Custom, Excise & Service Tax Tribunal
M/S. Indorama Synthetics (I) Ltd. vs Cce Nagpur on 14 May, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
WEST ZONAL BENCH
COURT No.
Appeal No. E/526/2008
(Arising out of Orders-in-Original No. 04/2008/C dated 27.02.2008
passed by Commissioner of Central Excise, Nagpur)
Indo Rama Synthetics (I) Ltd. Appellant
A-31, MIDC Indl. Area,
Butibori, Nagpur 441 122
Vs.
Commissioner of Central Excise, Nagpur Respondent
Telangkhedi Road,
Civil Lines, Post Box No.81,
Nagpur 440 001.
WITH
Appeal No. E/1101/2008
(Arising out of Orders-in-Original No. 12/2008/C dated 21.08.2008
passed by Commissioner of Central Excise, Nagpur)
Indo Rama Synthetics (I) Ltd. Appellant
A-31, MIDC Indl. Area,
Butibori, Nagpur 441 122
Vs.
Commissioner of Central Excise, Nagpur Respondent
Telangkhedi Road,
Civil Lines, Post Box No.81,
Nagpur 440 001.
Appearance:
Shri Gajendra Jain, Advocate for the Appellant
Shri Bidhan Chandra, Authorised Representative for the
Respondent
CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial)
Hon'ble Mr. Sanjiv Srivastava, Member (Technical)
FINAL ORDER NO. A/85893-85894/2019
Date of Hearing: 28.11.2018
Date of Decision: 14.05.2019
PER: SANJIV SRIVASTAVA
2 E/526,1101/2008
These appeals are directed against orders in original
passed by the Commissioner of Central Excise Nagpur. By
the said orders commissioner has held as follows:
1.2 Order in Original No 04/2008/C date 27.02.2008
[Appeal No E/526/08]-
"13.01 I confirm an demand an amount of Rs
3,63,05,053/- [Rupees Three Crore Sixty Three Lakhs Five
Thousand and Fifty Three only] towards the credit wrongly
availed on capital goods used for construction of power
plant during the period from April 2005 to September 2006
from the Noticee No 1, M/s Indo Rama Synthetics Ltd
under Rule 14 of CENVAT Credit Rules, 2004 read with
Section 11A(2) of the Central Excise Act, 1944. I also
demand interest at the rate as applicable from time to time
on the amount proposed to be demanded as above, from
Noticee No 1, M/s Indo Rama Synthetics Ltd under Rule 14
of CENVAT Credit Rules, 2004 read with Section 11AB of
the Central Excise Act, 1944.
13.02 I impose a penalty of Rs 3,63,05,053/- [Rupees
Three Crore Sixty Three Lakhs Five Thousand and Fifty
Three only] on the Noticee No 1, M/s Indo Rama
Synthetics Ltd under Rule 15 of CENVAT Credit Rules,
2004 read with Section 11AC of the Central Excise Act,
1944.
13.03 I impose a penalty of Rs 36,00,000/- [Rupees Thirty
Six Lakhs Only] on the Noticee No 2, M/s Indo Rama
Petrochemicals Ltd, under Rule 26 of Central Excise Rules,
2002. There shall be no penalty under Rule 27 ibid on the
Noticee No 2."
1.3 Order in Original No 12/2008/C date 21.08.2008
[Appeal No E/1101/08]-
"12.01 I disallow an demand an amount of Rs
3,97,70,821/- [Rupees Three Crore Ninety Seven Lakhs
Seventy Thousand Eight Hundred and Twenty One
only]{i.e. Rs 3,89,89,358/- (Basic) + Rs 7,79,881/- (Edn
Cess) + Rs 1,582/- (S & HS Cess)]towards the credit
3 E/526,1101/2008
wrongly availed on capital goods used for construction of
power plant during the period from 7January 2007 to
October 2006 from the Noticee No 1, M/s Indo Rama
Synthetics Ltd A-31 MIDC, Industrial Area, Butibori,
Nagpur under Rule 14 of CENVAT Credit Rules, 2004 read
with Section 11A(2) of the Central Excise Act, 1944. I also
demand interest at the rate as applicable from time to time
on the amount proposed to be demanded as above, from
Noticee No 1, M/s Indo Rama Synthetics Ltd under Rule 14
of CENVAT Credit Rules, 2004 read with Section 11AB of
the Central Excise Act, 1944.
12.02 I impose a penalty of Rs 3,97,70,821/- [Rupees
Three Crore Ninety Seven Lakhs Seventy Thousand Eight
Hundred and Twenty One only] on the Noticee No 1, M/s
Indo Rama Synthetics Ltd under Rule 15(2) of CENVAT
Credit Rules, 2004 read with Section 11AC of the Central
Excise Act, 1944. However, the noticee is given an option
to pay only 25% of this penalty amount subject to
condition that entire amount of CENVAT credit disallowed
and demanded and interest along with 25% of penalty
imposed under Rule 15(2) of CENVAT Credit Rules, 2004
read with Section 11AC of the Central Excise Act, 1944 are
paid simultaneously within thirty days of communication of
this order.
12.03 I impose a penalty of Rs 40,00,000/- [Rupees Forty
Lakhs Only] on the Noticee No 2, M/s Indo Rama
Petrochemicals Ltd, under Rule 26 of Central Excise Rules,
2002. There shall be no penalty under Rule 27 ibid on the
Noticee No 2."
1.4 Since the issues involved in both the appeal are
identical both are taken up together.
2.1 Appellant had taken the credit on certain items
declaring them as capital goods, Revenue has sought to
disallow the said credit for the reasons as stated below:
i. Appellants had leased out a plot/ premises to M/s
Indo Rama Petrochemicals Ltd, (2nd Party). 2nd party
4 E/526,1101/2008
had erected a thermal Power Plant on the said
premises, through a work contract on turnkey basis.
Both appellant and 2nd Party are separate legal entity
having separate CST No, BST/MST No and Separate
PAN No etc.
ii. The balance sheet of 2nd Party for the year 2005-06
showed that they would sell/ supply power to
Appellants and other group companies at mutually
agreed tariff an terms.
iii. Certain expenses have been debited by the
appellant and an amount of Rs 1,50,90,000/- has
been shown against re-imbursement of CENVAT
Credit from Appellant, which clearly showed that
power plant was not the property of appellant. The
goods against which the appellant has taken the
credit were used by the 2nd Party for setting up the
power plant. These goods were actually never
received by the appellants in their factory premises.
Even the payments for goods/ raw material, erection
and installation of the power plant were made by the
2nd Party. Thus the CENVAT Credit taken by the
appellants was irregular and inadmissible in view of
Section 2(d) of Central Excise Act, 1944 read with
Rule 2 (a) of Cenvat Credit Rules, 2004.
iv. The final output of power plant is electricity, steam
and ash which are not chargeable to excise duty or
are exempt from payment of Central Excise Duty and
thus the credit of duty paid on the goods used in
erection of the power plant is not admissible in view
of Rule 2(a) and 2(h) of CENVAT Credit Rules, 2004.
v. The credit has been taken in respect of certain goods
namely-
a. Bunker used temporarily in the boiler for
storage of crushed coal;
b. Ash handling system used for disposal of ash;
c. The supporting structures used for platform
and for installation of various parts and
5 E/526,1101/2008
components are in nature of construction
material for support;
d. Supporting columns of the boiler which are
fabricated goods of iron and steel and are
neither machinery or components nor in the
nature of spares and accessories of machine;
e. Miscellaneous materials not described in detail
in invoice;
f. Brought out items such as resin etc, not
specified as capital goods;
is inadmissible as these goods do not qualify to
be capital goods as defined under CENVAT
credit Rules, 2004
2.2 Thus a show cause notice dated 05.02.2007 was
issued to the Appellant and 2nd Party proposing to-
a. Recover CENVAT Credit amounting to Rs
3,63,05,053/- [Rupees Three Crore Sixty Three
Lakhs Five Thousand and Fifty Three only]
from the Appellants in terms of Rule 14 of
CEVAT Credit Rules, 2004 read with proviso to
Section 11A of Central Excise Act, 1944 with
interest under section 11AB ibid.
b. Impose penalty on appellant under Rule 15 of
CEVAT Credit Rules, 2004 read Section 11AC of
Central Excise Act, 1944.
c. Impose penalty on 2nd Party under Rule 26 and
27 of Central Excise Rules, 2002.
2.3 Another Show Cause Notice dated 11.01.2008 was
issued to the Appellant and 2nd Party proposing to-
a. Recover CENVAT Credit amounting to Rs
3,97,70,621/- [Rupees Three Crore Ninety
Seven Lakhs Seventy Thousand Eight Hundred
and Twenty One only]{i.e. Rs 3,89,89,358/-
(Basic) + Rs 7,79,881/- (Edn Cess) + Rs
1,582/- (S & HS Cess)] from the Appellants in
terms of Rule 14 of CEVAT Credit Rules, 2004
read with proviso to Section 11A of Central
6 E/526,1101/2008
Excise Act, 1944 with interest under section
11AB ibid.
b. Impose penalty on appellant under Rule 15 of
CEVAT Credit Rules, 2004 read Section 11AC of
Central Excise Act, 1944.
c. Impose penalty on 2nd Party under Rule 26 and
27 of Central Excise Rules, 2002.
2.3 Both the show cause notices have been adjudicated
by the Commissioner vide his order in originals as
referred to in para 1.2 and 1.3, supra.
2.4 Aggrieved by the order of Commissioner, appellants
have filed these appeals.
3.1 In their appeal, appellants have challenged the order
of Commissioner stating that-
Appeal No E/526/2008
a. The capital goods against which they have taken the
credit are covered by the definition of capital goods
and were used in their factory premises for
manufacture of final products namely polyester yarn,
polyester chips etc. Hence the credit has been
correctly taken by them.
b. Ownership of capital goods is not relevant for taking
the Cenvat Credit. As per Rule 4 of the CENVAT
Credit Rules, 2004, the ownership of capital goods
has not been prescribed as criteria for taking the
CENVAT Credit. Reliance is placed on the decisions in
case of German Remedies Ltd [2002 (144) ELT 606
(T), Maruti Udyog Ltd [2004 (165) ELT 226 (T)],
Sharda Motor Industries Ltd [2002 (150) ELT 759
9T)], Hongo India (P) Ltd [2003 (160) ELT 470 (T)]
& Iljin Automotive Pvt Ltd [2004 (175) ELT 169 (T)].
c. All the goods on which the credit has been taken by
the appellants were used in their factory since the
thermal power plant is within their factory premises
without any boundary wall or any fence demarcation.
The fact that certain portion of the land within their
premises has been leased out for setting up the said
7 E/526,1101/2008
power plant will not mean that the said portion of
land is not the part of their factory premises.
Decision relied upon by the commissioner viz
Majestic Auto Ltd [1999 (107) ELT 133] has been
differed by the tribunal in case of Dalmia Cements
(Bharat) Ltd. [2008 (224) ELT 484]
d. Neither the power plant nor the electricity is final
product since electricity generated is entirely used
within the factory for the manufacture of final
products. Reliance is placed on the decisions in case
of Gujarat Ambuja Cement Ltd [2001 (130) ELT
129], NCR Limited [2001 (135) ELT 1012],
Chemplant Sanmar Ltd [2004 (177) ELT 446],
Vasavadatta Cement [2002 (148) ELT 1046],
Rajarambapu Patil SSK [2007 (208) ELT 372], Nava
Bharat Ferro Alloys Ltd [2004 (166) ELT 72]
e. The fact that thermal power plant is immovable
property cannot be reason to deny the credit on
capital goods used in setting up of such thermal
power plant. Reliance placed on Mahalakshmi Glass
Works Ltd [1999 9113) ELT 558], United Phosphorus
Ltd [2002 (150) ELT 650}. HEG Ltd {2004 (177) ELT
605], Bellary Steel and Alloys Ltd. [2005 (177) ELT
605}, Lloyds Metals & Engineers Ltd [2002 (50) RLT
109}
f. The fact that 2nd Party, is a separate entity cannot
be the reason for determining the eligibility of
CENVAT credit to the appellants. The decision of the
tribunal in case of Ruby Mills [2007 (6) STR 178],
relied upon by the Commissioner would not apply in
present case.
g. The demand made by the first show cause notice is
barred by limitation as they had taken the credit as
early as in April 2005 against the invoices showing
them as consignee and the capital goods were
received in the factory premises and used in their
factory premises. Thus it cannot be said that they
8 E/526,1101/2008
had suppressed any facts from the department for
which extended period of limitation can be invoked.
h. For the various reasons as stated in the appeal since
the demand itself cannot survive on merits the
demand, and further the issue whether the credit in
present case would be admissible to them or not is
pure question of legal interpretation, penalty is not
imposable on them.
Appeal No E/1101/2008
a. They had reiterated the grounds stated at a to f and
h above in this appeal too.
b. The order of Commissioner denying credit in respect
of items listed below for the reason that they are not
covered by the definition of Capital Goods is contrary
to the decisions indicated-
a. Bunkers - Nava Bharat Ferro Alloys Ltd [2004
(174) ELT 375]
b. Supporting Structures for installation of Capital
Goods - Ispat Industries Ltd [2006 (195) ELT
164 (T)] upheld by Bombay High Court in
Central Excise Appeal No 187/2006 order
dated 19.07.2007, Aditya Cement [2008 (221)
ELT 362 (Raj)]
c. Miscellaneous materials but classified under
chapter 84
c. 2nd Party was merged with the appellant with effect
from 01.02.2007, Hence the denial of credit on the
ground that the same was separate entity incorrect.
4.1 We have Shri Gajendra Jain, Advocate for the
Appellant and Shri Bidhan Chandra, Additional
Commissioner, Authorized Representative for the revenue.
Both appellant and revenue has filed the written
submission in the matter
4.2 Arguing for the appellants and in his written
submissions, learned counsel submitted that-
9 E/526,1101/2008
a. Goods on which the credit has been taken by the
appellants were all used in their factory since
thermal power plant (TTP) is situated within the
factory premises of the appellants and there is no
boundary wall fence/ demarcating TTP from the
factory premises. Merely for the reason that the
place within the premises where TTP has been set up
is leased to 2nd Party will not mean that the capital
goods used in such place are not in their possession.
b. The issue involved is no longer res-integra and
covered by the decision in case of JSW Steel [2014
(307) ELT 929 (T)]. In view of the fact that issue on
similar facts have been decided holding the
admissibility of credit, the impugned orders need to
be set aside.
c. Factory premises continued to be unaffected even
when the ownership of the part of premises and
plant is transferred. Reliance was placed on the
decisions of Tribunal in case of Steel Authority of
India Limited [2016 (332) ELT 825 (T)], Bhilai Steel
Plant [2017 (1) TMI 293 (T)]. In case of Bhilai Steel,
tribunal has distinguished the decision of Karnataka
High Court in case Associated Cement Ltd [2009
(236) ELT 240 (Kar)] and tribunal in case of J K
Paper Mills [2014 (309) ELT 359 (T)].
d. The decision of Majestic Auto Ltd [1999 (107) ELT
133 (T)] relied upon by the Commissioner while
adjudicating the matters has been overruled by
Allahabad High Court in case of Hero Motors [2014
(310) ELT 729 (ALL)].
e. Reliance placed on the power purchase agreement to
decide the eligibility to credit, is incorrect. The
intention of the power purchase agreement was to
use the power captively for the manufacture of
finished goods and not to sell the electricity to
outside.
10 E/526,1101/2008
f. Reliance placed by the learned Authorized
Representative on the decisions in case of Associated
Cement Limited [2009 (236) ELT 240 (Kar)] and J K
Paper Mills [2014 (309) ELT 359 (T)] is not correct
and both the said decisions are distinguishable in as
much as in both these case the power plant was
sold, whereas in the present case there is no sale of
the same.
g. In case of Dalmia Cements [2015 (323) ELT 290
(Mad)] the situation dealt was identical to the
present case and Hon'ble Madras High Court held
that rule 3(5) is not applicable and credit taken on
power plant is not required to be reversed.
h. Since the capital goods were received in the factory
premises of the appellant the reliance placed by the
revenue on the decisions in case of KCP [2013 (295)
ELT 353 (SC), Vikram Cement [2006 (197) 145
(SC)], Madras Cement [2010 (254) ELT 3 (SC)] &
Madras Cement [2010 (257) ELT 321 9SC)] is
fallacious.
i. Well settled that ownership of capital goods is not
relevant to decide eligibility to credit . Reliance
placed on decisions in case of German Remedies Ltd
[2002 (144) ELT 606 (t)], Dharda Motor Industries
Ltd [2002 (150) ELT 759 (T)], Maruti Udyog Ltd
[2004 (165) ELT 226 (T), Sunrise Chemical
Industries [2010 (262) ELT 110 (GUJ)], Modernova
Plastyles Pvt Ltd [2015 (323) ELT 312 (Bom)], Iijin
Automotive Pvt Ltd [2004 (175) ELT 169 (T)]
j. Denial of credit on the support structures used for
installation of TPP is not proper. The decision of
Vandana Global [2010 (253) ELT 440 (T-LB)] relied
upon by the Commissioner has been set aside by the
Chhatisgarh High Court reported at [2018 (16) ELT
GSTL 462 (Chhatisgarh)]. Issue is also covered by
the decision in case of Mundra Port [2015 (39) STR
(Guj)].
11 E/526,1101/2008
k. The decision of Tower Vision [2016-TIOL-539-
CESTAT-DEL-LB] relied upon by the AR has been
overruled by the Delhi High Court in case Vodafone
India [2018-TIOL-2049-HC-DEL-ST]
l. The fact that 2nd Party has merged with the
Appellant is not disputed and hence denial of the
credit on the ground that the same was separate
entity is incorrect in law.
m. Show Cause Notice dated 5.2.2007 sought to deny
the credit availed by them during the April 2005 to
November 2006. The demand for the period April
2005 to November 2005 is beyond normal period of
limitation and hence time barred as they had not
suppressed any facts from the revenue. Invocation
of extended period of limitation in the present case
cannot be justified.
n. Penalties cannot be imposed as on merits the duty is
not payable., and hence penalty imposed cannot be
sustained.
4.2 Learned Authorized Representative submitted stating
that-
a. Show Cause Notice dated 5.02.2007 has been issued
seeking to deny the credit taken by the Appellants
during the period 19.1.2006 to 26.09.2006, hence
has been issued within the normal period of
limitation of one year, under Rule 14 of CENVAT
Credit Rules, 2004 read with Section 11A of Central
Excise Act, 1944.
b. Both appellant and 2nd Party were two separate legal
entities, separately constituted and registered under
the Company Act, 1956, having separate employees,
management, accounts and balance sheet. They are
also not holding and subsidiary companies, nor have
Principal Job worker Relationship. [Statements dated
3.10.06 and 8.12.06 of Shri Debdutta Chatterjee,
General Manager (Finance and Accounts) of
12 E/526,1101/2008
appellant and power of attorney holder for 2nd
Party].
c. Both have separate PAN, CST and MST/BST
registrations. Factory Act, 1948 applies
independently to both for their separate
manufacturing activities, at their premises at Butibori
Nagpur.
d. Appellants had taken on lease a plot measuring
8,09,457 sq mtrs from MIDC and had been
undertaking the manufacturing activities on that
plot.
e. On 7.10.2004, they had got the permission to set up
a TPP. On 20.04.2005 said permission was modified
and accorded to 2nd party. By the letter dated
30.04.2005/ 4.05.2005/ 15.06.2005, 2nd Party
sought permission from Environment Department
Maharashtra for setting up a TPP.
f. On 10.06.2005 a power purchase agreement 9PPA)
is executed between the appellants and 2nd Party
stating as follows:
o Article 3- 2nd Party to construct TPP at Butibori.
o Article 4- 2nd Party to Finance the entire
venture.
o Article 5- 2nd Party to sell the electricity at a
rate 12.5% below the prevailing MSE rate.
o Article 6- Billing and Payments was to be done
as per Tariff. Invoices and Interest was
applicable on overdue payment at SBI Prime
Lending Rate.
o Article 8- Terms of Agreement was 30 years
further extendable by 10 years. On default,
default notice to be served. If default not
remedied, Termination Notice was to be served
for termination.
o Article 9, 10,11- Liquidated Damages, Force
Majeaure and Arbitration respectively.
13 E/526,1101/2008
o Article 11 & 12- Both parties to indemnify and
other Miscellaneous Provisions.
o Schedule 3 - Appellant to give 2nd Party a No
Objection Certificate.
g. As per MOU executed between Appellant ad 2nd Party
on 26.09.2005:
o Appellant sub leased 46219 sq mts of its
premises to 2nd Party.
o Clause (ii)- 2nd Party agreed to develop,
design, procure, finance, construct, own,
operate and maintain a TPP in the premises
leased to them.
o Clause (iii)- 2nd Party agreed to sell power
generated to Appellant and any excess power
could be sold to any other person.
o Clause (iv)- Both parties agreed to execute
Definite Power Purchase Agreement (PPA).
o Clause (vii)- Contract to be valid for the period
from 1.04.2005 to 31.03.2005. No exit clause
provided.
h. 2nd Party sought permission from Director Steam
Boilers Maharashtra for erecting Boiler at its leased
premises vide its letter dated 17.10.2005. By challan
dated 11.10.2005/ 15.10.2005 paid the statutory
inspection fees for this purpose.
i. On 18.01.2006, Environment Department
Maharashtra granted Environmental Clearance to 2nd
Party for setting up TPP and held it responsible for its
activities and duties under
o Water (Prevention & Control of Pollution) Act,
1971;
o Air (Prevention & Control of Pollution) Act,
1971;
o Environment (Protection) Act, 1986
o Public Liability Insurance Act, 1991.
j. On 31.03.2006, MIDC accepts charges from
Appellant for subletting premises to 2nd Party.
14 E/526,1101/2008
k. 17.04.2006, 2nd Party applies to MPCB for grant of
consent for operation of 2 X 1 MW TPP.
l. Finances for TPP-
o Total Project Cost R 128 Crores.
o Yes Bank loans Rs 27.5 Crores
o SBI Loan Rs 74 Crores.
m. Appellant charges Rs 40,06,746 for the services
provided between April 2006 to September 2006 at
Butibori.
n. Reimbursement of Rs 1.5 Cr by Appellant to 2nd
party towards CENVAT Credit.
o. 2nd Party has placed orders and procured and paid
for TPP and its erection from Shapoorjee Pallonjee
Ltd and Indure Pvt Ltd. Service Tax was paid by
Shapoorjee Pallonjee Lt for services rendered and
invoiced to 2nd Party for the erection of the TPP.
p. The TPP was capitalized in the Books of Accounts of
2nd Party [Statements dated 3.10.06 and 8.12.06 of
Shri Debdutta Chatterjee, General Manager (Finance
and Accounts) of appellant and power of attorney
holder for 2nd Party].
q. These facts demonstrate that 2nd Party had got the
premises on lease from Appellant and as such these
premises are legally not the part of premises of
Appellant on which the factory of Appellant operates.
These premises in terms of Section 2k(iii) and Sec
2(m) and Section 6 of the Factories Act, 1948 is a
different factory belonging to 2nd Party. 2nd Party
enjoys rights and privileges conferred on a lessee by
Chapter V of the Transfer of Property Act, 1882.
Appellants cannot lay claim to the leased premises
during tenancy lease. 2nd Party also pays the lease
rent to the Appellant for said premises, and also
pays for all other services provided by appellant to
them.
r. 2nd Party is different legal and juristic person having
his own liabilities and duties under various Acts.
15 E/526,1101/2008
Hence the premises occupied by IRPL are not the
factory of Appellant as defined in section 2 (e) of
Central Excise Act, 1944 or the Factories Act, 1948
s. Legal Provisions of CENVAT Credit Rules, 2004
o Rule 2(a) defines "Capital Goods" and
prescribes that such goods must be used in the
factory of the manufacturer of final products.
o Rule 2(h) defines the Final Product and
includes goods used for manufactured or
produced from input.
o Rule 2(k) defines input and includes goods
used for generation of steam or electricity used
within the factory of production.
o Rule 3(1) provides that credit of specified
duties paid on capital shall be allowed only if
the capital good are received in the factory of
manufacture of final products after
10.09.2004.
o Rule 4(2) provides that credit of any capital
goods shall be allowed only if the capital goods
are received in factory of manufacture of final
products. The installment system of allowing
credit is available only on receipt of capital
goods in the factory of manufacture of final
products.
t. Mention of Appellants as consignee on the invoices
was with an ulterior motive to enable appellants avail
the credit. Appellants have credit between
19.01.2006 to 26.09.2006 on goods claimed to be
capital goods received in their factory. The goods
were never received in their factory but in the
premises leased to 2nd Party.
u. Supreme Court has in decisions as follows held that
if the Capital Goods are used in the factory of the
manufacturer of final products and that the
manufacturer can produce evidence of such use then
only credit can be allowed:
16 E/526,1101/2008
o KCP [2013 (295) ELT 353 (SC),
o Vikram Cement [2006 (197) 145 (SC)],
o Madras Cement [2010 (254) ELT 3 (SC)] &
o Madras Cement [2010 (257) ELT 321 (SC)]
v. 2nd Party has also not received the said capital goods
for manufacture of final products. The electricity
generated by it is not used in the factory for
production of finished goods. Hence 2nd Party is also
not entitled to the credit.
w. Possession and use of Capital Goods within the
factory for manufacture of Final Products is a
condition prescribed for availing the credit.
o IOCL [2015 (316) ELT 666 (Pat)
o J K Paper Mills [2014 (309) ELT 359 (T)]
x. Karnataka High Court has in case of ACC Limited
[2009 (236) ELT 240 (Kar)] held that CENVAT Credit
availed on such Capital Goods in a leased premises is
not available and that such an action is a device to
avoid tax liability and attracts penal provisions.
y. Eligibility of CENVAT Credit on capital goods is to be
determined as per the law prevailing the time of
receipt of goods.
o Spenta International [2007 (216) ELT 133 (T-
LB)]
o Saurashtra Chemical Ltd. [2007 (212) ELT 7
(SC)]
z. CENVAT Credit availed on goods viz bunkers for
storage of coal, ash handling system, structural and
other goods which are either not related to
manufacture at all or generation of electricity or form
the part of immovable is not admissible in view of
following decisions:
o Vandana Global Ltd [2010 (253) ELT 440 (T-
LB)]
o Saraswati Sugar Mills [2011 (270) ELT 465
(SC)]
17 E/526,1101/2008
aa. A thermal power plant is not excisable goods.
The plant is built/ erected by using components and
machinery received. Hence there can be no credit
available on goods received, by considering them as
parts and components of capital goods.
o Tower Vision India Pvt Ltd [2016-TIO-539-
CESTAT-DEL-LB]
o Virdi Brothers [2007 (207) ELT 321 (SC)]
o GVK Industries Ltd [2005 (182) LT 364 (T)]
o Spectrum Power Generation Ltd [2004 (177)
ELT 968 (T)]
bb. Appellants are thus not entitled to the CENVAT
credit claimed by them. This credit has been availed
by them by suppressing the fact that goods were not
received in their factory. They are also liable to
interest and penalty.
5.1 We have considered the impugned orders along with
the submissions made in appeals and during the course of
argument.
5.2 The issues for consideration in the present case can
be listed as below:
i. Whether the plot of land leased out by the appellant to
2nd party formed the part of factory premises of the
Appellant? Who owns, operates and maintains the
Thermal Power Plant erected on that plot of land?
ii. Whether the CENVAT Credit in respect of Capital
Goods, receive by the 2nd Party on the leased plot and
used by them for erection/ installation of thermal
power plant will be admissible to appellant for the
reason that invoices showed them as consignee.
iii. Whether the CENVAT Credit on Capital Goods is
admissible in respect of those Capital Goods which are
reflected as Capital Assets in book of accounts of the
other legal entity and have been capitalized therein.
iv. Whether CENVAT Credit in respect of those goods
which are not identifiable but classified under Chapter
84 of First Schedule to Central Excise Tariff Act, 1985.
18 E/526,1101/2008
v. Whether demand is hit by limitation and penalty under
Rule 15 of CEVAT Credit Rules, 2004 read Section 11AC
justified in the present case on the Appellant.
5.3 Whether the plot of land leased out by the
appellant to 2nd party formed the part of factory
premises of the Appellant? Who owns, operates and
maintains the Thermal Power Plant erected on that
plot of land?
5.3.1 Undisputed or admitted fact is that the Appellant
and 2nd Party are two separately constituted legal entities
with different PAN, CST No & MST/ BST No as indicated
below:
Appellant 2nd Party_________
CST No 441122/C/3 441122/C/041
MST/ BST No 441122/S/3 441122/V/001
PAN AAACI1530L AABCI3499M_____
5.3.2 Para 9 of the Show Cause Notice dated 5.02.02007
reads as follows:
"9. Inquiries were caused the Regional Officer,
Maharashtra Industrial Development Corporation, Nagpur
to ascertain the title of the land on which the power plant
is being set up. The Regional Officer, MIDC, vide letter
issued under F No MIDC/RO/Butibori/112/2007 dtd
08.01.2007 informed that M/s Indo Rama Synthetics Ltd
having plot No A-31, in Butibori Industrial Area has applied
for sub letting of plot area 46219 sq mtr to M/s Indo Rama
Petrochemicals Ltd., for manufacturing of Co-generation
Thermal Power Plant. It was also reported vide the same
letter that as per norms of the Corporation, the said land
for period from 01.04.2006 to 31.03.2007 was sanctioned
on sub lease basis. He also enclosed copies of letters
written by M/s Indo Rama Synthetics Ltd., approval letter
dated 29.03.2006, copy of confirmation letter dated
19 E/526,1101/2008
31.03.2006 and copies of letters/ no objection certificates
of UTI, SBI, ICICI, BOU, PNB & OBOC conveying their no
objection to granting of sub lease rights to the Noticee No
2 for the said piece of land admeasuring approx. 11.50
acres earmarked out of Plot No A-31, MIDC, Industrial
Area Butibori. This indicates that Noticee No 2 has
acquired the piece of land from the Noticee No 1 for
erection of Thermal Power Plant."
5.3.3 Commissioner has in para 6.09.01 to 6.09.04 has
discussed this issue as follows:
"6.09.01 The Noticee No 1, has contended that the
power plant is located within their factory premises. This
argument is not acceptable in as much as the land has
been leased out to Noticee No 2, M/s Indo Rama
Petrochemicals Ltd., Noticee No 1 has no locus standi as
regards the interest/ possession of the leased premises. In
terms of the lease agreement, the Noticee No 2 enjoy the
leased premises and therefore the claim of Noticee No. 1
that the said leased premises is part of factory is not
legally valid.
6.09.02 "The normal connotation of the term "lease" is
the preservation of the demised estate to be in occupation
and enjoyment thereof for a specified period or in
perpetuities for consideration; the corpus by user thereof
does not disappear and at the expiry of the term or on
termination then same is handed over to the Lessor
subject to the terms of the contract express or implied" as
held by the Hon'ble Apex Court in the case of State of
Karnataka Vs Subash Rukmayya Guttedar AIR 1993
SC 860; 1993 supp (3) SCC 290, 294: AIR SCW 3492
dated 16.02.1992.
6.09.03. A "lease" is transfer of a right to enjoy the
property as held by Hon'ble Apex Court in the case of
Tirth Ram Gupta Vs Gurbachan Singh AIR 1987 SC
770; 1987 (1) SC 712; 1987 (2) SCR 190; 1987 (1)
20 E/526,1101/2008
JT 365; 1987 (1) Scale 255; 1987 (1) UJ 610; 1987
(2) RCJ 369.
6.09.04 From the above judgments, it is clear that
a lease is a document which effects an actual demise
and operates as lease and must create a present and
immediate interest in land. When there is interest and
complete possession by the Noticee No 2, on the leased
land, the Lessor i.e. Noticee No 1 cannot be held to be in
possession of the leased portion of land and cannot
have the right on the said land. Hence the contention of
the Noticee No 1 that the power plant is located in their
factory premises is untenable."
5.3.4 In our view once the plot of land which has been
leased out by the Appellant to 2nd Party, the same cannot
be said to be in possession of the appellant, for enjoyment
and undertaking any commercial or production activities.
The claim of the appellant that the said plot has not been
segregated by the fence or boundary wall do not has any
merits because the said plot of land has been clearly
identified and earmarked in the land records as has been
stated by the MIDC (Copy of the letter dated 31.03.2006
of MIDC reproduced below):
21 E/526,1101/2008
5.3.5 The fact that the plot of land on which the
Thermal Power Plant was located belonged to 2nd Party and
is not part of the factory premises of the Appellant, is
22 E/526,1101/2008
evident from the para 02.01 of the impugned order
wherein it has been recorded:-
"02.01 The Noticee No 1 submitted a revised ground
plan of its factory premises to the Range Superintendent,
Central Excise Range, Butibori on 16.10.006. During the
course of verification of the same by the Range
Superintendent, Butibori the authorized representative of
the Noticee No 1 informed that the area where the thermal
power plant is being erected belongs to Noticee No 2. He
further admitted that there was no board displaying the
name of Noticee No 2 in the area of power plant. The
above proceedings were recorded under a panchnama
dated 24.10.2006 before the authorized representative of
the Noticee No. 1."
5.3.6 Thus we have no hesitation in holding that the
plot of land on which the power plant was erected was the
premises of 2nd Party and Appellant had no right to use
that plot for any of their production activities. There is no
dispute to the fact that this plot has been carved out of the
Plot No A-31 MIDC Industrial Area, Butibori District
Nagpur. No separate identification has been assigned to
the plot leased by Appellant to 2nd Party and even no board
identifying the plot with the 2nd Party has been put.
5.3.7 The fact 2nd Party is paying for all the services
provided by the Appellant to them in respect of their
operations at carved out plot, clearly establishes the
distinction between the two and the fact that Appellants
themselves do not for any purpose treat this plot as part of
their premises. The Memorandum of Understanding dated
26th May 2005 signed between Appellants and 2nd Party
clearly states-
"i) 46219 sq Meter out of 809457 Sq Meter, situated at
A-31, MIDC Butibori Nagpur would be sub lased by IRSL to
IRPL subject to necessary permission in this behalf being
obtained from MIDC. The lease rental shall be payable by
23 E/526,1101/2008
IRPL to IRSL on a monthly basis on mutually agreeable
terms
ii) RPL would develop, design, engineer, procure,
finance, construct, own, operate & maintain the Captive
Power Plant with a Gross Capacity of 2 X 15 MW and net
exportable capacity of 2 X 13.5 MW at Butibori Nagpur.
iii) IRPL would supply entire requirement of power of
IRSL to it on mutually agreed rates and only the surplus
power not required by IRSL can be supplied by IRPL to
parties (including MSEB) other than IRSL.
iv) The parties would execute a Definite Power Purchase
Agreement upon fulfillment of the following C conditions
precedent:
a) The company shall have been granted and
received all permits, clearances and approvals
(whether statutory or otherwise) as are required
to execute and operate the Project (hereinafter
referred to as "Approvals"
b) The Financial Closure shall have occurred.
v) That the terms and conditions as well as the
payment for the power supply and all other relevant terms
and conditions would be mutually agreed by the parties
and form part of the Definite Power Purchase Agreement to
be executed between the parties.
vi) IRSL has agreed to share common utilities, common
infrastructure, common fire fighting facilities and
uninterrupted water supply for fire fighting from common
storage with IRPL for 2 X 15 MW power plant on the basis
of net block ratio.
vii) The contract is valid for the period 1.04.2005 to
31.03.2010 and will automatically expired on 31.03.2010
and may be renewed for subsequent period on mutually
accepted terms and conditions.
viii) The parties are free to include any common
infrastructure, facilities, utilities which are not specifically
24 E/526,1101/2008
mentioned under this agreement on mutually accepted
terms."
5.3.8 Commissioner has examined the Power
Purchase Agreement in his order in para 06.10.01 and
06.10.02 stating as follows:
"06.10.01 A perusal of the power purchase agreement
indicates that the Noticee No 2 has entered into an
agreement with Noticee No 1, for sale of electricity
generated in its power plant on negotiable basis. At Article
5 of the said agreement it is clearly mentioned that in case
the parties do not arrive at a mutual agreement on the
tariff, the Noticee no 2 would be free to sell power to third
parties. In the Article 8 of the said agreement a provision
has been made to allow the Noticee no 2 to sell power to
third parties in the event of payment default by the
Noticee no. 1 for a continuous period of three months. It is
seen from the letter dated 17.10.005 issued by the Notice
No 2 to the Director, Steam Boiler Maharashtra State, 3rd
Floor, Tardeo Road Mumbai that the Noticee no 2 has
requested for permission to install boiler for erection of
power plant at Butibori Nagpur. From the copy of letters
from the Banks cited in para 02.08 supra it is observed
that the Noticee no 2 had taken loans from the banks for
setting up power plant at Butibori.
6.10.01 Thus it is seen that the noticee No 2 is
separate legal entity with liberty to sell the power
generated in power plant to third parties and has erected
the power plant on leased out land of Noticee No 1."
5.3.9 To all the statutory authorities for seeking the
clearances the owner and operator of the power plant is
shown as 2nd Party and not the Appellant as is evident
from following correspondences:
25 E/526,1101/2008
26 E/526,1101/2008
27 E/526,1101/2008
28 E/526,1101/2008
29 E/526,1101/2008
30 E/526,1101/2008
5.3.10 One question that needs to be answered is
whether the entire plot covered by A-31, MIDC Industrial
Area, Butibori Nagpur on which the factory of Appellants is
located needs to be considered as factory for manufacture
31 E/526,1101/2008
of finished goods. The ground plan of the plot A-31, MIDC
Industrial Area, Butibori Nagpur is reproduced below:
From perusal of the ground plan it is quite evident that on
the said plot marked as A-31 MIDC Industrial Area,
Butibori Nagpur, apart from factory of Appellant, quite a
good number of other things including the leased out land
to 2nd Party, Plot identified as Indo Rama Textiles Ltd.,
residential complex, temple etc are located. Just because
these facilities are located on the same plot they cannot be
called the factory premises of the Appellant. The
contention that what so ever is located on the said plot
needs to be considered as part of their factory of
manufacture has been rejected by the Tribunal in
appellants own case reported at [2006 (199) ELT 0175
(T)] and affirmed by the Hon'ble Bombay High Court in
[2007 (219) ELT 122 (Bom)]. Hon'ble Bombay High Court
held-
"21. The fact that the residential complexes are situated
within the licensed premises would not entitle the assessee
to avail credit of duty paid on furnace oil used in the
manufacture of electricity supplied to the residential
complexes. It is necessary to establish that the electricity
32 E/526,1101/2008
is used for any purpose connected with or related to the
production of final products. In our opinion, supply of
electricity to the residential complexes situated within the
factory premises are neither connected with or related to
the production of the final products. In this view of the
matter, we hold that the finding recorded by the Tribunal
that the assessee is not entitled to the credit of duty paid
on the furnace oil used in the generation of electricity
supplied to the residential complexes cannot be faulted.
22. The decision of the Apex Court in the case of Grauer
and Weil (I) Ltd. v. CCT (supra) and the case of South
Eastern Coalfields Limited v. CCE (supra) relied upon by
the assessee do not support their case. What is held in
those cases is that the words "any premises including the
precincts thereof" in Section 2(m) of the Central Excise Act
are wide enough to cover any activity carried on within the
licensed premises. In both the above cases, the Apex
Court was not called upon to consider the issue which is
raised in this appeal. In any event, it is pertinent to note
that in both the above cases, the activity in question
related to the production of excisable goods or an activity
connected with or related to the production of the final
products. In the present case, supply of electricity to the
residential complexes is wholly unconnected with or
related to the final products produced in the factory of the
assessee. Therefore, reliance placed on the above
decisions of the Apex Court is wholly misplaced."
5.3.12 Further Hon'ble Supreme Court has in case of
South Eastern Coalfields Ltd. [2006 (200) ELT 357 (SC)]
held as follows:
"11.The question, therefore, in this case is that "whether
the workshop in question can be said to be situated within
the precincts of the mine".
12.Before the Tribunal reliance was placed by the
learned counsel for the assessee on an earlier order of the
Tribunal in Central Coalfields Ltd. v. CCE, Jamshedpur
33 E/526,1101/2008
dated 16-9-1997, in which it was held that the word
"precincts" cannot be restricted to an area of four Kms. In
that case the Tribunal held that the workshop in question
was situated within the precincts of the mines to which it
was catering, even though it was situated at a distance of
50 Kms. from the said mine.
13.In the present case the Tribunal rejected the
assessee's claim for exemption on the ground that since
the mine was registered under the Factories Act, it cannot
have the benefit of exemption in the Notification No.
63/95-C.E. since as per Section 2(m) of the Factories Act a
factory means any premises including the precincts thereof
but does not include a mine subject to the operation of the
Mines Act, 1952.
14.In our opinion the registration of a mine under the
Factories Act has nothing to do with the assessee's claim
for exemption under the Central Excise Act. In fact the
reference to the Factories Act itself was wholly irrelevant
and we fail to see what the Factories Act has to do with the
present case. The present case is covered by the Central
Excise Act and has nothing to do with the Factories Act.
Hence the view taken by the Tribunal is, with due respect
to it, clearly erroneous.
15.It has to be considered in the present case whether
the workshop in question is said to be a workshop within
the precincts of a mine.
16.The word 'precincts' is not a word of clear import
which has a single, clear-cut meaning. Collin's English
Dictionary defines 'precincts' to mean "the surrounding
region or area".
17.In the New Shorter Oxford English Dictionary, the
word 'precinct' is shown to have several meanings among
which are the following :
"The area within the boundaries (real or
imaginary) of a building or place; the grounds;
the interior; esp. an enclosed or clearly defined
34 E/526,1101/2008
area around a cathedral, college, etc. Also, the
surroundings or environs of a place."
18.In the Advanced Law Lexicon, 3rd Edition, by P.
Ramanatha Aiyar, the word 'precinct' has been shown to
have several meanings including a space enclosed by walls
or other boundaries.
19.In Black's Law Dictionary, 7th Edition, the word
'precinct' is defined as follows :
"A geographical unit of government, such as an
election district, a police district, or a judicial
district."
20.From a perusal of the above definitions, it appears
that the word "precincts" does not have a single meaning,
rather it has several meanings.
21.One word can have several meanings, and one
meaning can have several words (synonyms). For
instance, the word 'ball' can mean a round object for
playing games like cricket, football, etc.; it can also mean
a dance; it can also mean having a nice time, etc.
Similarly, in Sanskrit the words "kamal", "pankaj",
"rajeev", "neeraj", "jalaj", "saroj", etc. have the same
meaning i.e. Lotus.
22.According to the literal rule of interpretation, if the
meaning of a word or expression is clear, there is no scope
for interpretation and we have to follow the plain and
grammatical meaning.
23.However, where the meaning of a word or expression
is not clear, obviously the literal rule of interpretation
cannot be applied, and hence we have to take resort to
other rules of interpretation e.g. the Heydon's mischief
rule, the purposive rule, etc. In our opinion in the present
case the purposive rule should be applied. Under this rule,
we have to see the purpose for which the provision was
made. Looking at it from this angle, we are of the opinion
35 E/526,1101/2008
that the word 'precincts' has to be given the broader
meaning and not the narrower meaning.
24.In other words, we have to interpret the word
'precinct' in the exemption notification to mean the
surrounding region or area, as defined in Collins English
Dictionary or the surroundings or environs of a place as
defined in the New Shorter Oxford English Dictionary. This
is because the purpose of the exemption notification is to
grant exemption from excise duty to goods produced in a
mine so as to encourage the mining industry. A workshop
which is in an area in the environs of a mine and is
existing solely for the purpose connected with the mine
and under the same management, is obviously directly
serving the mining operations. Hence, we have to interpret
the notification so as to include such a workshop within the
definition of a mine for the purpose of grant of exemption,
as that would encourage the mining industry."
Even in the above referred decision benefit after adopting
the principle of purposive interpretation was given only
after noting that the workshop was under the same
management. In our view since the thermal power plant at
material time at least before the merger of 2nd Party with
Appellant was under a distinct management and was
owned by the distinct company, even if located on the
same plot cannot be said to part of the manufacturing
operations of Appellant.
5.3.13 From the above it is quite evident that the-
i. Thermal power plant erected at A-31 MIDC Industrial
Area, Butibori District Nagpur, has been erected on the
plot which do not form the part of factory premises of the
Appellant.
ii. Appellant neither owns that thermal power plant nor
operates and maintains the same.
iii. All the statutory permissions required for setting up
and operating the Thermal Power Plant at the aid premises
have been obtained by and granted to 2nd Party.
36 E/526,1101/2008
iv. 2nd Party has constructed, erected, owns, operates
and maintains the thermal power plant strictly in a
commercial manner and is free to sell the power generated
on acceptable and agreeable commercial terms.
v. Appellant purchase the power generated in the power
plant. They have priority in purchase and only after
fulfilling their needs can 2nd Party sell the surplus power to
third party. The thermal power plant at A-31 MIDC
Industrial Area, Butibori District Nagpur is not the captive
power plant of the appellant.
5.4. Whether the CENVAT Credit in respect of
Capital Goods, receive by the 2nd Party on the leased
plot and used by them for erection/ installation of
thermal power plant will be admissible to appellant
for the reason that invoices showed them as
consignee.
5.4.1 2nd Party had procured loans from various
banks namely Yes Bank and State Bank of India. They
have independently placed the orders for procurement of
capital goods on the vendors. Against these orders vendors
have supplied the goods to them at the premises located
at A-31, MIDC Industrial Area Butibori Nagpur. Copies of
the letter dated 16.10.2006 of M/s Yes Bank and letters
dated 12.04.2005 & 07.05.2005 of State Bank of India are
reproduced below:
37 E/526,1101/2008
38 E/526,1101/2008
39 E/526,1101/2008
40 E/526,1101/2008
41 E/526,1101/2008
42 E/526,1101/2008
43 E/526,1101/2008
44 E/526,1101/2008
5.4.3 From the balance sheet of 2nd Party relevant
extracts are reproduced below:
45 E/526,1101/2008
46 E/526,1101/2008
5.4.5 From the Note appearing in Schedule 2, it is
stated " 1. Term Loan from Banks are secured/ to be
secured by way of first charge over entire fixed assets both
present and future of the Company situated at Butibori,
said loan is further secured by second charge on entire
current assets of the Company situated at Butibori".
Further in Schedule 6: Notes on Accounts, it is stated:
"1 Significant Accounting Policies
b) Expenditure During Construction Period
Expenditure incurred during construction period on
Projects is carried forward under Pre-operative
expenses pending allocation/ capitalization and is
allocated to Fixed Assets on the completion/
commissioning of the Projects.
d) Borrowing Cost
Interest and other cost in connection with the
borrowing of the funds to the extent related/ attributed to
the acquisition/ construction of qualifying fixed assets are
capitalized upto the date when such assets are ready for
its intended use.
2) The Company's is presently implementing 30 MW (2
X 15 MW) Thermal Power Plant at Butibori and has
incurred Rs 6427.6 Lacs (previous Year Rs 905 lacs) for
the said purpose. The proposed Power Plant would supply
power to the Indo Rama Synthetic (India) Limited (IRSL)
and other Group Companies at mutually agreed tariff and
terms.
5) Certain expenses amounting to Rs.3181806/-
(Previous Year) have been debited by IRSL according to
the arrangement entered between the companies for the
use of common utilities and facilities, the same has been
charged to respective heads of accounts.
10) Capital Work in progress (CWIP) includes
construction/ capital material at site, building under
47 E/526,1101/2008
construction, site development expenses, plant and
machinery under erection etc."
From the above facts as mentioned in the balance sheet of
the 2nd Party it is quite evident that the Thermal Power
Plant Project at Butibori was being implemented by them
and all the expenditure towards the procurement of the
goods etc was incurred by them on their own account and
not on the account of Appellants. It is also evident that
these expenses were being met by them through the funds
mobilized by them through bank loans etc. Also they were
the fixed assets of their and were used to secure the loans
taken by the banks. In view of above we do not have any
hesitation in holding that capital goods in question were
being procured by the 2nd Party for use by themselves for
erection of the Thermal Power Plant at Butibori. Thus
mention of consignee as "M/s Indo Rama Synthetics
Limited, A-31 MIDC Industrial Area Butibori Nagpur" on
invoices was nothing but an attempt to create entitlement
to CENVAT Credit for the Appellant, without passing the
actual ownership/ possession or right to use the said goods
in their favour.
5.4.6 Further these capital goods were capitalized in
the books of accounts of 2nd Party as has been stated by
Shri Ramesh Deshpande, Sr Manager (Excise) with the
Appellants in his statement dated 27.10.2006 as follows:
"On being asked I state that the power plant will be
capitalized in the accounts of M/s Indo Rama
Petrochemicals (I) Ltd. the fixed asset comprising of Plant
and Machinery, Electrical installation, Office equipment,
furniture and fixtures of the power plant will capitalize in
the accounts of M/s Indo Rama Petrochemicals Ltd. Further
the depreciation of the fixed assets comprising of Plant and
Machinery, Electrical Installation, Office Equipment,
furniture and fixtures will be charged to the account of M/s
Indo Rama Petrochemical Ltd."
48 E/526,1101/2008
5.4.7 In his statement recorded on 30/10/006, Shri
Debdutta Chatterjee, Chartered Accountant, General
Manager (Finance & Accounts) with Appellants and Power
of Attorney holder for 2nd Party, agreed with the statement
dated 27.10.2006 of Shri Ramesh Deshpande, Sr Manager
(Excise). He has further in his statement dated 08.12.2006
stated-
'Q. When neither you are an employee of Indo Rama
Petro Chemicals Ltd., nor holding any post in the company
what is the reason for having power of attorney of M/s
Indo Rama Petrochemicals Ltd.
Ans. M/s Indo Rama Petrochemicals Ltd and Indo Rama
Synthetics Ltd are group companies and are related
companies, further, M/s Indo Rama Petrochemicals Ltd is
installing a power plant at MIDC Butibori on a piece of land
sub-leased by M/s Indo Rama Synthetics Ltd., Butibori
situated within plot no A-31, MIDC Industrial Area Butibori
and there is no office of M/s Indo Rama Petrochemicals
Ltd., at Butibori and hence they have given me the power
of attorney to deal with day to day activities of Indo Rama
Petrochemicals Ltd. and deal with various Central and
State government departments.
Q. What are the activities of Indo Rama Synthetics Ltd.,
Butibori?
Ans. M/s Indo Rama Synthetics Ltd. is a manufacturer of
of Yarn of Polyesters and is selling the same.
Q. What are the activities of Indo Rama Petrochemicals
Ltd.?
Ans.- Indo Rama Petrochemicals Ltd. is at present
installing Power Generating Plant. Till date they have not
started generating electricity. It is their first power project
which is yet to commence generating electricity.
Q What is the purpose for installing power generating
plant by Indo Rama Petrochemicals Ltd.?
49 E/526,1101/2008
Ans.- The purpose for setting up power generating plant at
IDC, Butibori is to supply the power to Indo Rama
Synthetics Ltd at mutually agreed tariff and terms.
Q. Whether the power so generated by Indo Rama
Petrochemicals Ltd. is given to the group companies at
specific rate?
Ans.- Yes. The Power that would be generated will be
given to the group companies at mutually agreed rates.
Q. Whether the balance sheets of both the companies
Indo Rama Synthetics Ltd. and Indo Rama Petrochemicals
Ltd. are same or separate.
Ans.- Accounts and balance sheets of both the companies
are separate.
Q. Whether Indo Rama Petrochemicals Ltd. is installing
the present power project at their own or at the instance
of Indo Rama Synthetics Ltd.?
Ans.- M/s Indo Rama Petrochemicals Ltd. is installing the
present power project at the instance of Indo Rama
Synthetics Ltd. for supply of electricity Indo Rama
Synthetics Ltd. and the payment for electricity purchased
from Indo Rama Petrochemicals Ltd. would be made by
Indo Rama Synthetics Ltd.
Q. For obtaining the land on lease for power plant
whether any application was filed with MIDC Butibori?
Ans.- Yes. An application for lasing out the piece of land in
the plot no A-31 MIDC, Industrial Area, Butibori was filed
with MIDC, Butibori and the same was approved by the
MIDC, Butibori Nagpur. I will submit copies of the
application and approval granted by MIDC by Tuesday i.e.
on 12-12-2006.
Q. When you are independently installing the power
plant why the invoices of the capital goods etc. are being
received from the vendors in the name of Indo Rama
Synthetics Ltd. and a/c of Indo Rama Petrochemicals Ltd.?
50 E/526,1101/2008
Ans.- It is because the power plant is located in the
premises of Indo Rama Synthetics Ltd which have been
leased to Indo Rama Petrochemicals Ltd. and the power
that will be generated will be sold to Indo Rama Synthetics
Ltd. and group companies and that will be used in the
manufacture of their excisable goods
Q. When the power project is being installed by Indo
Rama Petrochemicals Ltd. and Indo Rama Petrochemicals
Ltd. is also incurring expenditure for the setting up of the
same for commercial purpose the invoices for the project
should have been in your name. Only for allowing Indo
Rama Synthetics Ltd. to take CENVAT Credit because Indo
Rama Petrochemicals Ltd. cannot utilize the same, the
whole system is generated, please explain.
Ans.- We reiterate that the sole purpose of power project
is to supply power to Indo Rama Synthetics Ltd and group
companies for manufacture of excisable goods and hence
name of Indo Rama Synthetics Ltd is appearing as
consignee in the invoices.
Q. Whether Indo Rama Petrochemicals Ltd. has directed
the suppliers of capital goods of power plant to specifically
mention the name of Indo Rama Synthetics Ltd., as
consignee and account/ customer's name as Indo Rama
Petrochemicals Ltd. on the invoices at the instance of Indo
Rama Synthetics Ltd.?
Ans. Indo Rama Petrochemicals Ltd. being the company
setting up the power plant within the premises of Indo
Rama Synthetics Ltd. and the power generated is solely for
consumption by Indo Rama Synthetics Ltd and group
companies the documents were drawn as consignee as
Indo Rama Synthetics Ltd. and the buyer as Indo Rama
Petrochemicals Ltd.
Q. Whether the power plant is the property of Indo
Rama Synthetics Ltd.?
Ans.- No. It is the property of Indo Rama Petrochemicals
Ltd. only.
51 E/526,1101/2008
Q. Whether Indo Rama Synthetics Ltd has shared any
amount towards installation of power project?
Ans.- No.
Q. Whether you are paying Service tax on Goods
Transport Agency for the goods received in to Indo Rama
Petrochemicals Ltd. by your vendors in their name or in
the name of M/s Indo Rama Synthetics Ltd. for installation
of power plant?
Ans.- No. We have not paid any Service Tax on the goods
received for power plant. It is the sole responsibility of the
vendor."
5.4.8 The fact that the capital goods received for
installation in of the power plant, will be/ have been
capitalized in the book of accounts of M/s Indo Rama
Petrochemicals Ltd. and depreciation claimed is evident
from the Profitability Statement and Projected Balance
Sheet submitted by them to Yes Bank for seeking certain
loans for execution of this project. The said statements are
reproduced below:
52 E/526,1101/2008
53 E/526,1101/2008
54 E/526,1101/2008
5.4.9 From the facts as discussed above it is quite
evident that 2nd Party was constructing, installing erecting,
owning, operating and maintaining the said Thermal Power
Plant as its own business asset for generating profits for
itself by way of sale of power. Appellant had no role,
authority over the 2nd Party or over the Thermal Power
Plant. They were purchasing the power generated in the
Thermal Power Plant on commercially and mutually
agreeable terms and conditions from the 2nd Party. Thus
the goods covered by the invoices on which they were
shown as consignee were never received by them in their
factory premises but were but were received by the 2nd
Party on the plot leased out to them by Appellants. 2nd
Party has not only received the said goods but have
reflected the same in their book of accounts as capital/
fixed assets.
5.4.10. Since the goods were never received by the
Appellant's in their premises the and were not installed,
operated or used in any process of manufacture of final
products, these mention of their name as consignee on the
invoices is nothing but to create the instrument/ document
for passing on the inadmissible credit to them.
5.5 Whether the CENVAT Credit on Capital Goods is
admissible in respect of those Capital Goods which
are reflected as Capital Assets in book of accounts of
the other legal entity and have been capitalized
therein.
5.5.1 Provisions of CENVAT Credit Rules,2004 as it existed
then, and relevant for further discussions are reproduced
below:
RULE 2. Definitions. -- In these rules, unless the
context otherwise requires, -
(a) "capital goods" means:-
(A) the following goods, namely :-
55 E/526,1101/2008
(i) all goods falling under Chapter 82, Chapter 84, Chapter
85, Chapter 90, heading No 6802 and sub heading No
6801.10 of the First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods
specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
used -
(1) in the factory of the manufacturer of the final
products, but does not include any equipment or
appliance used in an office; or
(2) for providing output service;
RULE 3. CENVAT credit. --
(1) A manufacturer or producer of final products or a
[provider of output service] shall be allowed to take credit
(hereinafter referred to as the CENVAT credit) of -
(i) to (x) ..........
paid on -
(i) any input or capital goods received in the
factory of manufacture of final product or the
provider of output service on or after the 10th day
of September, 2004; and
(ii) ...........
RULE 4. Conditions for allowing CENVAT credit. --
(1) The CENVAT credit in respect of inputs may be taken
immediately on receipt of the inputs in the factory of the
manufacturer or in the premises of the provider of output
service.
(2)(a) The CENVAT credit in respect of capital goods
received in a factory or in the premises of the provider
56 E/526,1101/2008
of output service at any point of time in a given financial
year shall be taken only for an amount not exceeding fifty
per cent. of the duty paid on such capital goods in the
same financial year :
.........
(b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading No 68.02 and sub heading No 6801.10 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.
Illustration. - A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit up to a maximum of one lakh rupees in the financial year 2002-2003, and the balance in subsequent years.
(3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company.
(4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961 (43 of 1961).
(5) ...................
5.5.2 From the provisions as stated above it is quite evident that CENVAT Credit on the Capital Goods can be 57 E/526,1101/2008 availed only if the same are received in the factory of manufacturer of final product and is used the factory of manufacture. In the present case when the goods have not been received by the manufacturer in his factory the credit would not be admissible to him.
5.5.3 Appellants have relying on various case laws specifically in case of JSW Steel [2014 (307) ELT 929 (T)] argued that the CENVAT Credit cannot be denied to them as Goods on which the credit has been taken by the appellants were all used in their factory since thermal power plant (TTP) is situated within the factory premises of the appellants and there is no boundary wall fence/ demarcating TTP from the factory premises. We do not find the merits in submission of the Appellants and the facts of case relied upon by the appellant are clearly distinguishable. Facts as recorded by the tribunal in its order are as follows:
"8. Earlier, the main appellants were known as M/s. Southern Iron and Steel Company Ltd. ('SISCOL' - in short), which was established in 1996 and was in working condition till 2002. M/s. SISCOL was also brought under 'Restructuring Scheme' under Corporate Debt Restructuring ('CDR' - in short). Thereafter, M/s. SISCOL was declared a sick company and was brought under BIFR.
Therefore, in order to enable them to get the finance for 'CPP', M/s. SISCOL leased out a portion of their factory premises of 50.14 acres to M/s. JSWPL for the purpose of setting up of 'CPP' on 17-1-2005, for a nominal amount of Rs. 10,000/- p.a. M/s. JSWPL pledged the land with the UTI Bank Ltd., to raise fund to the tune of Rs. 62 crores, for the purpose of setting up of the 'CPP' in the leased factory land for captive use of M/s. SISCOL in the manufacture of their final product i.e., iron and steel. M/s. JSWPL also used the funds to procure capital goods for the purpose of setting up the 'CPP'. They had instructed their suppliers to indicate in the invoice as "M/s. JSWPL, Consignee of M/s. SISCOL" and on the strength of these 58 E/526,1101/2008 invoices, M/s. SISCOL took the Cenvat credit on the capital goods. As per CDR proceedings during August, 2004, M/s. SISCOL merged with M/s. JSWSL with effect from 1-4- 2007. On 31-8-2006, M/s. SISCOL terminated the lease agreement with M/s. JSWSL and (M/s. JSWPL merged with M/s. JSWPL with effect from 1-4-2005) took over the 'CPP'. The loan of UTI Bank was also taken over by M/s. SISCOL."
Further in para 13, the contentions of appellant are recorded stating:-
"13. The learned counsel Shri Shiva Dass for the appellants submitted that -
(a) The 'CPP' is an integral part of steel plant;
(b) The leased out land was not for alienating the land by M/s. SISCOL but only for the loan purposes;
(c) M/s. SISCOL, M/s. JSWSL and M/s. JSWPL are all one and the same;
(d) Ownership of the land or capital goods is not relevant to decide the eligibility of capital goods credit;
(e) Without prejudice, no demand of excise duty can once again be made; and
(f) Subsequent event should also be taken into account to decide the eligibility of the CENVAT credit"
In para 32 and 33 distinguishing the facts of that case from the case of Majestic Auto, it has been recorded "32. The case law relied upon by the learned JCDR in the case of M/s. Majestic Auto Ltd. (supra) is also not relevant to the facts of this case. As in that case, M/s. Hero Briggs & Stratton Auto Pvt. Ltd., had taken on lease a part of the factory premises of M/s. Majestic Auto Ltd., who have also sold the machines and equipments on which they have availed MODVAT credit and M/s. Majestic Auto Ltd., have got manufactured the parts on job work basis from M/s. Hero Briggs & Stratton Auto Pvt. Ltd. In this case, the facts are that a part of the land has been leased out to M/s.
59 E/526,1101/2008 JSWPL for installation of 'CPP' which is being used by the appellants for manufacturing of their final products. There is no contract between the appellants and M/s. JSWPL for generation of electricity in the 'CPP' by M/s. JSWPL and was to be sold to the appellants. In fact, M/s. JSWPL was leased out land for installation of 'CPP' only. Therefore, the decision in the case of M/s. Majestic Auto Ltd., cannot be relied on in the facts of this case and the decision of M/s. Majestic Auto Ltd. (supra) was also dealt with by that Tribunal in the case of M/s. Steel Authority of India Ltd. - 2007 (219) E.L.T. 960 (Tri.-Del). Further, we find that the learned JCDR also relied on the decision of M/s. Chemplast Sanmar Ltd. - 2004 (177) E.L.T. 446 (Tri.-Chennai), this Tribunal hold that although M/s. Chemplast Sanmar Ltd., is not the manufacturer of power plant but finally credit on the capital goods was allowed. Therefore, as in this case also the final product is iron and steel. For manufacturing of that final product, 'CPP' was to be installed. Therefore, following the decision of M/s. Chemplast Sanmar Ltd. (supra), the appellants are entitled to Cenvat credit on capital goods used in the manufacture of 'CPP' by M/s. JSWPL.
33. In view of the above discussions, we find that the land has been leased to M/s. JSWPL only to set up a 'CPP' to take care of the power requirements of M/s. SISCOL on payment of annual rent of Rs. 10,000/- only. The said lease deed has been executed for raising the finance for setting up the 'CPP' as per CDR scheme. Further, M/s. JSWPL and M/s. SISCOL merged with M/s. JSWSL, therefore, and relying on the case laws of M/s. Steel Authority of India Ltd. - 2007 (219) E.L.T. 960 (Tri.-Del.), M/s. Chemplast Sanmar Ltd. - 2004 (177) E.L.T. 446 (Tri.- Chennai) and M/s. Vikram Cement - 2006 (197) E.L.T. 145 (S.C.), we find that the appellants are entitled to Cenvat credit on the capital goods which were being used for manufacturing of 'CPP' by M/s. JSWPL, which is being used 60 E/526,1101/2008 by the appellants to manufacture their final product i.e., iron and steel."
From the facts as recorded by the Tribunal in case of JSW Steel, it is evident that the portion of the land was leased out by M/s SISCOL to M/s JSWPL, not on any commercial terms but for the purpose of getting the loan. Further the CPP which was to be set up, was not to operate on commercial basis as an entity selling the power to M/s SISOL but was setup as captive power plant, integral part of the manufacturing unit. This fact is further strengthen by the fact that invoices were made stating "M/s. JSWPL, Consignee of M/s. SISCOL", which clearly showed that the goods were procured by M/s SISCOL, but were consigned in the name of M/s JSWPL. These facts clearly distinguish the case in hand from the case under consideration by the tribunal in case of M/s JSWPL.
5.5.4 Counsel for appellants in his written submissions in respect of the decision of Majestic Auto Limited [[1999 (107) ELT 133 (T)] mentioned wrongly should have been [2004 (173) ELT 145 (T-Del) relied upon by the Commissioner in para 6.14.02 has been over ruled by the Allahabad High Court. Para 6.14.02 of the impugned order is reproduced below:
"6.14.02 Where any premises in which the capital goods are installed has been leased out to another company, say "X" by "Y company, who are now in possession of the said premises, it cannot be claimed by "Y" company that the capital good are used in their factory. The capital goods are no more installed in the factory of the "Y". In this regard I place reliance on the decision of the Hon'ble Tribunal in the case of Majestic Auto Ltd vs CCE Ghaziabad reported in 2004 (173) ELT 145 (tri-Del)], wherein it has been held in para 6.1 to 6.3 as under;-
"6.1 We have considered the submissions of both the sides. It is not disputed by the learned Advocate that both the appellants are separate limited companies and as such 61 E/526,1101/2008 they are two different legal entity, though they may belong to same group. It is also not in dispute that the Appellant No. 1 have taken the Modvat credit of the duty paid on the capital goods in question and the premises in which the said goods are installed had been given on lease to the Appellant No. 2. This is also very clear from the Lease Agreement that the Lessee i.e. Appellants No. 2 shall enjoy the Demised Premises during the lease period without interruption by the lessor (i.e. Appellant No. 1). In terms of the Lease Agreement, the Appellants No. 2 enjoy the said premises and therefore it cannot be claimed to be the part of factory premises of the Appellants No. 1.
6.2 Rule 57Q of the Central Excise Rules empower a manufacturer to take the credit of the duty paid on the capital goods used in the factory of the manufacturer of final products. Rule 57S deals with the "manner of utilization of the capital goods." As per sub-rule (1) of Rule 57S, the capital goods "may be (i) used in the factory of the manufacturer of the final products; or (ii) removed, after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory and after obtaining dated acknowledgement of the same, from the factory for home consumption or for export on payment of appropriate duty of excise leviable thereon or for export under bond, as if the capital goods have been manufactured in the said factory."
6.3 As the premises in which the capital goods are installed has now been leased to the Appellants No. 2 who are now in possession of the said premises, it cannot be claimed by the Appellants No. 1 that the capital goods are used in their factory. The capital goods are no more installed in the factory of the Appellants No. 1........"
06.14.03 Thus the irresistible conclusion based on the above decisions is that as soon as a factory premises are leased to another person, the lessor cannot claim the legal premises to be within the lessor's factory. Hence the contention of Noticee No 1, that the leased premises are 62 E/526,1101/2008 still with their factory does not hold water."
Hon'ble Allahabad High Court has in case of Hero Motors [2014 (310) ELT 729 (ALL)] stated as follows:
22. In the present case we find substance in the contention of Shri Bharat Ji Agarwal that at the time of obtaining registration HBSA Pvt. Ltd. had submitted a ground lay out plan, which was approved by the Superintendent, Customs and Central Excise, Range-
6, Division-III, Ghaziabad on 21-8-1998 and in which the engine assembly on ground floor in the premises of Majestic Auto Limited was clearly demarcated. The plant and machinery was installed and was never removed from the premises. The I.C. Engines manufactured by HBSA Pvt. Ltd. in the same premises were used by the appellant. Once it was admitted that the capital goods, on which Modvat Credit was taken by the appellant remained installed in the same premises, which was leased out and continued to be engaged in the manufacture of I.C. Engine, which was further used in the manufacture of two wheelers and that a separate registration certificate was obtained by HBSA Pvt. Ltd., there was no removal of goods. The capital goods remained installed in the same premises and thus even if the premises were transferred on lease, the capital goods even if they were deemed to be installed in the premises of HBSA Pvt. Ltd., Rule 57-S, would not be attracted."
We do not find merits in submissions of the Counsel. It is not disputed that the decision of tribunal in case of Majestic Auto has been set aside by the Allahabad High Court, however the issue of relationship of lessor and lessee has not been set aside. It is seen that in the premises of leased out, when registration was granted the plant and machinery which was owned and installed by the Lessor was clearly demarcated, and never removed from that premises, for that reason High Court has set aside the order of tribunal stating that since machinery continued to 63 E/526,1101/2008 be installed within the factory premises provisions of Rule 57S shall not be applicable. However High Court was not dealing with the case where the plant and machinery was procured by the person on his own account, to whom the plot of land was leased for setting up a thermal power plant to be operated on commercial basis. When the ownership of the said plant and machinery was vested throughout with the 2nd Party, how can the Appellant claim the CENVAT Credit of duty paid on Capital Goods, installed on the leased out land on the basis of this decision of Allahabad High Court.
5.5.5 Similarly the reliance placed by the appellants on the decision of Madras High Court in case of Dalmia Cement [2015 (323) ELT 290 (Mad)], Steel Authority of India Limited [2016 (332) ELT 825 (T)] and Bhilai Steel Plant [2017 (1) TMI 293 (T)], cannot justify their stand. The issue under the consideration was in respect of removal of goods. The question that was being addressed was whether the goods which were already there on which credit has been taken, stood removed when they were handed over to another entity in terms of lease agreement. On contrary issue in the present case is vis a vis the admissibility of credit in respect of the goods procured by the lessee [person to whom a plot of land has been leased out] on his own account for commercial exploitation, to the lessor. We find the decisions to be clearly distinguishable. Just because the Thermal Power Plant has been set up on the plot leased out by the Appellant, it would not entitle them to the CENVAT Credit in respect of the inputs and capital goods procured by the lessor.
5.5.6 We find that the decision of the Karnataka High Court in case of Associated Cement Limited [209 (236) ELT 240 (Kar) to be squarely applicable in the present case. Relevant excerpts from these decisions are reproduced below:
Associated Cement Limited [209 (236) ELT 240 (Kar) 64 E/526,1101/2008 "5. Having heard the learned counsel for the parties and on perusal of the agreement dated 14-3-1999 entered into between the assessee and M/s. Tata Electric Company we have no hesitation to hold that the transaction thereunder between them was an absolute sale of the power unit for a valid sale consideration of Rs. 90 crores and that the entire unit came to be handed over to the purchaser and since then the purchaser has been running the power unit at the same premises of the assessee by taking the premises in which the power unit was installed on long term lease and generating the power. Therefore, it is clear that the said purchaser, after purchasing the power unit from the assessee, has been enjoying the same as its absolute owner and has been supplying to the assessee the power generated from the said power unit on payment basis. This being so it is quite evident that the assessee-company lost its ownership and also control over the said power unit by selling it to the said purchaser for valid consideration and by giving to the purchaser on long term lease the premises in which the said unit is installed so as to enable the purchaser to run the unit at the same premises of the assessee as its absolute owner, generate power and sell the power so generated to the assessee-company itself.
6. Therefore, in our considered view though there had been no physical removal of power unit the above transactions between the assessee-company and M/s. Tata Electric Company certainly amount to nothing short of physical removal of the power unit of the assessee in respect whereof MODVAT credit was availed by the assessee so as to attract the penal provisions of the said Act and the Rules. The said transactions of sale of power unit and simultaneous lease of premises are wisely resorted to by the assessee as a device to avoid the tax liability on it on the ground that the power unit was not physically removed from the premises of the assessee.
Therefore, we are of the considered opinion that the Tribunal without application of mind and without proper 65 E/526,1101/2008 appreciation of the said transactions in the light of the relevant provisions of the Central Excise Act and the Rules has allowed the appeal of the assessee-company and set aside the Order-in-Original passed by the Commissioner of Central Excise, Belgaum. In the circumstances, we answer the above question of law in the 'negative' and against the assessee."
5.5.7 Appellants have relied upon various decisions as stated at para 4.2 (i), supra to argue that ownership of the capital goods is not relevant for determining the eligibility to CENVAT Credit. We have no dispute with the said preposition. However the issue under consideration is not vis a vis the ownership, but one of receipt and usage. When we hold that the said Capital Goods were not received in the manufactory of the manufacturer nor used by him for the manufacture of finished goods, the issue of ownership is irrelevant. CENVAT credit in present case is sought to be denied on account of non receipt of the goods within the factory premises and their usage in the process of production of the said goods. In case of KCP Ltd. [2013 (295) ELT 353 (SC)} Hon'ble Apex Court held as follows:
24. ......... Thus, the appellant did not use the purchased machinery in its premises or in its factory and therefore, necessary condition incorporated in the Rules for availing credit of the MODVAT had not been complied with. To avail the MODVAT credit, the input on which excise duty is paid must be used in the manufacture of the final product in the factory of the assessee. ....."
5.5.8 We also do not find merits in the submissions of the appellant that subsequently 2nd Party and Appellants were merged with effect from 1.02.2007. It is now settled law that admissibility of CENVAT Credit is to be determined at the time when the Capital Goods were received by the appellant and subsequent events and restructuring or changes in law cannot change the admissibility of credit. In case Spenta International [2007 (216) ELT 9Tri-LB)] it has been held 66 E/526,1101/2008 "7. In the case of Binani Cement Ltd. v. CCE, 2002 (143) E.L.T. 577, the Tribunal held that vested right of taking credit arises on the date of receipt of the goods and that the date of installation of capital goods being only a deferred date of taking credit, for administrative reasons, credit is eligible on the date of receipt of the goods. In CCE v. Sengunthar Spinning Mills, 1998 (99) E.L.T. 409, it was held that the availability of Modvat credit on capital goods has to be determined at the time of receipt of capital goods in the factory and if no modvat credit was available at that time, the question of subsequently making available any Modvat credit would not arise.
8. The recent decision of the Tribunal in CCE v. Precot Mills Ltd., 2007 (212) E.L.T. 483 follows the Surya Roshni decision and the Grasim Industries decision as well as the Sengunthar decision, to hold that the relevant date for determination of availability of Modvat credit is the date of receipt of capital goods in the factory and if on that date no credit was available, it cannot be allowed subsequently.
It was held that when the machinery in respect of which the capital goods had been taken, were not used for manufacture of dutiable goods on the date of receipt in the factory, capital goods credit is not available on such machinery.
9. The ACE Timez decision reported in 2004 (170) E.L.T. 371, which takes a contrary view from those set out above, considers Rules 4(2)(a) & (b) of the Cenvat Credit Rules, 2002 and holds that these rules do not provide for denial of credit on the ground that it is not taken in the same financial year in which capital goods were received, and only restricts credit to 50% of the duty paid, in the financial year of receipt of capital goods, and do not provide for lapsing of credit if the balance 50% is not taken in the same financial year in which the capital goods were received. The above judgment does not consider Rule 6(4) of the Cenvat Credit Rules, which clearly stipulates that no credit shall be allowed on capital goods used 67 E/526,1101/2008 exclusively in the manufacture of exempted goods. In other words, the ACE Timez decision discusses the manner in which credit to be availed as per Rule 4(2)(a) & (b) and does not discuss eligibility in terms of Rule 6(4). Moreover, the ACE Timez decision does not consider the Tribunal's earlier decisions in Surya Roshni and Grasim Industries.
10. In the light of the above discussion, we answer the reference by holding that Cenvat credit eligibility is to be determined with reference to the dutiability of the final product on the date of receipt of capital goods."
5.5.6 Further when the capital goods are capitalized in the account books of 2nd Party, then by adopting this device Appellants could not have claimed the credit in respect of the same goods in view of Rule 4(4) of the CENVAT Credit Rules, 2004.
5.5.7 Further appellants have submitted that credit of Rs 1,70, 55,003/- has been denied to them in respect of the Capital Goods received in their premises after the merger of Appellants and 2nd Party with effect from 01.02.2007. We find force in the arguments of the appellant that after merger both the entities have become one and the credit cannot be denied on the ground that they were distinct earlier at time of placement of order. After merger the goods received were received by the appellants only in their premises and used by them. Hence we have to set aside the order dated 21.08.208 and remand the matter back to Commissioner for determination of CENVAT Credit to be disallowed after merger of the two entities.
5.6 Whether CENVAT Credit in respect of those goods which are not identifiable but classified under Chapter 84 of First Schedule to Central Excise Tariff Act, 1985.
5.6.1 The next issue is with regards the admissibility of credit in respect of supporting structures used for 68 E/526,1101/2008 installation of boiler etc, bunkers for storage of coal, ash handling system, system and other miscellaneous goods.
5.6.2 We are in agreement with the submissions made by the appellant that decision of the larger bench of Tribunal in case of Vandana Global Ltd [2010 (253) ELT 440 (Tri- LB)] has been set aside by the Hon'ble Chhattisgarh High Court as reported at [2018 (16) GSTL 462 (Chhattisgarh)]. Similar view has been expressed by the Gujarat High Court in the case Mundra Port [2015 (39) STR 726 (Guj)]. However since the credit has been sought to be denied for the reason of that the goods were not received by the appellants and were used by them for the process of production of finished goods we do not dwell into this issue much.
5.6.3 Similarly with regards to credit in respect of miscellaneous goods classified by the supplier under Chapter 84, relying on the decision of Apex Court in case of Madras Cement [2010 (254 0 ELT 3 (SC)] we hold that the credit would not be admissible without identification of goods. However this question to becomes irrelevant as the issue has been decided on the fact that these goods were not received and used by the appellants for the process of production of finished goods.
5.7.3 Since we are not adjudicating the case in relation to excisablity of the thermal power plant we do not dwell into submissions made by both the sides on this issue and various case laws relied upon by the revenue.
5.7.4 However in the remand proceedings in respect of the goods received after the date of effect of merger of two units, Commissioner should consider these issues afresh while considering the case for allowing or disallowing the credit in respect of the goods received after date of merger.
5.8 Whether demand is hit by limitation and penalty under Rule 15 of CEVAT Credit Rules, 2004 69 E/526,1101/2008 read Section 11AC justified in the present case on the Appellant.
5.8.1 Since both the show cause notices have been issued within normal period of limitation from date of taking the CENVAT Credit sought to be denied we hold that demand is no hit by limitation as provided for by Section 11A(1) of Central Excise Act, 1944. However we also note that charge of suppression is well established against the appellants. Commissioner has in para 08.01 and 08.02 held as follows "08.01 The noticee No 1, has contended that the credit on some of the items were taken as in April 205 based on invoices which showed the Noticee No as consignee and capital goods were received and used in their factory. Therefore it cannot be alleged that the Noticee No 1, has suppressed the facts with intent to evade payment of duty and hence the proposal to deny the credit for the period beyond one year prior to show cause notice is not sustainable.
"08.02. I do not find merits in the argument of the Noticee No.1. After introduction of 'self assessment scheme' in Central Excise, there is no need to submit invoices pertaining to clearance of final products and purchase of capital goods, inputs. No description of goods purchased by the assessee is reflected in the prescribed ER1 returns. Only the figures of duty paid and Cenvat credit taken are reflected in the returns. The responsibility of assessing the correct duty liability on the clearance of final products and taking of credit on eligible goods lies only with the assessee. It is specifically provided in Rule 9 Cenvat Credit Rules 2004 that the assessee should take reasonable steps to take eligible credit with proper documents. The contention of Noticee No.1 is that "the notices were under the bona fide belief that the items in question were covered under the definition of capital goods since they have been used in the factory of the notice even though they were not the owners of the 70 E/526,1101/2008 capital goods so long as they satisfy the definition of capital goods and hence they cannot be alleged that they suppressed the facts with intent to evade duty". It is not sufficient to satisfy the definition of capital goods alone which gives the right of availing credit on ineligible credit to the assessee but they should satisfy other equally binding, mandatory and substantial conditions of the provisions of Rules."
Therefrom he quotes as series of case laws and by applying the ratio decidendi of the said decisions he holds "that extended period could very well be invoked in this case in as much as the Noticee No 1, has failed to take reasonable steps before taking eligible credit as responsibility of assessing the correct duty liability on the clearance of final products and taking of Cenvat credit on eligible capital goods lies only with the assessee.":
i. TISCO [1988 (330 ELT 297 (Pat);
ii. Peterplast Synthetics Pvt Ltd [2005 (192) ELT 842 (T)] iii. Tamilnadu Coop Textiles Processing Mills Ltd [2007 (207) ELT 593 (T)] iv. Bajaj Tempo Ltd [2001 (133) ELT 749 (T)] v. Unshine Tube Pvt Ltd [2002 (136) ELT 231 (T)] vi. Khushal Fertilizer (P) Ltd [2005 (186) ELT 114 (T)] vii. Faridabad Metal Udyog (P) Ltd [2001 (138) ELT 1021 (T)] viii. Kores India Ltd [2003 (152) ELT 395 (T)] ix. Amco Batteries Ltd. [1999 (112) ELT 665 (T)] x. Central Coalfields Ltd {1999 (106) ELT 476 (T)] 5.8.2 We do not any reason to differ with the findings of the Commissioner. We would like to add the fact that piece of land has been leased out to 2nd Party and Thermal Power Plant was being erected there by the 2nd Party on their own account to commercially exploit the same was never brought to the knowledge of the department. These 71 E/526,1101/2008 facts came to knowledge of department only when Appellant came for revision of the ground plan on 16.10.2006. Further the invoices in this case against which the credit has been taken show them as consignee, whereas the goods were actually never destined to them.
It was nothing but a well planned documentation to hoodwink the department for availing the inadmissible credit. The idea was that the same goods would be capitalized in the book of accounts of 2nd Party and the CENVAT credit claimed by them. Just on sample basis one of the invoices is reproduced below which show the quantum of layering in built therein to hide the real transaction.
The first invoice is issued showing consignee as "M/s Indo Rama Synthetics Ltd, A-31 MIDC Industrial Area Butibori Nagpur, A/c M/s Indo Rama Petrochemicals Ltd., A/c M/s Indure Pvt Ltd Sahibabad, A/c M/s Chethar Vessels Pvt Ltd Trichy."; and The second invoice is showing consignee as "M/s Indo Rama Synthetics (I) Ltd. A-31 MIDC Industrial Area Butibori Nagpur Maharashtra, A/c M/s Indo Rama Petrochemicals Ltd." and buyer is shown as "M/s Indure Pvt Ltd, M/s Indo Rama Synthetics (I) Ltd. A-31 MIDC Industrial Area Butibori Nagpur Maharashtra."
The invoice itself speaks volume as to why the identity of actual purchaser and user of the said goods have been layered so as to make identification difficult. 72 E/526,1101/2008 73 E/526,1101/2008 5.8.3 In our view the charge of suppression, misstatement etc. with the intent to evade payment of duty/ take inadmissible credit is well established against the appellants.
5.8.4 Since we find that appellants have availed the inadmissible credit by suppressing the relevant and complete information from the department we also uphold the penalties imposed under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944.
5.8.5 Since the appellants have taken the inadmissible credit the demand for interest too is sustained.
6.1 In view of discussions above:-
74 E/526,1101/2008 i. Appeal No E/526/2008 is dismissed and the Order in Original No 4/2008/C dated 27.02.2008 is upheld.
Appeal No E/1101/2008 is partly allowed to the extent of remanding the matter to determine the quantum of inadmissible credit post merger of 2nd Party and Appellant. Remaining part of order in original No 12/2008/C dated 21.08.2008 for the period prior to merger is upheld in toto.
(Order pronounced in the open court on 14.05.2019) (Dr. D.M. Misra) Member (Judicial) (Sanjiv Srivastava) Member (Technical) tvu