Bench in the case of Vandana Global Ltd. Vs. CCE, Raipur [2010 (253) ELT 440 (Tri. LB)]. With respect to the availment of CENVAT Credit on the service tax paid on the testing services of air, the Ld. AR would fairly admit the eligibility. Finally, with respect to the demand of reversal of CENVAT Credit availed on inputs and input services which were used in the manufacture of non- excisable by products namely steam and its subsequent generation of electricity, he would reiterate the findings of the Ld. Adjudicating Authority.
10. Heard both sides and carefully considered their submissions, appeal records and the case laws relied upon. A. Eligibility of Cenvat Credit on M.S. Plates, Channels, Stairs and Ladders:
11. It is not in dispute that the various items, such as M.S. Plates, Channels, stairs, etc., which were received by the Appellants either from CVL, who are the suppliers of the 12 boiler plant or from the other vendors were used in the Appellants boiler plant. It is also on record that most of such items, where the CENVAT Credit was sought to be denied are classified under Chapter 84, as parts and accessories of the boilers, as evidenced from the invoices. The Appellant has placed reliance on the Circular No.966/09/2012-CX-1 dated 18.05.2012 and Circular No.964/07/2012-CX-1 dated 02.04.2012, to support his contention for Cenvat credit eligibility which are reproduced below for ease of reference: -
Circular No 966/09/2012-CX F No 84/1/2011-CX.1 Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs New Delhi, the 18th of May 2012 To Al Chief Commissioner of Central Excise and Customs, Al Chief Commissioner of Central Excise, Al Director Generals Sir/Madam Sub: Clarification regarding classification of Structural Components of Boiler and Admissibility of CENVAT Credit on these Structural Components, reg 13 References have been received from the field formations seeking clarification in respect of the Circular No. 964/07/2012-CX issued vide F. No. 84/1/2011-CX.1 dated 2nd April 2012 on the above subject. In the said circular it has been clarified that structural components of Boiler which are essentially parts of the boiler are to be classified under heading 8402 and CENVAT credit shall be admissible in respect of such structural components/ parts (of the Boiler), as they are not used for laying of foundation or making of structures for support of capital goods.
2. Clarifications have been sought as to whether in view of the said circular, CENVAT Credit will be admissible on structural components used for the support of the Capital Goods.
3. The Circular dated 2nd April 2012 was issued in the context of a dispute as to whether certain structural components were to be treated as boiler parts or as goods for making structures to support the boilers. Whether a particular structural component is a part of the Boiler or a component to make structure for supporting the Boiler is a question of facts and needs to be examined on a case-to-
case basis, depending on the nature and use of the said structural component as per the existing legal provisions and judicial pronouncements on the subject.
4. As clearly stated in para 3 of Boards' above circular dated 2.4.2012, it is once again reiterated that in terms of the Rule 2(k) of the CENVAT Credit Rules, 2004, while CENVAT Credit is available in respect of parts of Boiler, the same is not admissible in respect of the structural components used for laying of foundation or making of structures for support of capital goods/ Boiler. The above clarification is in conformity with the views expressed in the judgments of the Hon'ble Supreme Court/ different benches of the CESTAT.
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5. Trade, industry and field formations may be suitably informed.
6. Hindi version will follow Yours faithfully (Madan Mohan) Under Secretary (CX.1) _______ Circular No.964/07/2012-CX F. No. 84/1/2011-CX-1 Government of India Ministry of Finance Department of Revenue Central Board of Excise & Customs New Delhi, dated 2nd April, 2012 To Al Chief Commissioners of Central Excise & Customs, Al Chief Commissioners of Central Excise, Al Directors Generals Sir/Madam, Subject: Clarification regarding classification of structural components of Boiler and admissibility of CENVAT credit on these structural components - reg.
Reference has been received from Trade seeking clarification regarding classification of structural parts/components of Boiler and admissibility of CENVAT 15 credit on these parts/components to the buyers of the Boilers. It has been represented that CENVAT credit is being denied to the supporting structural parts of the Boilers at the buyers' end by classifying the same under Chapter 73 as structural parts and not as a part of Boiler. These are not being covered under the definition of inputs under the CENVAT Credit Rules, 2004, on account of exclusion given in rule 2 (k)(iv) (B) (b). This denial is on the ground that these are used for structures for support of Capital goods, without which the Capital goods can function.
2. The matter has been examined in the Board. The Boilers are a combination of various systems such as Coal Handling System, Coal Feeding System, Draft Air System, Demineralization Plant, Boiler Feed Water System, Boiler Tubes, Boiler Drums, Super Heat System, Flue Gases Treatment System and Ash Handling System etc. Al these Systems work in tandem to make a modern Boiler. These Systems comprise of many parts including structural components which are essentially the part of Boiler by way of technical specifications. As per Section Note 4 to the Section XVI of the First Schedule to the Central Excise Tariff Act, 1985, " Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function."
3. Accordingly it is clarified that those structural components which are to be used essentially as a part of Boiler System would be classifiable as parts of Boiler only under Heading 8402 of the Tariff. It is further clarified that since these structural components are nothing but 16 the parts and accessories of the Boiler, they would be covered by the definition of inputs under Rule 2(k)(iii) of the CENVAT Credit rules, 2004 (i.e. al goods for generation of electricity & steam). Further these structural components shall not be hit by the exclusion clause to the said definition of inputs, as these are not used for laying of foundation or making of structures for support of capital goods, but are essentially the part of said Boilers.
4. Trade, industry and field formations may be suitably informed.
5. Hindi version will follow.
Yours faithfully, (Madan Mohan) Under Secretary (CX1)
12. Further, the Appellant has also placed reliance on the decisions of M/s. Sri Sai Sindhu Industries Ltd. [2016 (8) TMI 484 CESTAT HYDERABAD] and Steel Strips Wheels Ltd. [2022 (9) TMI 797 CESTAT CHENNAI]. In the case of Steel Strips Wheels Ltd., supra, the Single Member, considering the ratio of the High Court in the case of India Cements [2015 (3) TMI 661-MADRAS HIGH COURT], has held that the CENVAT Credit on support structures which have used M.S. Plates, angles etc. are eligible as capital goods. Similarly in the case of Sri Sai Sindhu Industries Ltd., supra, after duly considering the above two circulars, the Single Member has allowed the CENVAT Credit of similar items. It is evident from the SCN dated 19.03.2014 that the 17 Appellant have taken Cenvat Credit on the basis of invoices raised by M/s. Cethar Vessels Ltd. for supply of various support structural items viz., Boiler Ceiling Structures, Tie beams & bracings, HR Plates, Hanger rods, U rods, bridge channels, supporting structure access platforms, stairs and ladders, etc. along with the goods which merits classification under "capital goods" under the common 'description' as "Supply of Boiler Components and Accessories" under tariff heading 8402 11 00 or 8402 90 20. In respect of procured from others, items included M.S. Plates, Hot rolled steel plates, HR Coils, etc. In M/s. Sai Sindhu Industries Ltd., Single Member Tribunal Hyderabad has held as follows: -
"5. The Board has issued another Circular No.966/09/2012-CX-1 dt. 18/05/2012, on the same issue of classification of structural components of boiler and the admissibility of credit of these items. In this circular, it is stated that credit is admissible on parts of boiler, but that credit is not admissible in respect of structural components used for laying foundation or making structures for support of capital goods. These two circulars definitely bring out one fact i.e. boiler consists of components which are in the nature of structural support which are essential parts of the boiler. The circular dated 18/05/2012 makes it very clear that only when the impugned items are used for laying foundation or structural supports, the credit would not be admissible.
6. Though Revenue contends that the Range Officer reported that these were used for laying foundation, as correctly submitted by counsel for respondents, no such report is placed as part of the relied upon documents. In 18 the invoices, the description of goods is shown as components and parts of boiler. The respondents submit that they entered into a contract with M/s. CVL for design, engineering, manufacture and supply of two numbers of WHRB boiler and auxiliaries for sponge iron kiln exhaust applications. The goods supplied are nothing but essential parts of the boiler which are boiler components and items like beams, channels etc. which are used as supporting structures to the boilers and bunkers without which the said boilers and bunkers cannot be erected or made to function.
7. It is crystal clear from the invoices that the supply of goods are parts of boilers. The circulars also have clarified that the items used for support structure of such boiler/capital goods are eligible for credit. There is no evidence adduced by the department to show that the boiler can function without the support structures."
13. The reliance placed on the larger bench decision of the Tribunal in case of Vandana Global Ltd. Vs. CCE, Raipur [2010 (253) ELT 440 (Tri. LB)] does not come to the rescue for the Department as the same has been reversed by the Hon'ble High Court of Chhattisgarh [2018 (16) GSTL 462 (Chatt.)]. The Appellants contention that there cannot be a reclassification at the receivers end also has force.
14. In the case of M/s. India Cements Ltd. Vs. Commissioner of Customs, Excise and Service Tax [2015 (3) TMI 661-MADRAS HIGH COURT], the Hon'ble Madras High Court has held as follows: -
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"8. Heard learned counsel appearing for the assessee and the learned Standing Counsel appearing for the Revenue and perused the materials placed before this Court.
9. It is not in dispute that the impugned goods were used for fabrication of structurals to support various machines like crusher, kiln, hoopers etc. and that without these structurals, the machinery could not be erected and would not function.
10. In the case of Commissioner of Central Excise, Jaipur V. Rajasthan Spinning & Weaving Mills Ltd., reported in 2010 (255) ELT 481), relied on by the learned counsel appearing for the assessee, the Apex Court , while dealing with the issue in question, in paragraph Nos.7 and 8, held as follows:
"7. In the present case, it is seen that the items in question were used in the erection of various machineries such as, - new additional Electrostatic Precipitator for raw mill project, additional fly ash handling system, MMD crusher etc. for the Dry Process Cement Manufacturing Plant. It is evident that MS Angles, MS Beams, MS Channels etc. were used in the erection of machineries it become component of the same, which are integral part of Dry Process Cement Manufacturing Plant. It is noted that Fly Ash handlish system is a pollution control equipment and particularly mentioned in 2(a)(A)(ii) of Rules, 2004. The allegation in the above show- cause notice that the Chapter Heading of these items were not covered under Rule 2(a) of the Rules, 2004, is not sustainable, in respect of pollution control equipments because the rule does not specify the tariff headings under which pollution control equipment should be falling. The appellant established that these items were used for erection of capital goods namely Dry Process Cement Manufacturing Plant, which falls under Chapter 84, 20 as mentioned in Serial No.(i) of Rules 2(a)(A). Thus, the items in question are covered in serial No.(iii) of Rules 2(a)(A) of the Rules, CBEC has clarified that all parts, components, accessories which are to be used with capital goods in serial (i) and (ii) of Rules 2(a)(A) and classifiable under any chapter heading are eligible for availment of CENVAT credit. A plain reading of serial (iii) cannot lead to a different conclusion either.
8. After considering the use of the goods in question, in our considered view, the present case is covered by the decision of the Hon'ble Madras High Court in appellant's own case as referred above. We have also noticed that the Hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills Ltd.(supra) as relied upon the Hon'ble High Court in the appellant's own case, allowed MODVAT credit on MS channels, steel plants etc. as capital goods used for erection of chimney for diesel generating set. The findings of the Commissioner that these are structures fixed to earth with concrete foundations and are immovable appears to be beyond the scope of the show-cause notice. So, the case of M/s.Triveni Engineering & Industries Ltd. (supra) as relid upon by the learned AR is not applicable in the present case."
11. Asfar as the reliance placed on 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 by the learned Standing Counsel appearing for the Revenue is concerned, we find that this Court had earlier considered the case of the assessee in two similar cases of the previous assessment years in C.M.A.No.1301 of 2005 dated 31.12.2012, where a reference was made to an order passed earlier in respect of the very same assessee. While 21 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 (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 (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 (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. ..."
15. In view of the above discussion and appreciating the ratio of the above decisions particularly Jurisdictional 22 High Court's decision in the case of M/s. India Cements Ltd. Vs. Commissioner of Customs, Excise and Service Tax [2015 (3) TMI 661-MADRAS HIGH COURT], we hold that the Appellant is eligible for availment of Cenvat Credit on supporting structures i.e., M.S. Plates, Channels, stairs, Ladders, etc., for their boiler plant as capital goods and as inputs to the capital goods.
B. Cenvat Credit on Commercial Invoices: -
16. In respect of the CENVAT Credit availed on the commercial invoices to the tune of Rs.73,841/-, the Appellant has voluntarily foregone the credit. So, there is no need to discuss about what was not contested. The Appellant is liable to reverse the above credit with interest. C. Cenvat Credit availed on Debit Notes & Testing Charges: -
17. The Appellant has availed input service credit based on the debit notes raised by M/s. Starcoal India Private Limited on them. These debit notes were raised for claiming reimbursement of Wharfage & Handling Charges paid by them at Tuticorin Port. This credit was sought to be denied as there was no Service Tax Registration Number in any of these documents issued by M/s. Starcoal India Private Limited. However, the Appellant has submitted the copies of 23 debit notes raised by M/s. Starcoal India Private Limited and related invoices and a copy of one of the invoices is extracted below: -
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A perusal of the above debit note or service tax invoice clearly indicates that Service Tax Registration Number and all other details are incorporated as required. Details of service tax paid are also discernable. As such, denial of the credit is not justified and the same is to be allowed as there is substantive compliance which stands undisputed.
18. Further, the Appellant had also availed credit on the services provided by M/s. Envirocare India Pvt. Ltd. to the tune of Rs.52,483/-. These services are meant for testing of air in and around their factory premises. The Department held the view that the Appellant is not eligible for this input service credit in terms of Rule 2(l) of the CENVAT Credit Rules, 2004 as this is not related directly or indirectly, or in or in relation to manufacture of final products. However, the Appellant's contention is that input credit is available on pollution control equipment and other related activities as such contested the denial of the credit. It is quite obvious that testing of air in and around the factory premises as the pollution control measure is a necessary activity mandated by the law and as such, denial of the credit cannot be supported. We hold that the Appellant is eligible for availing the Cenvat credit availed on the services of M/s. Envirocare India Pvt. Ltd.
25D. Demand of reversal of Cenvat Credit in respect of Electricity Generated: -
19. Lastly, with respect to the allegation and demand of reversal of CENVAT Credit on the electricity generated and wheeled out, the issue is no longer res integra as the issue has been squarely covered by the decision in the Appellant's own case for the earlier period [2022 (6) TMI 555 CESTAT CHEΝΝΑI]. As rightly pointed out by the Advocate for the Appellants, when the department has not contested the above in the earlier proceedings and as the issue had attained finality, cannot be re-opened in a subsequent proceeding. Further, there is no allegation that there has been availment of any CENVAT Credit on any inputs or inputs services after the stage of steam generation that would warrant any revisit. We also duly appreciate the fact that the Ld. Adjudicating Authority did not have the benefit of the above judgment while confirming the demand or otherwise the same could have been allowed. The relevant portion of the Tribunal Chennai's decision in the Appellant's own case is extracted below: -
"7. Coming to the issue as to whether the appellants are required to reverse 10% of the credit availed in view of the fact that the steam generated is exempt, we find that the issue stands settled by catena of judgments as claimed by 26 the appellants. We find that in the case of M/s Balrampur Chini Mills Ltd-2019 (368) ELT 276 (ALL), it was enunciated that Bagasse/ Press mud produced during the course of manufacture of sugar cannot be treated as exempted products and the provision of Rule 6 of Central Excise Rule, 2004 cannot be applied. In the instant case steam is generated in the course of manufacture and it cannot be said that the appellants have manufactured steam which is an exempt product. Hon'ble Gujarat High Court in the case of Sterling Gelatin - 2011 (270) 200 (Guj) held that a bye product emerging in the course of manufacture cannot be treated as a manufactured product for the purposes of Rule 6 of Cenvat credit Rules. Hon'ble Court held that:
"7. At this juncture, reference may be made to certain statutory provisions. Rule 6 of the Cenvat Credit Rules, 2002 makes provision for "Obligation of manufacturer of dutiable and exempted goods". Sub- rule (1) thereof provides that CENVAT Credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2). Sub- rule (2) provides that where a manufacturer avails of Cenvat Credit in respect of any inputs and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take Cenvat Credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. Sub-rule (3) of Rule 6 makes provision for the conditions which a manufacturer of goods opting not to maintain separate accounts is required to follow.27
8. Thus, on a plain reading sub-rule (1) of Rule 6, it is apparent that CENVAT credit is admissible in respect of the inputs used in the manufacture of dutiable goods and is inadmissible on such quantity of inputs which is used in the manufacture of exempted goods. Sub-rule (2) imposes an obligation on the manufacturer who manufactures final products and exempted goods from the common input to maintain separate accounts for receipt, consumption and inventory of inputs. Examining the applicability of the aforesaid rules to the facts of the present case, as noted hereinabove, it is not as if more quantity of Hydrochloric Acid is used than that required for manufacturing Gelatin or that by using a smaller amount of Hydrochloric Acid, the production of Mother Liquor could be averted. In the manufacturing process adopted by the assessee, it is not possible to manufacture Gelatin without Mother Liquor coming into existence. Thus, when the entire quantity of input viz. Hydrochloric Acid is used in the manufacture of the final product being Gelatin which is a dutiable product, the mere fact that a by- product emerges during the process would not bring the by-product within the ambit of Rule 6 of the Rules so as to call for maintaining separate accounts in respect of the same. When the entire quantity of input is used in the manufacture of Gelatin, the question of maintaining separate accounts or of paying a percentage of the total price of the exempted goods would not arise. In the peculiar facts of the present case, sub-rule (1) of Rule 6, itself would not come into play inasmuch the manufacturer does not deliberately use any quantity of the inputs, viz. Hydrochloric Acid for manufacturing Mother Liquor, the entire Hydrochloric Acid is used in the manufacture of Gelatin. Thus, 28 when no input is specifically used for the purpose of manufacturing Di-Calcium Phosphate, there would be no question of maintaining separate accounts for receipt, consumption and inventory of input.
9. At this stage, it may be germane to refer to the decision of the Supreme Court in the case of Commissioner of Central Excise, Mumbai v. National Organic Chemical Industries Limited, (2008) 16 SCC 490 = 2008 (232) E.L.T. 193 (S.C.), wherein the question before the Supreme Court was as to whether emergence of methane and ethane during the course of manufacture of ethylene and propylene would be a ground for denial of benefit of exemption in respect of ethylene and propylene which was exempt from excise duty. It was contended on behalf of the respondent-assessee that there was no way by which the respondent could have manufactured ethylene and propylene for producing ethane and methane. The Court held that it was not as if by using a smaller quantity of raw materials or other goods involved in the process, the respondent could have averted the emergence of ethane and methane. In other words, in the technology utilized for the manufacture of ethylene and propylene, the emergence of ethane and methane was inevitable. Hence, while it was no doubt correct to say that ethylene and propylene had been used in or in relation to manufacture of ethane and methane, the identical quantity of the same goods had simultaneously been used in the manufacture of ethylene and propylene. The emergence of ethane and methane therefore, by itself, was not a ground to deny the benefit of the exemption notification.
10. In the facts of the present case, it is not as if by using a smaller quantity of input Hydrochloric Acid, the respondent could have averted the emergence of 29 Mother Liquor. In other words, in the technology utilized by the respondent for the manufacture of Gelatin, the emergence of Mother Liquor was inevitable. Hence, while it is no doubt correct to say that Hydrochloric Acid has been used in or in relation to manufacture of Mother Liquor, the identical quantity of the same goods has simultaneously been used in the manufacture of Gelatin. The emergence of Mother Liquor during the course of manufacture of Gelatin, therefore, by itself is not a ground to invoke the provisions of Rule 6 of the Rules."
8. Further, we also find that this Bench, while dealing with a case involving similar facts, in the case of SKI Carbon black (India) Private Ltd. Vs CCE Chennai II - 2018 (5) TMI 1416-CESTAT Chennai has observed as follows:
"4. Heard both sides. We have given our anxious consideration to the submissions made by both sides and also perused records carefully. The process of manufacture has been explained. Undeniably, CBFS is an input used for manufacture of Carbon Black. It cannot be said that appellant has procured CBFS for generation of electricity. Appellants have registered for manufacture of Carbon Black by using CBFS as input. The inputs used by them for generation of steam / electricity is only caustic soda and hydrochloric acid. For manufacture of carbon black, the CBFS has to be put to process of burning in the reactor and in such process, lean gas emerges. Such emergence of lean gas cannot be avoided while manufacturing the carbon black. Since it is not possible to release such lean gas to the atmosphere for environmental reasons, the appellant uses the same for generation of steam and electricity. The Hon'ble Apex Court affirmed the judgment of 30 Bombay High Court in Rallis India Vs UOI (supra) by observing that it was only a technological necessity that these lean gases were to be used to generate heat for generation of electricity. The aforesaid decisions have been relied upon by the Hon'ble Allahabad High Court in the case of Hi-Tech Carbon (supra) wherein similar situation had come up for consideration. The Ld. A.R has objected the application of this judgment contending that the said decision pertains to the period when erstwhile Modvat Credit Rules were in force. However, we find that the issue under consideration being exactly identical and the Hon'ble High Court having relied upon the decisions in the case of UOI Vs Hindustan Zinc Ltd. and Rallis India Ltd. (supra), we are of the considered opinion that the judgement of Hon'ble Allahabad High Court would apply to the appeals before us. "
9. In view of the above, we find that nothing survives in the impugned order and the same cannot be sustained. The impugned order needs to be set aside. We do so and allow the appeal with consequential relief, if any, as per law.
20. The by-product steam is converted into electricity which is non-excisable. When the credit is to be allowed in case of by-product, the question of reversal shall not arise in respect of electricity generated using the said by- product. In the case of Hindustan Zinc Ltd. [2004 (178) ELT 255] it was held that mere fact of use of by-product for conversion to further goods which were exempted would not amount to use of Modvat of the inputs in the manufacture of 31 exempted product and consequently denial of Cenvat credit is not justified.
21. Applying the ratio of the above decisions particularly Tribunal Chennai's decision in the Appellant's own case, we are of the view that denial of Cenvat credit in generation of electricity on the ground that flue gases / steam / electricity or by-product exempted is not legally correct and cannot be agreed to.
22. Regarding the defense of the applicant with respect to invocation of larger period in the instant case, we are in complete agreement that there cannot be an invocation of larger period on subsequent period of demands when all the facts are known to the department during the first proceeding. Moreover, as we have decided the issue on merits in favor of the Appellant there cannot be imposition of any penalty in the instant case on any of the issues and accordingly, we vacate all the penalties imposed.
23. In view of the above, the impugned Order-in- Original No. 09/2014 (COMMR.) dated 11.12.2014 passed by the Commissioner of Central Excise, Salem cannot be sustained and so ordered to be set aside excepting the 32 Appellant's voluntary reversal of the Cenvat credit availed on commercial invoices to the tune of Rs.73,841/-.
24. Thus, the appeal is allowed with consequential relief, if any, as per the law.
(Order pronounced in open court on 14.07.2025) Sd/- Sd/-
(AJAYAN T.V.) (VASA SESHAGIRI RAO) MEMBER (JUDICIAL) MEMBER (TECHNICAL) MK