Custom, Excise & Service Tax Tribunal
M/S Vikram Cement vs Cce, Indore on 24 July, 2009
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R. K. Puram, New Delhi COURT-I Date of hearing/decision: 23.07.2009 and 24.07.2009 Excise Appeal No. 1466 of 2009 [Arising out of order-in-appeal No. IND-I/67/2009 dated 23.3.2009 passed by the Commissioner (Appeals-I) Customs and Central Excise, Indore] M/s Vikram Cement Appellant Vs. CCE, Indore Respondent
For approval and signature:
Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri M. Veeraiyan, Member (Technical) ,,,,,,,,,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?
Appearance:
Appeared for the Appellant Shri Ravi Raghavan, Advocate Appeared for the Respondent Shri B.K. Singh, Jt. CDR and Sh. P.K. Singh, DR Coram: Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri M. Veeraiyan, Member (Technical) Oral Order No. ____ Per Shri Justice R.M.S. Khandeparkar:
Heard at length the learned Advocate for the appellants and learned Jt. CDR for the respondent.
2. The appellants challenge the order dated 18.03.2009 passed by the Commissioner (Appeals), Indore as well as the order dated 04.11.2008. The Joint Commissioner had disallowed the cenvat credit amounting to Rs.38,43,039/- including education cess and had directed recovery thereof from the appellants in terms of show cause notice dated 01.05.2008 under Rule 12 of the CENVAT Credit Rules 2002, Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944, as also had ordered recovery of interest under section 11AB of the said Act and had imposed penalty to the tune of Rs. 5 lakhs on the appellants under Rule 13 of the CENVAT Credit Rules 2002 and Rule 15 of the CENVAT Credit Rules 2004 besides imposing mandatory penalty of Rs. 38,43,039/- under Section 11AC of the said Act. The Commissioner (Appeals) by his order dated 18.03.2009 has dismissed the appeal filed by the appellants and has confirmed the order passed by the Joint Commissioner, hence the present appeal.
3. Few facts relevant for the decision as revealed from the records are that the cenvat credit claimed by the appellants in relation to the duty paid on welding electrodes has been rejected by the lower authorities. It was the claim of the appellants that the welding electrodes were the inputs used in relation to the manufacture of the final product namely cement. It is the case of the appellants that the machines which are used for manufacture of cement, over a period of time get damaged due to the usage thereof and require repairs. Such repairs are carried out by replacement of worn out or damaged teeth /edges and the same involves process of welding, and for the purpose of welding, electrodes are required and, therefore, the welding electrodes are the inputs which are used for welding purposes and resultantly in the process of manufacture of cement. Since the welding electrodes are used for repair and maintenance of the capital goods, they are clearly recognizable as the inputs which help in making the machine operational and that, therefore, they are entitled to take cenvat credit in respect of the duty paid thereon.
4. On the other hand, it is the case of the Department that under no circumstances the welding electrodes used for repair and maintenance of the parts of machine can be called as the inputs utilized in the process of manufacture of the final products and, therefore, the appellants are not entitled to avail cenvat credit thereon. It is their case that the activity of repair and maintenance of the machine is not integrally related to the manufacture of the final products and, therefore, the appellants cannot claim cenvat credit in respect of the duty paid on the products utilized for maintenance and repairs.
5. Learned Advocate appearing for the appellants while assailing the impugned order submitted that the law on the point in issue already stands concluded by the decision in the matter arising between the appellants and the respondents in relation to the case pertaining to Vikram Cement as also by the decision of the Honble Rajasthan High Court in Hindustan Zinc Ltd., case. In that respect, attention was drawn to the decisions in the matter of Vikram Cement vs. CCE reported in 2005 (187) ELT 145 (SC), Vikram Cement vs. CCE reported in 2005 (194) ELT 2 (SC), Vikram Cement vs. CCE reported in 2005 (194) ELT 145 (SC) and Hindustan Zinc Ltd., vs. Union of India reported in 2008 (228) ELT 517 (Raj.). He further submitted that the law as explained by the Honble Rajasthan High Court has been followed by the Tribunal in General Manager Oswal Overseas Ltd., vs. CCE, Meerut reported in 2009 (91) RLT 577 (CESTAT-Del.), CCE Meerut-II, Bilaspur Kisan Sahkari Chinni Mills Ltd., reported in 2009 (167) ECR 0031(Tri. Del.) and unreported order dated 08.06.2009 delivered in Appeal No. E/A 1846 & 1847/06-SM in the matter of CCE, Jaipur-II vs. Hindustan Zinc Limited. He further submitted that the welding electrodes are used undoubtedly in the maintenance and repair of the machines but these machines are essentially meant for manufacture of the final product and, therefore, the welding electrodes also indirectly form the inputs used in the final product or in relation to the manufacture of the final product. He further submitted that unless machines are maintained in repaired condition and there is proper upkeep, manufacture of final product is not possible and, therefore, all the inputs which are utilized for upkeep of manufacturing machine would be the inputs utilized in relation to the manufacture of the final product. He has relied upon large number of judgements and orders in support of his contention and they include J.K. Cotton Spg. & Wvg. Mills Co. Ltd. vs. STO reported in 1997 (91) ELT 34 (SC), Indian Farmers Fertiliser Coop Ltd., vs. CCE reported in 1996 (86) ELT 177 (SC), Impression Prints vs. CCE reported in 2005 (187) ELT 170 (SC), Mathania Fabrics vs. CCE, Jaipur reported in 2008 (221) ELT 481 (SC), CCE, Pune vs. TELCO reported in 2003 (158) ELT 130 (SC), Asahi India Safety Glass Ltd. vs. Union of India reported in 2005 (180) ELT 5 (Del.), Singh Alloys & Steel vs. Assistant Collector of Central Excise reported in 1993 (66) ELT 594 (Cal.) and CCE, Tiruchirapalli vs. India Cement Ltd., reported in 2009 (238) ELT 411. He also tried to distinguish the judgement of the Larger Bench of the Tribunal in the matter of Jaypee Rewa Plant vs. CCE, Raipur reported in 2003 (159) ELT 553 (Tri. LB), while contending that the said decision can no more be a good law in view of the decision of the Honble Rajasthan High Court in the matter of Hindustan Zinc Limited vs. UOI reported in 2008 (228) ELT 517 (Raj.). As regards the order of the Apex Court dismissing the SLP against the order of the Larger Bench, he submitted that, the same being an order of dismissal at the stage of hearing of the SLP itself, it does not amount to merger of the order of the Tribunal in the order of the Apex Court and, therefore, it does not amount to the confirmation of ruling of the Tribunal by the Apex Court and in that regard he placed reliance in the decision of the Apex Court in the matter of Kunhayammed vs. State of Kerala reported in 2001 (129) ELT 11 (SC).
6. Learned Jt. CDR on the other hand, submitted that both the authorities below after taking into consideration the facts of the case has correctly ruled that the welding electrodes used in the repairs and maintenance of the machines would not be inputs used in the process of manufacture of the final product. Drawing our attention to the expression capital goods and input as is found in CENVAT Credit Rules 2004, learned Jt. CDR submitted that the same are in paramateria with those found in CENVAT Credit Rules of 2002 in respect of the similar expressions. He further submitted that the expression capital goods as is found in Rule 2(a)(A)(i) and (iii) would disclose that as far as the capital goods are concerned which can be subjected to availing cenvat credit, the same do not include the materials used for repairs of the capital goods or other parts. Further, with reference to the expression inputs as is found in Rule 2(a) of the said rules, he submitted that it clearly discloses that the inputs must be used in the process of manufacture of the final product. Giving various examples, he tried to explain that it is not that each and every activity and each and every product which comes within the premises of the manufacturing unit that can be presumed to be an input unutilized in the process of the activity of the manufacture of the final product. He further submitted that it is not the case of the appellants that the welding electrodes are the capital goods. It is essentially the case of the appellants that they are the inputs used in relation to the manufacture of the final product. Considering that the welding electrodes are merely utilized in the process of repairs and maintenance of the machinery and merely because its operation is necessary in the process of manufacture of final product, that will not entitled the appellants to claim cenvat credit in respect of the duty paid on such product. Though the Apex Court had not admitted the SLP, it cannot be said that the SLP was rejected by passing non-speaking order. The Apex Court has clearly stated that on the facts of the case the same was being dismissed. According to learned Jt. CDR, therefore, the Apex Court after taking into consideration the facts of the case and the law as stated by the Larger Bench, the same having been found to be correctly applied to the facts that the SLP was rejected. Being so, the said decision is binding upon the Tribunal.
7. Referring to the Larger Bench decision in the matter of Jaypee Rewa Plant vs. CCE, Raipur reported in 2003 (159) ELT 553 (Tri. LB) and followed by the Division Bench in SAIL vs. CCE, Ranchi reported in 2008 (222) ELT (Tri. Kolkata), learned Jt. CDR submitted that when the matter was sought to be challenged by way of SLP against the decision in SAILs case, the Apex Court rejected the SLP by recording the reason for the same. According to learned Jt. CDR this discloses that the Apex Court agreed with the views expressed by the Tribunal in Jaypee Rewa Plant read with SAILs case and being so, the same would be binding upon the Tribunal. He further submitted that the process of repairs and maintenance of the machinery used in the manufacture of the final product is not integrally related to the process of the manufacture of the final product and, therefore, the products utilized for the repairs and manufacture cannot be termed as input for the manufacture or having utilized in relation to manufacture of the final products. He also submitted that the activity of the repairs and maintenance by itself does not generate either the final product or any part thereof. According to learned Jt. CDR the activity of repairs and maintenance does not form part of the process of manufacture of the final product.
8. Learned Advocate for the appellants also assails the impugned orders on the ground that the authorities could not have invoked extended period of limitation in the facts and circumstances of the case. According to the learned Advocate, the records clearly reveal that the Department was fully aware of the fact that the appellants had been availing cenvat credit in relation to the duty paid on the welding electrodes used in repairs and maintenance of the machinery all along from 2003 onwards, yet they chose to remain silent till March 2008 on which date show cause notice came to be issued. Being so, the claim prior to April 2007 was clearly barred by limitation as disclosed in Section 11AC of the said Act. In that regard, attention was sought to be drawn to para 13 of the reply filed by the appellants with reference to the show cause notice issued by the Department. Learned Jt. CDR in relation to challenge on the ground of bar of limitation submitted that the authorities below had found that the fact that he was taking cenvat credit in relation to the duty paid on the welding electrodes was suppressed from Department and it is only when it was revealed to the Department that it initiated proceedings. According to the learned Jt. CDR none of the documents submitted by the assessee disclosed specific use of the said welding electrodes and, therefore, in the absence thereof it can not be said that the Department was fully aware of the fact that the welding electrodes were not utilized as the inputs in the manufacture of the final product.
9. Before analysing the rival contentions in the matter, it is necessary to address to the controversy sought to be raised regarding the binding nature of the decision of the Honble Rajasthan High Court in Hindustan Zinc Limited, vis-`-vis the decision of the Larger Bench of the Tribunal in Jaypee Rewa Plant (supra) read with Division Bench decision in SAIL (supra) and order of the Apex Court dismissing the SLP, while bearing in mind the decision of the Apex Court in Kunhayammed case (supra).
10. The Larger Bench in Jaypee Rewa Plant case while dealing with the issue as to whether cenvat credit was admissible under Rule 57AA of the Central Excise Rules, 1944 in respect of duty paid on welding electrodes and gases oxygen and acetylene gases which were used by Jaypee Rewa Plant for repairs and maintenance of the machines, equipments, structural etc. in their factory and referring to the period from April to September 2000 after taking note and relying upon the decision of the Apex Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd., (supra) held that welding electrodes and gases used for repair and maintenance of machinery in the factory during April to September 2000 were not eligible inputs for cenvat credit under Rules 57AB and 57AC of those rules.
11. When this issue was sought to be raised again in SAIL vs. CCE (supra) in relation to oxygen and acetylene gases, welding electrodes, formatic flux, welding alloys, welding flux etc. claiming the same to be inputs used in relation to manufacture of the final product, though they were used for repairs and maintenance of the machinery, this Tribunal held that those items would not be entitled to avail modvat credit and, therefore, would not be entitled to claim benefits under the exemption Notification No. 67/95 dated 16.03.95. When the matter was carried in appeal before the Apex Court, at the stage of SLP,s the same came to be dismissed with the following order:-
Delay condoned.
On the facts of this case, matters stand dismissed.
12. With reference to the above order passed by the Apex Court, it is sought to be contended on behalf of the appellants that the same is a non-speaking order rejecting the SLP and therefore, there is no question of merger of the order passed by the Tribunal in the order of the Apex Court nor it lays down the law in terms of Article 141 of the Constitution and therefore, there is no binding precedent pursuant to the said order. It is also their contention that there is a direct judgement on the issue involved in the matter delivered by the Honble Rajasthan High Court in Hindustan Zinc Limited (supra) therefore, the judgement of the Larger Bench impliedly stands overruled and the judgement of the High Court will stand binding upon the Tribunal. In that regard reliance is placed in Kunhayammed case of the Apex Court.
13. The Apex Court in Kunhayammed case while dealing with the exercise of jurisdiction conferred upon it under Article 136 of the Constitution held as under:-
1. While hearing the petition for special leave to appeal, the Court is called upon to see whether the petitioner should be granted such leave or not. While hearing such petition, the Court is not exercising its appellate jurisdiction; it is merely exercising its discretionary jurisdiction to grant or not to grant leave to appeal. The petitioner is still outside the gate of entry though aspiring to enter the appellate arena of Supreme Court. Whether he enters or not would depend on the fate of his petition for special leave;
2. If the petition seeking grant of leave to appeal is dismissed, it is an expression of opinion by the Court that a case for invoking appellate jurisdiction of the Court was not made out.
3. If leave to appeal is granted the appellate jurisdiction of the Court stands invoked; the gate for entry in appellate arena is opened. The petitioner is in and the respondent may also be called upon to face him though in an appropriate case, in spite of having granted leave to appeal, the court may dismiss the appeal without noticing the respondent.
4. In spite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for, continues to be final, effective and binding as between the parties. Once leave to appeal has been granted, the finality of the judgement, decree or order appealed against is put in jeopardy though it continues to be binding and effective between the parties unless it is a nullity or unless the Court may pass a specific order staying or suspending the operation or execution of the judgement, decree or order under challenge.
14. The Apex Court further held that where a SLP is dismissed by non-speaking order it would mean that the Apex Court does not consider it to be a fit case for exercising its jurisdiction under Article 136 of the Constitution. However, when the SLP is allowed and appeal is entertained and thereupon the appeal is dismissed in that case, the order dismissing the appeal would result in merger of the order passed by the High Court or the Tribunal. It was also held that order dismissing a SLP, more so by a non-speaking order, it does not result in merger of the order impugned into the order of the Honble Supreme Court.
15. As regards the powers of the High Courts or the Tribunals to deal with their orders which are subjected to judicial review before the Apex Court, it was held that in case of such orders, if the SLP itself is dismissed by non-speaking order, then in that case, the provisions of Article 141 of the Constitution would not be attracted. It was specifically ruled that Whatever be the phraseology employed in the order of dismissal, if it is a non-speaking order, i.e. it does not assign reasons for dismissing the special leave petition, it would neither attract the doctrine of merger so as to stand substituted in place of the order put in issue before it nor would it be a declaration of law by the Supreme Court under Article 141 of the Constitution for there is no law which has been declared. If the order of dismissal be supported by reasons then also the doctrine of merger would not be attracted because the jurisdiction exercised was not an appellate jurisdiction but merely a discretionary jurisdiction refusing to grant leave to appeal. Having ruled so, it was also clarified by the Apex Court that Still the reasons stated by the Court would attract applicability of Article 141 of the Constitution if there is a law declared by the Supreme Court which obviously would be binding on all the courts and tribunals in India and certainly the parties thereto. It was further clarified that The statement contained in the order other than on the points of law would be binding on the parties and the court or tribunal, whose order was under challenge on the principle of judicial discipline, this Court being the Apex Court of the country. No court or tribunal or parties would have the liberty of taking or canvassing any view contrary to the one expressed by this Court. The order of Supreme Court would mean that it has declared the law and in that light the case was considered not fit for grant of leave.
(Emphasis supplied)
16. Dealing with the situation where the leave is granted but the appeal is dismissed without reasons, the Apex Court has held that in such cases it will be a dismissal of appeal and in that case the decision of the Apex Court would result in substitution for the decision under challenge and would attract the doctrine of merger.
17. At this stage it would also be necessary to refer to two more decisions of the Apex Court, one in the matter of Abbal Mallgai Partnership Firm and Anr. Vs. K. Santhakumaran reported in 1998 (7) SCC 386 which was referred to by the Apex Court in Kunhayammed case and another decision in the matter of Union of India & Others vs. Dhanwanti Devi and Others reported in (1996) 6 SCC 44.
18. In K. Santhakumaran case, it was a matter relating to eviction proceeding initiated before the Rent Controller and order passed therein was subjected to appeal and then revision before the High Court. Being aggrieved by the order the Honble High Court, SLP came to be preferred before the Honble Supreme Court, by both the parties. Both the SLPs were dismissed and thereafter the High Court entertained review petitions in respect of its order which was subjected to the challenge in SLP. The review petitions were entertained after a long delay and ultimately the orders which were originally passed by the High court were reversed. The matter was thereafter carried before the Honble Supreme Court. It was held that what was done by the learned single Judge was subversive of judicial discipline and entertaining review petition after disposal of the SLP by the Apex Court and then reversing the earlier orders was an affront to the order of the Apex Court.
19. In Dhanwanti Devi case while dealing with the law of precedent and the principle of ratio decidendi, it was held that -
It is not everything said by a Judge while giving judgement that constitutes a precedent. The only thing in a Judges decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates- (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgement based on the combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgement.
It was further held that-
The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgement in relation to the subject matter of the decision, which alone has the force of law and which alone has the force of law and which, when it is clear what it was, is binding.
It was also held that-
In order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgement can be read as if it is a statute. A word or a clause or a sentence in the judgement cannot be regarded as a full exposition of law.
20. Bearing in mind the law laid down by the Apex Court in relation to the law of precedent, principle of ratio decidendi, the binding nature of the orders passed in the proceedings relating to the SLP before the Apex Court quoted herein above, if one reads the order passed by the Apex Court in SAIL case while dismissing the SLP, it is apparent that by no stretch of imagination it can be said that it was dismissed with a non-speaking order. The order clearly reads that the Apex Court having taken into consideration the facts of the case, found it appropriate to refrain itself from interfering with the decision arrived at by the Tribunal. The decision apparently shows that the Tribunal has taken into consideration the facts of the case and also the law laid-down by the Apex Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. case and thereafter applying the said law to the facts of the case, the Tribunal had passed a reasoned order. In that background, when the Apex Court in its order recorded that taking into consideration the facts of the case, there was no case for interference and therefore it cannot be said that the Apex Court rejected the SLP by passing a non-speaking order. It is not the volume of the contents of an order that would decide as to whether the order is a speaking order or not. If the order discloses the reason which preceded the conclusion which the judicial authority has arrived at, it would be a reasoned order and, therefore, it cannot be said to be a non-speaking order. The fact that the judicial authority has given only one reason is immaterial. That cannot be a criteria to decide whether it is a speaking order or non-speaking order. For having rejected the SLP on consideration of the facts of the case it would mean that SLP was rejected by passing a speaking order. The Court subordinate to the Supreme Court are bound by such order, more particularly, bearing in mind the principle of judicial discipline. As was observed by the Apex Court that the order of the Supreme Court would mean that it has declared the law and in that light the case was considered not fit for grant of leave. The order passed by the Apex Court while dismissing the SLP in K. Santhakumaran case has to be understood bearing in mind the law laid-down in the above referred decisions and having so understood, it cannot be said that the view taken by the Tribunal in the Larger Bench in the matter of Jaypee Rewa Plant case has not been approved by the Apex Court and, therefore, the same cannot be ignored by the Tribunal, rather it is binding.
21. Coming to the decision of the Honble Rajasthan High Court decision in Hindustan Zinc Limited that was an appeal under section 35G of the said Act wherein the substantial question of law for consideration was as under-
Whether welding electrodes used for repairs and maintenance of plant and machinery are eligible for cenvat credit as capital goods as well as inputs.
Dealing with the said substantial question of law, the Honble Rajasthan High Court referred to two decisions of the Apex Court, one in the matter of Commissioner vs. Jawahar Mills Ltd., reported in 2001 (132) ELT 3 (SC) and another in the matter of J.K. Cotton Spinning and Weaving Mills Co. Ltd., vs. Sales Tax Officer reported in 1997 (91) ELT 34 (SC) (supra). With reference to the judgement of the Apex Court in Jawahar Mills Ltd. case it was observed thus-
In judgment of Honble Supreme Court in Jawahars case, it is held, that capital goods can be machines, machinery, plant equipment, apparatus, tools or appliances. Any of these goods, if used for producing, or processing of any goods, or for bringing about any change in any substance, for the manufacture of final product, would be capital goods, and would qualify for Modvat credit. Then as per clause-b the components, spare parts and accessories of the goods mentioned above, would also be capital goods, and would qualify for Modvat credit. Then moulds and dies, generating sets, and weigh etc. has also been held to be eligible for modvat credit, even if they are not used for producing the final product, or used for process of any product, for the manufacture of final product, or used for bringing about any change in any substance, for the manufacture of final product. The only requirement is, that the same should be used in the factory of the manufacturer, thus, it was held, that the language is to be interpreted very liberally. Then the contention of the Revenue, about the goods involved, being not satisfying the requirement of capital goods, was negatived on the ground, that it was not the case of the Revenue, set up all through.
22. Perusal of the decision of the Apex Court in Jawahar Mills Ltd., discloses that the issue which was sought to be raised in the said appeal was undoubtedly as to whether availing of modvat credit in respect of certain items by the manufacturers treating those items as capital goods in terms of Rule 57Q of the Central Excise Rules, 1944 was permissible or not and whether those items were capital goods or not within the meaning of the said expression under Rule 57Q. In that regard the Apex Court held thus-
4. The aforesaid definition of Capital goods is very wide. Capital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances. Any of these goods if used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final product would be Capital goods, and, therefore, qualify for availing Modvat credit. Per clause (b), the components, spare parts and accessories of the goods mentioned in clause (a) used for the purposes enumerated therein would also be Capital goods and qualify for Modvat credit entitlement. Clause (c) makes moulds and dies, generating sets and weigh bridges used in the factory of the manufacturers as capital goods and thus qualify for availing Modvat credit. The goods enumerated in clause (c) need not be used for producing the final product or used in the process of any goods for the manufacture of final product or used for bringing about any change in any substance for the manufacture of final product and the only requirement is that the same should be used in the factory of the manufacturer. Thus, it can be seen that the language used in the explanation is very liberal.
23. The Apex Court further held that it was not the case of the Revenue at any stage before the authorities that an item does not satisfy the requirement of Capital goods within the meaning of the Rule on the ground of its user as it now sought to be urged by the leaned Counsel. The case of the Revenue is that the items in question per se are not Capital goods within the meaning of capital goods as defined in Explanation 1(a).
24. The Honble Rajasthan High Court thereafter has referred to the decision of the Larger Bench in Jaypee Rewa Plant and has observed that thus-
On the other hand in JP Rewas case the eligibility of credit was denied, which was claimed as inputs. Then so far as the claim made for Modvat credit on the basis of it being capital goods, it was denied only on the ground, that in the declaration, it was no so claimed, and the assessee has not even furnished details of any capital goods for captive consumption, to enable the adjudicating authority to ascertain, whether such goods were covered by definition of capital goods. Thus, for want of evidence to show, that any part of any electrodes, and gases, was used in the manufacture of any capital goods for captive consumption, the claim was negated.
(Emphasis supplied)
25. The Honble Rajasthan High Court thereafter referred to J.K. Cottons Spg. & Wvg. Mills case and observed thus-
In our view, the judgement of Honble Supreme Court, in J.K. Cottons Spg. & Wvg. Mills Co. Ltd., vs. Sales Tax Officer, Kanpur, reported in 1997 (91) ELT 34, has a material bearing on the controversy involved in the present case. It may be noticed, that the tribunal in J.P. Rewa case has referred to this judgement of Honble Supreme Court in JK Cottons case, by reproducing a part of the head note, but then, the very significant continuing next sentence has been omitted from consideration, inasmuch as the sentence following the portion quoted by the tribunal, is as under:
They need not be ingredients or commodities used in the processes, nor must they be directly and actually needed for turning out or the creation of goods.
26. After making above quoted observations in para 9, 10 and 11 respectively the Honble Rajasthan High Court in para 12 and 13 held thus-
In that case the Honble Supreme Court even went to the extent of holding, that use of electrical equipments, like lighting, electrical humidifiers, exhaust fan etc. were also taken to be necessary equipment, to effectively carry on the manufacturing process. Thus, with the above, if the quoted part of the judgement in J.K. Cottons case is read, it becomes clear, that the expression in the manufacture of goods should normally encompass entire process carried on by the dealer, of converting raw materials into finished goods, where any particular process, or activity, is so integrally connected with the ultimate production of the goods, but for that process, manufacturing, or processing of the goods would be commercially inexpedient, goods required in that process would, fall within expression in the manufacturing of goods.
In our view the proposition propounded above sets the controversy at rest. The question, as framed, is accordingly required to be answered in favour of the assessee.
27. If one reads the judgement of the Honble Rajasthan High Court, therefore, it would be clear that the High Court has held that the substantial question of law which was sought to be raised before the matter was already answered by the decision of the Apex Court in J.K. Cottons case and, therefore, the High Court was not inclined to accept the reason given in Jaypee Rewa Plant case. Obviously the decision in Jay Pee Rewas case was distinguished by the Rajasthan High Court on the ground that the Tribunal had negated the claim for want of evidence, after relying upon the decision of the Apex Court in J.K. Cottons case. Besides, it nowhere discloses that the decision of the Apex Court in Kunhayammed was brought to the notice of the Honble Rajasthan High Court nor the fact that the order in SAILs case was subjected to filing of SLP was disclosed. It is pertinent to note that in SAILs case the order was passed on 17th July 2007 and it was reported in 2008 (222) ELT 233. In the facts and circumstances of the case, therefore, though it cannot be said that the decision of the Honble Rajasthan High Court has been overruled by the Apex Court while dismissing the SLP in SAILs case, fact remains that the Apex Court refused to interfere in the said decision for reason disclosed in the order dismissing the SLP, and hence bearing in mind the ruling of the Apex Court in Kunhayammed read with in Dhanwanti Devi case it would be binding upon the Tribunal. Having said so, we hasten to clarify that the decision of the Honble Rajasthan High Court undoubtedly would be binding on the parties to the said case. However, the said decision will have to be read alongwith the order of the Apex Court in the SLP in SAILs matter. Undoubtedly, in SAILs matter, the decision in Jaypee Rewa case has been followed. Being so, the ratio of the Jaypee Rewa will also be binding upon this Tribunal being the decision of the Larger Bench.
28. If one reads the decision of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. case, it has been clearly held therein that the expression in the manufacture of goods should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression in the manufacture of goods. This clearly disclose that the Apex Court in no uncertain term has ruled that of those goods which form part of the process carried out by the manufacturer for converting the raw material into finished goods would be the products used in the manufacture of the goods. In another words, if the product is not integrally connected with the process of the manufacture and which does not results in utilization of such product directly or indirectly into the manufacture of the finished product, then such a product cannot be said to be the input utilized for or in relation to manufacture of the final product. This is also evident from the definition of the term input as found in rule 2(k). The definition clearly uses the word used and further clarify the same with the expression in or in relation to and further uses these expressions with reference to the term manufacture of final products. The definition disclosing the expression like used, in or in relation to, the manufacture of final products would inevitably disclose, that the same refer to only those products which are used in or integrally connected with the process of actual manufacture of the final product and only such product could be entitled to be classified as the input in or in relation to the manufacture of final products, and not otherwise. When the legislature in its wisdom has specifically defined a term, no Court or Tribunal under the guise of interpretation thereof is empowered to expand the meaning of such term. If the contention on behalf of the appellants is accepted, it would virtually amount to expand the meaning of the term input beyond the scope prescribed under the definition clause in Rule 2(k) of the Cenvat Credit Rules 2004.
29. It is also pertinent to note that the legislature in its wisdom has independently defined the expression capital goods under rule 2(a) of the said rules. If the inputs were to include every product under the sun which is somehow related to the premises where the manufacturing process goes on, then there is no need to provide a definition of the term capital goods and, therefore, the acceptance of the contention on behalf of the appellants would render the definition of the term the capital goods to be redundant as well as the provisions relating to extending the benefit of cenvat credit to the capital goods.
30. The decision in Indian Farmers Fertiliser Coop. Ltd. case rather than lending any support to the contention of the appellants, justifies the view taken by the authority below. In the said decision, the Apex Court was dealing with the scope of the exemption Notification No. 187/61-CE in relation to the exemption granted to raw naphtha. In that respect and with reference to the facts of the case before the Apex Court, it was held thus-
This was on the basis that the inert gas generated in the inert gas generation plant was required for purging the pipelines and other process equipment of the ammonia plant every time it had to be started or shut and, therefore, the process of inert gas generation had to be treated as an integral part of the process of the manufacture of ammonia, which, in turn, was used for the manufacture of fertilizers.
Evidently, the use of inert gas was absolutely necessary for the process of manufacture of the fertiliser. In the absence of use of inert gas it was not possible to commence the process of manufacture of ammonia which, in turn, for use of fertilizer. It is nobodys case that the repair and maintenance were forming part of the process of manufacture of the cement. It is one thing to say that a particular thing is required to be kept intact or in a state which will enable the manufacturer to operate the machine and it is another thing to say that the process of manufacture is necessary to bring out the final product. Obviously, to keep the machine in a state of operation, the maintenance or repairs would be absolutely necessary. But, the same cannot be said to be integrally related to the process of the manufacture of final product. The process of manufacture is different from the maintenance and repairs of the machinery to keep it in a running condition.
31. In Impression Prints case the claim of the assesee was for the benefit under Notification No. 65/87-CE dated 01.03.1987. Attention was drawn to para 16 of the decision which refers to earlier decision in the matter of CCE, Jaipur vs. Rajasthan State Chemical Works, Deedwana reported in 1999 (4) SCC 473) wherein the question was whether the pumping and lifting with the aid of power constituted process in or in relation to manufacture. While dealing with the said issue, the Apex Court held that any activity or operation which is the essential requirement and is so related to the further operations for the end result would be a process in or in relation to manufacture to attract the relevant clause in the exemption notification. At the outset, it is to be noted that the observations were essentially with reference to the scope of the exemption notification. Even otherwise, the ruling was to the effect that for any activity or operation to be a process in or in relation to the manufacture, it must be so related to the whole process of manufacturing the final product and that but for such process, the manufacture of the final product would be impossible. It is nobodys case that the activity of the repair and maintenance is part of the process of the manufacture of the final product. On the contrary, the argument is that such repair and maintenance is necessary to keep the machine which manufactures the final product intact and not that the same is in any way related directly or indirectly to the process of manufacture of the final product.
32. After considering its earlier decision in CCE vs. Rajasthan State Chemical Works and taking into consideration the facts of the case in Impression Prints, the Apex Court held that-
From the above set out process it is clear that the activity of manufacturing printed bed sheets, bed covers and pillow cases starts with the screen printing and colouring. Without this activity it would not be possible to make printed bed sheets, bed covers and pillow cases. The activity of printing and colouring is much more integrally connected to the manufacture of printing bedsheets, bed covers and pillow cases than say the activity of pumping brine into salt pans for manufacture of salt or the activity of lifting raw material to the platform at the head of the kiln for manufacture of lime. Without the printing and colouring it is impossible to manufacture printed bed sheets, bed covers and pillow cases.
The Apex Court therefore has clearly held that activity of printing and colouring being integrally connected with the process of manufacture of the bed sheets, bed covers and pillow cases, it would not be possible to bring out the final product in the absence of the said activity. It was in that sense that the activity which forms absolutely necessary to bring out the final product by way of manufacture, that would form the activity which is integrally connected with the process of manufacture and, therefore, the products utilized in such activity or process would be the inputs for the final product to be manufactured.
33. In Mathania Fabrics vs. CCE, Jaipur reported in 2008 (221) ELT 481 (SC) the dispute related to whether the assessee had utilized the power for the process of manufacture or not in order to avail the benefit of the notification under which the exemption was sought to be availed. The Department had denied the benefit on the ground that there was use of power in the process of manufacture. It was sought to be contended in that case before the Apex Court that the use of power was only in certain ancillary and incidental areas such as mixing of chemicals and, therefore, the benefit could not be denied. Referring to the earlier decisions in the matter of J.K. Cotton Spinning and Weaving Mills co. Ltd., case and further referring to the factual aspect of the case it was held that factually the stand that there was no use of power was unsustainable. Apparently, as far as the power was utilized in the process of manufacture or not, so as to avail the benefit of the concern notification was decided on the basis of the facts of the particular case.
34. In Solaris Chemitech Limited case, the issue was whether the assessee was entitled to modvat credit under Rule 57A on Low Sulphur Heavy Stock and furnace oil was used for generating electricity captively consumed for manufacture of final products such as caustic soda, cement etc. It was held that the low sulphur heavy stock is used to generate electricity without which, it is not possible to manufacture cement, caustic soda etc. It was further held that without such supply, the generation of electricity was not possible and, therefore, keeping in mind the expression used in relation to the manufacture in Rule 57A, the assessee were entitled to avail modvat credit on low surphur heavy stock. Evidently, therefore, since the low surphur heavy stock was utilized in the continuous process of manufacture of the final product that it was held to be the input used for manufacture of the final product. In other words, unless the material is utilized in one way or other in the mainstream of manufacturing process or in assisting the process of manufacture of the final product, it cannot be said to have been used in relation to manufacture.
35. In Tata Engineering and Locomotives Co. Ltd. case, the challenge was to the order of the Tribunal confirming the benefit under exemption Notification No. 217/86-CE dated 02.04.2086 to the assessee. The appeal was dismissed on the ground that the Department had not offered any explanation as to why the decision of the Tribunal in Bajaj Auto in Appeal No. E/1348/98 delivered on 02.09.98 in respect of gauges manufactured and capitvely used in the factory of M/s Bajaj Auto who had availed similar benefit in relation to earlier years was not challenged and, therefore, while observing that the Department is precluded from taking an inconsistent stands, the appeal was dismissed. One fails to understand the relevancy of this decision in the matter in hand.
36. In Asahi India Safety Glass Limited case, it was held that when the glass sheet is used for the manufacturing process and merely because at a later point of time after the glass has undergone the process of manufacture, it was found defective and rejected or part of the input being found defective and rejected, that it would not be a ground in view of Rule 57A read with Rule 57D to deny the benefit claimed by the assessee. Considering the stage wise process or the manufacture of the product the Honble High Court had held that the process commences with loading of float glass sheet on the float table where cutter is used to cut the glass to size and process of manufacturing commences at that stage, and, therefore, if at a subsequent stage before the process of lamination, the defect is noted, then it cannot be said that the process of manufacturing did not commence. That was in a totally different set of facts. The Honble Delhi High Court had ruled that if a sheet is rejected or the piece of sheet is rejected, it does not mean that the sheet was never used in the manufacture of safety glass, and, therefore, the claim could not have been denied on the said ground.
37. In Singh Alloys & Steel Limited case, the Honble Calcutta High Court was dealing with a question as to whether dolopatch mix, magnesite peas and ramming mass is an input of steel ingots within the meaning of the said expression under Rule 57A of the Central Excise Rules, 1944. It was observed that those items lose their identity and are consumed in the process of manufacture though some part of the items remain in the liquid metal which form the ingot and the balance form part of the residue or slug. It was further observed that the ingots could be manufactured in the furnace without those items but there was then a possibility of the furnace being damaged and it could result in loss of productivity. At the same time, it was also noted that there was no dispute that the items in question were inputs, then the meaning of the explanation to Rule 57, but according to the Department those items came within the excluded items as they were really used to protect machinery and not for the manufacture of ingots itself. In the background of those facts while dealing with the question as to whether those items were at all inputs in respect of the steel ingots, the Honble Calcutta High Court answered the question in affirmative and while dealing with the question as to whether those items were excluded inputs, it was observed that There can be no dispute that the items are used in relation to the manufacture of steel ingots. In that respect, reference was made to the decision of the Tribunal in Mukund Steel [1990 (45) ELT 84], wherein it was held that those items were required for the manufacture of steel. Further referring to the question as to whether those items were the plant, machine, machinery, appliances etc., the same was answered in negative while holding that the contention that steel ingots could be manufactured even without those items was immaterial as the definition of inputs was not dependent upon what ought to be used but what is in fact used. Undisputedly, the Honble Calcutta High Court was referring to the process or activity of manufacture when it stressed the need of actual use of the input in the process of manufacture.
38. In Union of India vs. Hindustan Zinc Ltd., reported in 2007 (214) ELT 510 (Raj.) it was held that the goods once brought in factory for use in upkeep and maintenance of plant and machinery, which are used directly in the manufacture of excisable articles, are the capital goods, and were certainly of subordinate necessity to such plant and machinery for the running of plant and is otherwise essential for its smooth and regular operations. It is nobodys case that the product used for repairs and maintenance form capital goods and, therefore, we fail to understand the relevancy of the decision in the matter to the case in hand.
39. The decision of the Apex Court in the matter of Vikram Cement vs. CCE, Indore reported in 2005 (187) ELT 145 (SC) as well as in 2006 (194) ELT 3 (SC) and 2006 (197) ELT 145 (SC) are in relation to the mining equipment and welding electrodes used in mining activities. Being so, they can be of no relevancy to decide the issue in the matter in hand and are clearly distinguishable.
40. For the reasons stated above, we do not find the decision by the Honble Single Members in General Manager Oswal Overseas Ltd., Bilaspur Kisan Sahakari Chinni Mills Ltd., and Hindustan Zinc Limited to be laying down the correct law.
41. For the reasons stated above, therefore, we are of the considered opinion that the welding electrodes used for repair and maintenance of the machinery cannot form the inputs within the meaning of said expression under CENVAT Credit Rules, 2002 and 2004 for the purpose of claim of Cenvat Credit under the said rules as the said products are not used or utilized in the process of manufacture of the final product or in relation to the manufacture of the final product. Hence, we do not find any reason for interference in finding arrived at by the authorities below denying the cenvat credit to the appellant in relation to the duties paid on the welding electrodes stated to have been used for the repairs and maintenance of the machinery.
42. The appellants also have raised the issue of bar of limitation in the sense that in the facts and circumstances of the case, the respondent could not have invoked extended period of limitation. It is the contention on behalf of the appellants that apart from granting cenvat credit on welding electrodes as inputs under Order-in-original dated 05.01.2003 by the Commissioner (Appeals) in their own case the Department was fully aware that the appellants have been consistently taking such credit for the entire disputed period and being so, they had no justification to invoke the extended period of limitation on 01.05.2008 when the show cause notice came to be issued. On the other hand, it is the case of the Department that the records merely disclose that the cenvat credit on welding electrodes have been taken but specific use of the said welding electrodes was not disclosed from the records. It is their further case that in view of the introduction of self assessment method, it was the duty of the appellants to take of precautions before taking cenvat credit to avail the same only on admissible inputs and, therefore, there is a case of suppression of the required information and hence the Department rightly invoked the extended period of limitation.
43. Perusal of the records disclose that in an answer to the show cause notice, the appellants had specifically raised the point of limitation. It was clearly submitted in the reply to the show cause notice as under:-
13. That further, demand, so far as it relates to the period prior to April 2007 is concerned, is hopelessly barred by limitation, as the demand relates beyond the period of 1 years from the show cause notice dated 1.5.2008. It is submitted that the demand prior to the above period has been proposed to be recovered in the show cause notice by roping in the proviso to the Section 11A of the Act. The proviso of the said Section has been proposed to be invoked on the basis of charges of willful suppression with an intent to evade payment of duty and contravention of the provisions of Act and rules made hereunder. In this connection it is submitted that credit on welding electrodes as inputs was allowed to us in our own decision rendered by the Honble Commissioner (Appeals) vide his order-in-appeal No. 12-13/CE/IND/APPL-II/2003 dated 5.1.2003. A copy of the said order is enclosed herewith marked as Annexure-2. Further the credit in respect of above item has further been allowed to us in our own decision rendered by the Honble Apex Court itself. Thus the presence of all the above decisions in our favour alongwith the legal position lead us to a bonafide belief that the credit on welding electrodes was available to us and we are not contravening any provision of law by taking and utilizing the aforesaid credit. Further the taking of such credit was disclosed in returns filed by us with the department. Further the taking of such disputed period our records were audited by the AGMP and various Departmental Audits and no objection was raised on this point. We were never questioned about the taking of such credit except the present proceedings initiated by the department. Thus it cannot be said that we have suppressed the information of taking of such credit with an intent to evade payment of duty. It is submitted that charge of suppression can be made out only when there is corresponding duty to disclose. In the present case there was no obligation on our part to divulge out information which as per our belief was already known to the department. It is submitted that mens rea is an essential element for imposition of penalty under Section 11AC of the Act.
44. While dealing with the issue of limitation the adjudicating authority in its order held that the appellants had undoubtedly disclosed the cenvat credit having been availed on welding electrodes but its specific use was not disclosed. It was also observed that the appellants were required to disclose those facts particularly in view of introduction of self assessment system. The order passed by the Commissioner (Appeals) merely reiterated the finding by the adjudicating authority in that regard.
45. Apparently, therefore, inspite of the fact that the assessee-appellants had raised a specific point regarding bar of limitation, the impugned orders nowhere considered this aspect in the manner it was required to be considered. Once the assessee raises the point that the extended period of limitation is not warranted in the facts and circumstances of the case, it is necessary and it is expected from the adjudicating authority to analyse the facts on record which will either disclose the suppression of the relevant facts by the assessee to the knowledge to the department about the alleged activities of the assessee which could reveal to the Department that the assessee had been acting in such a manner that it was resulting in evasion of duty. As also refer to those facts which could reveal that the Department had no occasion to know that the assessee was wrongly availing the cenvat credit in relation to a particular product which could not have been an input for the manufacture of the final product. Mere observation that the assessee had not disclosed the specific use of the welding electrodes inspite of the fact that the assessee was availing cenvat credit is neither here nor there and by the said finding itself one cannot arrive at the conclusion as to whether the Department was aware of the alleged suppression or not. It is necessary to ascertain whether the documents which were filed from time to time or from the correspondence between the assessee and the department or in the course of inspection or audit whether the facts could have been revealed to the department. Neither the order of the adjudicating authority nor the order of the Commissioner (Appeals) discloses any such exercise having been done by either of the authorities before rejecting the contention of the assessee about bar of limitation. In the circumstances, therefore, though we confirm the finding about the denial of the cenvat credit on welding electrodes which was sought to be claimed by the assessee, we find that the case related to the bar of limitation needs to be gone into after taking into consideration all the materials on record.
46. In the circumstances the appeal partly succeeds, as far as the objection raised relating to the bar of limitation is concerned.
47. In the result, while confirming the finding regarding non entitlement of cenvat credit on the welding electrodes used in the repairs and maintenance of the machinery, we remand the matter to consider the issue relating to bar of limitation after hearing the parties. The issue is to be decided by the original authority after taking into consideration the materials on record. We make it clear that we have not expressed any opinion on the said issue of bar of limitation.
48. As far as penalty aspect is concerned, the same will have to be considered alongwith the issue of bar of limitation.
49. The appeal is accordingly disposed of in the above terms.
(Justice R.M.S. Khandeparkar) President (M. Veeraiyan) Member (Technical) /Pant/