Custom, Excise & Service Tax Tribunal
M/S. Madras Cements Ltd vs Cce, Hyderabad on 19 January, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench SMB Court I Appeal No.E/237/2012 (Arising out of Order-in-Appeal No.106/2011(H-III) CE dt. 31/10/2011 passed by CCE(Appeals), Hyderabad) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member(Judicial) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s. Madras Cements Ltd. ..Appellant(s) Vs. CCE, Hyderabad ..Respondent(s)
Appearance Shri R. Parthasarathy, Authorised representative for the appellant.
Shri H.S. Naskar, Authorised representative for the respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Date of Hearing:19/01/2016 Date of decision:19/01/2016 FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.]
1. Brief facts:-
The appellants are engaged in packing cement received in bulk from their main plant. Since packing of cement is manufacture, the appellants are registered with Central Excise Department and they pay central excise duty on goods cleared by them. Appellants are also availing credit on inputs, capital goods and input services. On scrutiny of records for the period October 2008 to August 2009, it was observed that appellants irregularly availed credit on MS items as inputs which was not admissible. Further, they took 100% credit in the same year on air slide, part of silo feeding arrangement, conveyor, bag divertor, part of roto packer, supply components, parts and accessories of bag filter, hopper etc. which are in the nature of capital goods. The Department observed that these being capital goods appellant ought to have taken only 50% credit of the duty in the year of receipt of goods and remaining 50% ought to have been taken in the subsequent year. A show-cause notice was issued proposing to disallow the credit on capital goods and MS items and to recover the same along with interest and also proposing penalty. After due process of law, the adjudicating authority confirmed the recovery of Rs.1,44,146/- being the irregular credit taken on steel items, along with interest. In addition, the credit of Rs.16,22,615/- on capital goods was also disallowed and ordered recovery of the same along with interest. The original authority imposed equal amount of penalty of Rs.1,44,146/- under Section 11AC of the Act for irregular availment of credit on steel items. No penalty was imposed by adjudicating authority for irregular availment of credit on capital goods of Rs.16,22,615/-.
2. Aggrieved by the Order-in-Original, the appellants filed appeal before the Commissioner(Appeals). While this appeal was pending the Commissioner(Appeals) served upon the appellants, a show-cause notice dt. 20/07/2011 invoking Section 35A(3) of Central Excise Act, 1944 as to why penalty should not be enhanced from nil penalty for irregular availment of credit on capital goods. The appellants defended the show-cause notice contending that as no penalty was imposed by the original authority on the count of irregular availment of credit on capital goods there is no question of enhancement of penalty. That fresh imposition of penalty is beyond the scope of Section 35A(3) of Central Excise Act, 1944. After hearing the appeal, vide the order impugned herein, the Commissioner(Appeals) upheld the order passed by the original authority and in addition imposed penalty Rs.1,60,000/- under Rule 15(1) of CENVAT Credit Rules, 2004 for the irregular credit availed on capital goods. Being aggrieved the appellants are before the Tribunal.
3. The learned counsel appearing for appellant submitted that the various parts of packing plant was brought into existence by process of assembling individual components and also using structures fabricated out of iron and steel were required to be fixed in an immovable condition on foundation for the operational requirement. The iron and steel items which were used in the form of raw material / input for assembly of various parts of packing plant fixing on civil foundation. That during the relevant time CENVAT credit on iron & steel used for support structures was admissible. He submitted further that the credit is held to be inadmissible by the department basing on the judgment laid in Vandana Global Ltd. & others Vs. CCE [2010(253) ELT 440 (Tri. LB)]. That in the case of Mundra Ports & SEZ Ltd. [2015(39) STR 726 (Guj.)], the Honble High Court has analysed the issued and held in favour of assessee. That being an interpretational issue no penalty can be imposed for irregular availment of credit on steel items. As regards the credit availed on capital goods, it was argued that the department has merely relied on classification of the goods to categorise them as capital goods. He also submitted that though credit was availed, appellants did not utilize the credit, availed on capital goods. So the demand of interest is not justified. Winding up the arguments, he contended that the original authority had rightly not imposed any penalty for irregular credit availed on capital goods. The Commissioner(Appeals) has grossly erred in imposing penalty of Rs.1,60,000/- on the irregular credit availed on capital goods. That under Section 35A(3) the penalty already imposed can be enhanced. But there is no power to impose a new penalty. The Commissioner(Appeals) has ordered that the nil penalty is enhanced to Rs.1,60,000/-. That this is simply imposing a fresh penalty in the guise of enhancing penalty. He pleaded that the appeal may be allowed.
4. Per contra, the learned AR supported the findings in the impugned order. He submitted that admittedly the steel items were used for support structure, foundation and fixtures of the cement plant. That credit on these steel items is therefore not admissible and the disallowance of credit and demand of interest and penalty imposed is legal and proper. Secondly, the appellant has contravened the provisions of CENVAT Credit Rules and availed entire credit on capital goods in the same year. This was shown in the ER-1 returns as credit availed on inputs. These items like air slide, bucket elevator, part of roto packer, truck loading machine, conveyor belts are all capital goods / spares / accessories / parts. These goods fall into the definition of capital goods and the appellant ought not to have availed 100% credit in the same year. Having contravened the provisions of law, the Commissioner(Appeals) has rightly enhanced the penalty and imposed penalty of Rs.1,60,000/- for irregular availment of credit on capital goods.
5. I have heard the rival submissions. The first issue is the denial of credit on MS items. The facts brought out from record reveal that MS items were used by appellant for fabrication of support structures. The Department has arrived at the conclusion to deny credit mainly basing on the judgment laid in Vandana Global ltd. & other Vs. CCE [2010-TIOL-624-CESTAT-DEL-LB]. The Honble High Court of Gujarat in Mundra Ports & SEZ Ltd. [2015(39) STR 726 (Guj.)] observed that in the judgment of Vandana Global case, the Tribunal has not stated what is the aid by which the Tribunal arrived at the conclusion that the amendment to Rule 2(k) is having retrospective application, and that the amendment is applicable prospectively. Similar view was taken by the Honble High Court in Sai Sahmita Storages (P) Ltd. Vs. CCE, Visakhapatnam, [2011(270) ELT 33 (SP)]. In India Cements Ltd. Vs. CESTAT, Chennai [2015(321) ELT 209 (Mad.)], the Honble High Court of Madras held that credit is admissible on MS items used for fabrication of structural supports. Such supports and fixation is necessary for functioning of the plant/machinery/equipment without movement and vibration without which the process of manufacturing could not be done. Applying the ratio laid in the above judgments, I hold that the credit on MS items used as inputs is admissible.
6. The second issue is the irregular credit availed on capital goods. The appellants have taken credit on these items as inputs. In the Order-in-Original, it is stated that the appellant was directed to furnish the nature and use of goods on which credit was availed. As a follow-up action, the factory premises was visited by officers. The impugned capital goods procured from suppliers were erected as such at the respective places by integrating and interconnecting numerous parts / equipments. The usage is detailed as under:-
It was seen that there are two SILOS installed vertically into which the Bulk Cement from the tankers is loaded and the Cement travels through AIR SLIDE which is a rectangular box of around 20 ft. length in an inclined position into a BUCKET ELEVATOR. The cement is taken vertically upwards through the Bucket elevator and unloaded into the packing HOPPERS, through which the cement is fed to the packing machine ROTO PACKER to get the bags of 50 kg. each using the automatic WEIGHING SYSTEM and through the TRUC LOADING MACHINE consisting of CONVEYOR BELTS, put onto the trucks. Residual cement during the course of packing is filtered for any foreign material and taken back by a horizontal SCREEN to the Bucket elevator. Exhaust of cement from various outlets to the Pollution Control Equipment is filtered by a BAG FILTER. Apart from these, a POWER TROLLEY is used for dismantling and erection of the equipments, AIR COMPRESSOR, VACCUM PUMPS are used for pneumatic control of loading and unloading of cement and the power supply is drawn through a 1000KVA TRNASFORMER. Entire equipments and the system is monitored electronically through control panels named MCC Panel & PCC panel.
7. The original authority has stated that these items are used as such in the factory, as parts/components of the cement plant/machinery and therefore are capital goods. I do not find any evidence to take a different view. The allegation with regard to the credit availed on these items like air slide, bucket elevator, roto packer etc. is that being capital goods, the appellants availed 100% credit in the same year. Appellants were eligible to take 50% credit in the year of receipt and 50% in subsequent year. Availing entire credit in the same year is in contravention of the provisions of the CENVAT Credit Rules, 2004. The authorities below have therefore ordered recovery of 50% of the irregular credit availed along with interest. I am of the opinion that it is only a case of premature availment of credit as the appellants could avail the credit in the subsequent year. Therefore, the recovery of the irregularly availed credit in excess of 50% (Rs.16,22,615/-) is not justified. Taking into consideration the violation of the provision, I find that appellants are liable to pay the interest on the irregularly availed credit on capital goods. The contention raised on behalf of appellant is that, the appellants did not utilize the credit availed and therefore there is no interest liability. I am of the view that in the peculiar facts, when the appellant has contravened the provisions, the Revenue has to be compensated for the irregular credit availed. In view thereof, I hold that the demand/recovery of credit of Rs.16,22,615/- is set aside, whereas the demand of interest on the said amount is sustainable. The appellant is liable to pay interest on the amount till the date of reversal or if not reversed, till date on which the appellant could have availed remaining 50% credit on capital goods in the subsequent year.
8. The next issue to be addressed is the enhancement of penalty. The Commissioner(Appeals) has imposed penalty of Rs.1,60,000/- invoking sub-section (3) of Section 35A of the Central Excise Act. The relevant provision is noticed as under:-
Section 35A(3) The Commissioner (Appeals) shall, after making such further inquiry as may be necessary, pass such order, as he thinks just and proper, confirming, modifying or annulling the decision or order appealed against:
Provided that an order enhancing any penalty or fine in lieu of confiscation or confiscating goods of greater value or reducing the amount of refund shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order:
Provided further that where the Commissioner (Appeals) is of opinion that any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, no order requiring the appellant to pay any duty not levied or paid, short-levied or short-paid or erroneously refunded shall be passed unless the appellant is given notice within the time-limit specified in Section 11A to show cause against the proposed order.
9. The said section speaks about enhancing the penalty already imposed. In the instant case, the adjudicating authority has not imposed any penalty for irregular availment of credit on capital goods. If no penalty is imposed, the department has to file an appeal challenging the non-imposition of penalty. Only then can the Commissioner consider whether a penalty not imposed can be imposed. Section 35A does not empower the Commissioner(Appeals) to impose a fresh penalty under the guise of enhancement. The Commissioner(Appeals) has proceeded as though some penalty (nil penalty) is imposed by the adjudicating authority and that he is enhancing the nil penalty. Under no stretch of imagination can there be imposition of nil penalty. Either penalty is imposed or no penalty is imposed. The no penalty situation cannot be taken as nil penalty and be enhanced under Section 35A(3) of the Central Excise Act. When the Department has not filed appeal for non-imposition of penalty, the Commissioner(Appeals) cannot impose a new penalty invoking Section 35A(3). The penalty of Rs.1,60,000/- imposed by Commissioner(Appeals) invoking Section 35A(3) is beyond his powers and therefore is set aside.
10. In view of the foregoing discussions, the impugned order is modified to the following extent:-
i. Credit on MS items is allowed. The demand, interest and penalty on this count is set aside.
ii. Demand/recovery of excess credit availed on capital goods (Rs.16,22,615/-) is set aside.
iii. The demand of interest on the irregularly availed credit on capital goods is sustained.
iv. The penalty of Rs.1,60,000/- imposed by Commissioner(Appeals) under Section 35A(3) is set aside.
11. Appeal is partly allowed in above terms.
(Operative part of this order was pronounced in court on conclusion of the hearing) SULEKHA BEEVI C.S. MEMBER(JUDICIAL) Raja.
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