Custom, Excise & Service Tax Tribunal
Commissioner Of Customs, Central ... vs The Andhra Sugars Ltd on 19 January, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/395/2008-SM [Arising out of Order-In-Appeal No. 15/2008 dated 20/02/2008 passed by the Commissioner of Central Excise and Customs, Guntur] For approval and signature: HON'BLE Mr. B.S.V. MURTHY, TECHNICAL MEMBER 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether Their Lordships wish to see the fair copy of the Order? 4 Whether Order is to be circulated to the Departmental authorities? Commissioner of Customs, Central Excise and Service Tax, Guntur P.B. No. 331, C.R. Building, Kannavarithota, Guntur 522 004 Andhra Pradesh Appellant(s) Versus The Andhra Sugars Ltd. Saggonda, West Godavari Dt., Andhra Pradesh Respondent(s)
Appearance:
Mr. R. Gurunathan, AR For the Appellant Mr. K.S. Ravi Shankar & Mr. N. Anand, Advocates No. 152 (18), Race Course Road, Next to Hotel High Lands, Bangalore 560 001 For the Respondent Date of Hearing: 19/01/2015 Date of Decision: 19/01/2015 CORAM:
HON'BLE Mr. B.S.V. MURTHY, TECHNICAL MEMBER Final Order No. 20106 / 2015 Per : B.S.V. MURTHY Vide Final Order No. 27062-27063/2013 dated 03.12.2013, this Tribunal had allowed the appeal filed by the appellant. The issue involved was whether the appellant was eligible for cenvat credit of duty paid on MS sheets, angles, plates, beams etc. According to the appellant, if they are able to show that MS sheets, plates etc. have been used in the factory in repair and maintenance of the machinery that would be sufficient. The appellants also had relied upon two decisions of this Tribunal which were taken on the basis of certain precedent decisions of various High Courts, while passing a fevourable order to the assessee. While considering the decisions of the Tribunal which had relied upon the several decisions of various High Courts, there was a observation in the order that there are decisions of three High Courts taking a view that the benefit of cenvat credit would be available in such a situation and there was only one decision which was relied upon by the learned AR. Taking note of the fact that there were two Tribunal decisions and there were three High Court decision taking a view in favour of the appellants and only one decision of the Honble High Court of Andhra Pradesh relied upon by the Revenue, this order was passed.
2. This decision was challenged before the Honble High Court and the Honble High Court remanded the matter for fresh consideration with the following observation after framing the question of law. For better appreciation, the relevant portion of the decision of the Honble High Court is reproduced below:
This appeal is admitted on the following substantial question of law.
Whether the learned Tribunal has committed any quasi judicial indiscipline by not following the judgment of the jurisdictional High Court and in following the judgment of the learned Tribunal, which was rendered while relying on the judgment of the Karnataka High Court and various other High Courts? We have heard the learned counsel for the parties.
We are of the view that the learned Tribunal should not have ignored the judgment of the jurisdictional High Court simply because the other High Courts have proceeded as observed in a judgment of the Tribunal without reading the judgment of Division Bench of this Court. On that ground, we allow the appeal and set aside the impugned order of the learned Tribunal. We remand the matter to the learned Tribunal for re-hearing and for taking note of the judgment of the jurisdictional High Court or in the meantime, if any judgments are rendered by the Supreme Court on the issue in question. Such exercise shall be completed within a period of two months from the date of communication of a copy of this order.
The appeal is accordingly allowed.
3. When the matter was called, the learned AR on behalf of the Revenue submitted that it was clearly held by the Honble High Court of Andhra Pradesh in the case of Sree Royalaseema Hi-Strength Hypo Ltd. Vs. CCE, Tirupati [2012 (278) E.L.T. 167 (A.P)] that goods used for repairs and maintenance of plants and machinery cannot be considered as inputs or capital goods and therefore credit is not available. He drew my attention to the paragraph 6 of the decision which is reproduced below for better appreciation.
6. Dealing with the corresponding definition of input in Rule 2(g) of the Rules of 2002, the Supreme Court in M/s. Maruti Suzuki Ltd. held that the crucial requirement is that the goods must be used in or in relation to the manufacture of the final product to qualify as an input and that this presupposes that the element of manufacture must be present. The second explanation to the definition in Rule 2(k) makes it clear that only goods used in manufacture of capital goods which are further used in the factory of the manufacturer would qualify as input. Though the assessee used the terms manufacture, repair and maintenance interchangeably in its reply, it is manifest that manufacture and repair/maintenance are not the same and cannot be equated. Goods used for repair or maintenance of the machinery are not constituents in its actual manufacture and therefore would not qualify under the second explanation to the definition. 3.1. He submits that even though the Honble High Court was considering only welding electrodes in that case, the observations would be applicable to the facts of this case also since the principle laid down therein is that whether it is inputs or capital goods if they are used for repairs and maintenance, credit is not admissible. He also submits that the Honble High Court clearly observed that manufacture and maintenance and repair cannot be interchangeably used.
3.2. He also draws my attention to paragraph 7 which according to him supports the case of the Revenue. In this paragraph Honble High Court took note of the fact that the decision of the Tribunal in the case of SAIL V. CCE [2008 (229) E.L.T. A127] came to be affirmed by the Honble Supreme Court and in that case also it was held that cenvat credit of duty paid on welding electrodes is not admissible.
3.3. Further he also submits as an alternative submission that, the appellants have not been able to show as to where exactly these sheets, angles and plates have been used and how they have been used. He draws my attention to paragraph 3.3 of the grounds of appeal wherein it has been stated that the items on which credit has been taken by the appellant would have been used are general purpose structural items having multifarious use and being not components, parts or spares of any specific capital goods they could have been used for civil construction or fabrication of plant and machinery or for supporting structure. He draws my attention to the observation of the original adjudicating authority who in paragraph 22 observed that appellants failed to produce any evidence to show that the goods on which credit has been taken were used as components, spares or accessories of any specified machinery or equipment. In the absence of any evidence, the credit has been rightly denied. He relies on the decision of the Honble Supreme Court in the case of Madras Cements Ltd. Vs. CCE [2010 (254) E.L.T. 3 (S.C)] to support his submission and draws my attention to paragraph 13.
4. On the other hand, the learned advocate on behalf of the appellants would submit that this Tribunal is required to consider a very limited issue as per the decision of the Honble High Court. That is the Tribunal has to consider the decision of the Honble High Court in the case of Sree Royalaseema Hi-Strength Hypo Ltd. (supra) and examine whether that would change the decision or that would lead to a change in the decision already taken by this Tribunal. He submits that the very same issue had come up before the Honble High Court of Andhra Pradesh in the case of Rashtriya Ispat Nigam Ltd. [2011 (271) E.L.T. 338 (A.P)] and Honble High Courts observation in paragraphs 3 & 4 which according to him supports their case. He also submits that in Rashtriya Ispat Nigam Ltd. the Honble High Court was considering the issue of eligibility of MS sheets, plates etc. and therefore the facts in that case are exactly similar to the present case before the Tribunal. On the other hand if the facts in the case of Sree Royalaseema Hi-Strength Hypo Ltd. are examined, it would show that what was under consideration by the Honble High Court was the issue as to whether credit is available on welding electrodes used for repair and maintenance in the factory as an input. He draws my attention to paragraph 5 & 6 of the decision to submit that in that case what was under consideration was input and electrodes whereas the issue under consideration before this Tribunal and before the Honble High Court of Andhra Pradesh in Rashtriya Ispat Nigam Ltd. case were entirely different. In Rashtriya Ispat Nigam Ltd. case, the Honble High Court had examined definition of capital goods under Rule 2(b) and recorded the fining in paragraph 4 and in the case of Sree Royalaseema Hi-Strength Hypo Ltd., the Honble High Court had examined Rule 2(k) of the CENVAT Credit Rules which defines inputs. Therefore the findings recorded by the Honble High Court of Andhra Pradesh in the case of Sree Royalaseema Hi-Strength Hypo Ltd., cannot be applied since the whole decision was considering as to whether items in question there would be considered as inputs or not.
4.1. Further the learned counsel also draws my attention to the decision in the case of CCE, Jaipur Vs. Rajasthan Spinning & Weaving Mills Ltd. [2010 (255) E.L.T. 481 (S.C)] that if the user test is applied and after applying such a test, Honble Supreme Court had come to the conclusion that credit would be admissible in respect of steel plates and MS channels etc. The learned AR submitted that this decision cannot be applied to the present case since Honble Supreme Court was considering as to whether MS channels, plates, sheets etc. used in chimney which is a specified part of plant and machinery credit can be allowed or not and that decision cannot be applied generally to all circumstances.
4.2. Learned counsel also relied upon the decision of the Honble High Court of Rajasthan in the case of Union of India Vs. Hindustan Zinc Ltd. [2007 (214) E.L.T. 510 (Raj.)] wherein the Honble Rajasthan High Court held that MS/SS plates used in workshop meant for repair and maintenance of machinery, credit would be available. This decision was challenged by the Revenue and petition for special leave by the Revenue was dismissed by the Honble Supreme Court as reported in [2007 (214) E.L.T. A115 (SC)].
4.3. The learned counsel also submits that as regards welding electrodes, it cannot be said that the issue has attained finality. This is because Honble High Court of Rajasthan in the case of Hindustan Zinc Ltd. Vs. Union of India as reported in [2008 (228) E.L.T. 517 (Raj.)] has taken a view that credit of duty paid on welding electrodes used for maintenance and repair is admissible. Now the matter stands referred to the Larger Bench by the Honble Supreme Court and it is his submission that this fact should have been brought to the notice of the Honble High Court while making out a case for the Revenue by the counsel before the Honble High Court.
4.4. It was also submitted that the Tribunal while interpreting a law which is applicable all over India and a Tribunal has a jurisdiction of more than one State and have the liberty to follow a decision which has framed in its jurisdiction in case there are contrary views, I am unable to agree with this submission and therefore I do not propose to do at all. In my opinion, the Tribunal is required to follow the jurisdictional High Court decision and issue which has arisen within the jurisdiction of that High Court even though there are other High Courts. I am examining the correctness of this submission since I believe that judicial discipline would mean that this has to be followed without thinking of the consequences. The consequences should not come in the way of following correct legal position.
4.5. The learned counsel also relied upon the decision in the case of CCE, Coimbatore Vs. Jawahar Mills Ltd. [2001 (132) E.L.T. 3 (S.C)] to support the case that if the capital goods are used in the factory, that is a sufficient fulfillment of the obligation and once it has been shown that appellants have used the material in the factory, credit would be available. It was also submitted by showing the relevant paragraphs in the impugned order as well as memorandum of appeal that this fact has not been contradicted and has been accepted throughout.
5. Even though the matter was heard and order was dictated in the Court in this case, unfortunately the fact that there were two earlier decision of the Tribunal on the very same issue in favour of the assessee was not brought to the notice of the Tribunal by the assessee probably on the assumption that there were three High Court decisions which supported the view that credit is admissible. Today the matter was pressed and it was pointed out that even in the impugned order, the learned Commissioner (Appeals) has clearly observed that there are orders of the Tribunal on the very same issue and said orders have attained finality against the same has not been challenged. Further the Commissioner also has considered the facts of the case and applied the decision of the Tribunal and therefore it was submitted that the action taken by the Revenue amounts to action contrary to the theory of doctrine of legitimate expectations. Since the issue had already come up on two occasions and decided in favour of the assesee under the same set of facts and circumstances without any change in the law or in the facts, it has to be held that doctrine of legitimate expectation of an assessee on this ground also the stand taken by the Revenue should fail.
6. At this stage the learned AR drew my attention to the paragraph in order-in-original wherein the original authority has explained the reasons as to why he has not followed the decision of this Tribunal. He submits that according to the original authority the decision of the Tribunal related to a situation where such MS sheets, plates etc were treated as inputs. He draws my attention to the introductory paragraph of the decision in Final Order No. 298 & 299/2006 dated 10.02.2006 wherein the Tribunal observed that the Revenue is aggrieved with the order-in-appeal wherein plain plates, welding electrodes and paints and thinners etc have held to be eligible items for cenvat credit on the ground that the items were used in or in relation to the manufacture of sugar. No doubt it gives a feeling that the decision would have been related to the inputs. Quite often we find that when credit is denied on the ground that the credit is not admissible as capital goods, alternative claim is made that the same can be considered as inputs. The learned counsel pointed out that Honble Supreme Court in the case of Marsons Fan Industries Vs. CCE, Calcutta [2008 (225) E.L.T. 334 (S.C)] and in the case of CCE, Hyderabad Vs. Novapan Industries Ltd. [2007 (209) E.L.T. 161 (S.C)] held that department has to follow precedent decision and once the principles laid down are accepted, the department cannot be permitted to open the case again.
7. I have considered the submissions made by both the sides. In fact it would have been sufficient if I have to consider only one issue which in my opinion and also as submitted by the learned counsel for the respondent in this case would have fulfilled the requirements laid down by the Honble High Court while remanding the matter. However several submissions were made by both the sides and some of them, which I feel are relevant in my opinion would be worth considering the same rather than ignoring them especially if they lead to further litigation.
8. As regards applicability of the decision of the Honble High Court in the case of Sree Royalaseema Hi-Strength Hypo Ltd., (supra), as submitted by the learned counsel, in the case of Rashtriya Ispat Nigam Ltd., Honble High Court of Andhra Pradesh had taken a view in favour of the assesee in this case. For better appreciation paragraphs 3 & 4 of the decision in the case of Rashtriya Ispat Nigam Ltd., and paragraphs 5 & 6 in the case of Sree Royalaseema Hi-Strength Hypo Ltd., are reproduced.
3. Rule 2(b) of the CENVAT Rules has been extracted in the appellate order of the Commissioner (Appeals) dated 24-3-2005, and it reads as under.
Rule 2(b) capital goods means,-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Tariff Act;
(ii) components, spares and accessories of the goods specified at (i) above;
(iii) moulds and dies;
used in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office.
4. It is evident therefrom that capital goods would not only include goods falling under Chapters 82, 84, 85 and 90 of the Central Excise Tariff Act but also components, spares and accessories of such goods, and moulds and dies which are used in the factory of the manufacturer of the final product, but not equipment or appliance used in an office. It is not even the case of the Revenue that the goods, for which CENVAT credit was claimed, are equipment or appliances used in the office. It is their case that it is only if the goods are used in the manufacture of the final product, or are goods other than those used for repairs of capital goods, would they fall within the definition of capital goods under Rule 2(b) of the CENVAT Credit Rules. The distinction between manufacturer of the final product, and the manufacture of the final product, must not be lost sight of. It is only goods mentioned in clauses (i) to (iii) of Rule 2(b), and which are used in the manufacturers factory, which fall within the ambit of capital goods. The goods in question are, admittedly, used in the repairs of capital goods in the factory of the manufacturer and, as such, fall within the ambit of Section 2(b)(ii) of the CENVAT Credit Rules. The order of the CESTAT, in rejecting the contention of the Revenue, though cryptic does not give rise to any substantial question of law necessitating interference in proceedings under Section 35G of the Act. 5. Rule 2(k) of the Rules of 2004 defines input as hereunder :
(k) input means -
(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or stem used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service.
Explanation-1. The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation-2. Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;
6. Dealing with the corresponding definition of input in Rule 2(g) of the Rules of 2002, the Supreme Court in M/s. Maruti Suzuki Ltd. held that the crucial requirement is that the goods must be used in or in relation to the manufacture of the final product to qualify as an input and that this presupposes that the element of manufacture must be present. The second explanation to the definition in Rule 2(k) makes it clear that only goods used in manufacture of capital goods which are further used in the factory of the manufacturer would qualify as input. Though the assessee used the terms manufacture, repair and maintenance interchangeably in its reply, it is manifest that manufacture and repair/maintenance are not the same and cannot be equated. Goods used for repair or maintenance of the machinery are not constituents in its actual manufacture and therefore would not qualify under the second explanation to the definition. The reproduction would clearly show that the Rules under consideration in both the decisions were totally different. In the case of Sree Royalaseema Hi-Strength Hypo Ltd., Honble High Court was considering the definition of inputs whereas in the case of Rashtriya Ispat Nigam Ltd. the definition of capital goods was being considered. In my opinion this would show that the decision in the case of Sree Royalaseema Hi-Strength Hypo Ltd., would not applicable to the facts of this case. Unfortunately the decision of the Honble High Court in the case of Rashtriya Ispat Nigam Ltd. was not brought to the notice of this Tribunal when the order was being passed.
9. Even otherwise, when the order is seen, the decisions relied upon by the Tribunal to come to the conclusion are in the case of Panipat Cooperative Sugar Mills Ltd. Vs. CCE [2013 (293) E.L.T. 66 (Tri.-Del.)] and Kisan Sahkari Chini Mills Ltd. Vs. CCE [2013 (292) E.L.T. 394 (Tri.-Del.)]. The observation was that in both these decisions, the Tribunal had considered several High Court decisions as well as the decision in the case of Sree Rayalaseema Hi-strength Hypo Ltd. and the issues under consideration before the Tribunal in this case were similar to the facts under consideration before the Tribunal in the two cases referred to above. In the case of Panipat Cooperative Sugar Mills Ltd. as well as Kisan Sahkari Chini Mills Ltd., the issue was eligibility of cenvat credit on MS Sheets, Plates etc.
10. While passing the order the observations of the Tribunal in the case of Panipat Cooperative Sugar Mills Ltd. in paragraph 5 was simply reproduced. The Tribunal in that case had observed in my view when three High Courts as mentioned above held that the items used for repair and maintenance of plant and machinery are eligible for cenvat credit it is this view which has to be adopted was reproduced. Unfortunately while doing so, the fact that the decision in the case of Sree Rayalaseema Hi-strength Hypo Ltd. was rendered by the jurisdictional High Court was omitted to be noticed and unfortunately there were no interruption by either side during the course of adjudication and as a result the mistake slipped in. However the discussion above would clearly show that the decision in the case of Sree Rayalaseema Hi-strength Hypo Ltd. relating to welding electrodes as an inputs whereas the issue under consideration before this Tribunal is relating to the definition of capital goods and the use. Moreover even the original adjudicating authority also has proceeded on the ground that the earlier decisions are not applicable since in those cases the items were treated as inputs and now he has changed the stand and he is denying the credit as capital goods. Needless to say whether the items are inputs or capital goods was not the question before the Tribunal also. The Tribunal was only considering whether the denial of credit taking a view that these are not inputs is proper or not. Therefore that issue has to be left without discussion and what is relevant to be considered is that in this case the issue under consideration is capital goods and treating this item as capital goods, the decisions rendered have to be considered. All the three decisions relied upon by the Tribunal in the case of Kisan Sahkari Chini Mills Ltd., Panipat Cooperative Sugar Mills Ltd. and in the case of Hindustan Zinc Ltd., the Honble High Court had considered the availability of cenvat credit of duty paid on MS bars/SS plates used in workshop as capital goods and this decision has been upheld by the Honble Supreme Court also. Honble High Court while remanding the matter has clearly observed that in case there are any other decisions which are applicable to the facts of this case such decisions can be followed. The Honble High Court had clearly observed that while conducting the rehearing, this Tribunal should take note of the judgment of the jurisdictional High Court and other judgments if any rendered by the Honble Supreme Court.
11. Now I take up the important submission by the Revenue. In the memorandum of appeal it has been stated that appellant did not produce any evidence as to how exactly the MS Plates/Sheets have been used by the appellants in the factory and being general items, they could have been used for construction activities, civil work or for fabrication of structural items. It was also submitted that the responsibility to show that such goods have been used for repair, maintenance/manufacture of components, accessories etc. within the factory is on the assessee and that obligation has not been fulfilled. Paragraph 22 was relied upon and the decision of the Honble Supreme Court in the case of Madras Cements Ltd. Vs. CCE [2010 (254) E.L.T. 3 (S.C)] was also relied upon for this purpose. However I find myself in agreement with the submissions of the learned counsel for the respondent-assessee that the directions of the Honble High Court does not require me to go beyond the observations therein. Since the matter has been remanded for a limited consideration of the decisions applicable to the facts in this case and also to consider the decision in the case of Sree Rayalaseema Hi-strength Hypo Ltd. and apply the same to the facts in this case, going beyond that would not be appropriate. Therefore even though I have reproduced several other decisions hereinabove, I consider that the issue has been dealt with adequately as per the directions of the High Court I need not go any further.
12. The discussion above would clearly show that Honble High Court of Andhra Pradesh decision in the case of Rashtriya Ispat Nigam Ltd. (supra) is applicable to the facts of this case and further there is another decision of Honble High Court of Rajasthan in the case of Hindustan Zinc (referred to above) which has been affirmed by the Honble Supreme Court which also considers similar set of facts and therefore is applicable to the issue before me.
13. In view of the above, the appeal filed by the Revenue is liable to be rejected and accordingly is rejected.
(Order pronounced and dictated in open court) (B.S.V. MURTHY) TECHNICAL MEMBER iss