Custom, Excise & Service Tax Tribunal
Cc&Ce, Visakhapatnam vs M/S. Andhra Pradesh Paper Mills Ltd on 28 December, 2012
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench - SMB
Court I
Date of Hearing:28/12/2012
Date of decision:28/12/2012
Appeal No.E/2535/2010
(Arising out of Order-in-Appeal No.02/2010(V-II)CE dt. 24/03/2010 passed by CCE,ST&C(Appeals), Visakhapatnam)
For approval and signature:
Honble Mr. P.G. Chacko, Member(Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
CC&CE, Visakhapatnam
..Appellant(s)
Vs.
M/s. Andhra Pradesh Paper Mills Ltd.
..Respondent(s)
Appearance Mr. Ganesh Haavanur, Addl. Commissioner(AR) for the appellant.
Mr. C. Saravanan, Advocate for the respondent.
Coram:
Honble Mr. P.G. Chacko, Member(Judicial) FINAL ORDER No._______________________ This appeal filed by the Department is against an order passed by the Commissioner(Appeals) holding certain structural items to be inputs as defined under Rule 2(k) of the CENVAT Credit Rules, 2004 (CCR, for short) and setting aside the order passed by the original authority against the assessee.
2. The period of dispute in this case is April 2007 to March 2009. The respondent was engaged in the manufacture of paper and paper board during this period. They used various structural items viz. plates, beams, angles, channels, joists etc. for fabricating structural support to machinery during the said period and took CENVAT credit on such structural items deeming such items to be capital goods falling under Rule 2(a) of the CCR. The original authority, in adjudication of a show-cause notice, ordered for recovery of the CENVAT credit so-taken, demanded interest thereon, imposed a fine of Rs.1 lakh in lieu of confiscation of the so-called capital goods and imposed a penalty of Rs.10,000/- on the party. Aggrieved by the order of the adjudicating authority, the party preferred an appeal to the Commissioner(Appeals) and the latter allowed that appeal by holding the structural items to be inputs falling under Rule 2(k) of the CCR and accordingly holding the party to be eligible for CENVAT credit. The present appeal of the Department is directed against the appellate Commissioners decision.
3. On a perusal of the records, I find that it is not in dispute that the structural items in question were classifiable under Chapter 72 or 73 of the Ist Schedule to the Central Excise Tariff Act and hence not capital goods falling under clause (i) of the definition of capital goods given under Rule 2(a) of the CCR. It is also not in dispute that the structural items were used for fabricating supporting structures which were, in turn, used for installation of certain capital goods in the factory. The respondent claimed that the structural items so-used for the fabrication of supporting structures were covered by clause (iii) of the definition of capital goods under Rule 2(a) ibid. On this basis, the structural items were claimed to be capital goods for the purpose of CENVAT credit. This claim of the party was rejected by the original authority. The appellate authority was called upon to examine whether the structural items could be considered as capital goods in terms of clause (iii) of Rule 2(a). It did examine this issue but, interestingly, concluded that the structural items were inputs falling under Rule 2(k) of the CCR.
4. From the submissions of both sides, it appears that the question to be considered is whether the structural items could be considered as capital goods in terms of clause (iii) of Rule 2(a). The Rule, shorn of irrelevant portions, reads as follows:-
RULE 2. Definitions - In these rules, unless the context otherwise requires, -
(a) capital goods means :-
(A) the following goods, namely :-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act;
(ii) ..
(iii) Components, spares and accessories of the goods specified at (i) and (ii);
(iv) ..
(v) ...
(vi)...
(vii) .
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)
5. Relying on the Tribunals Larger Bench decision in Vandana Global Ltd. Vs. CCE, Raipur [2010(253) ELT 440 (Tri. LB)] and the Honble Supreme Courts judgment in Saraswati Sugar Mills Vs. CCE, Delhi-III [2011(270) ELT 465 (SC)], the learned Additional Commissioner(AR) has argued that, as the supporting structures for the fabrication of which the structural items were used cannot be considered to be components/spares/accessories of any machinery, they cannot be held to be capital goods as defined under Rule 2(a) of the CCR. He has also referred to Explanation 2 to the definition of input under Rule 2(k) and has submitted that, even if it is assumed that the supporting structures fabricated from the structural items are capital goods, such structural items cannot qualify to be inputs inasmuch as such items used for building structural support have been expressly excluded from the meaning of input. According to the Additional Commissioner(AR), this exclusion introduced in 2009 has retrospective effect as the Explanation itself is clarificatory in nature. In any case, the conclusion reached by the learned Commissioner(Appeals) is not supported by necessary findings.
6. Per contra, the learned counsel for the respondent would argue that the issue in this case is squarely covered in their favour by Final Order No.616/2011 dt. 23/09/2011 passed by this Bench in appeal No.E/433/2009 (Commissioner Vs. A.P.P. Mills Ltd.). In the cited case, similar structural items were held to be capital goods in view of the Honble Supreme Courts judgment in CCE, Jaipur Vs. Rajasthan Spinning & Weaving Mills Ltd. [2010(255) ELT 481 (SC)]. According to the learned counsel, the apex courts ruling in Rajasthan Spinning & Weaving Mills case is fit to be followed in the instant case. The learned counsel has also endeavoured to distinguish the case of Saraswati Sugar Mills (supra) by submitting that the issue considered by the apex court in the said case was different. In answer to a query from the Bench, the learned counsel, however, concedes that the respondent has never claimed the structural items to be inputs.
7. I have given careful consideration to the submissions. At the outset, I agree with the learned Additional Commissioner(AR) when he points out that the conclusion arrived at by the Commissioner(Appeals) is not supported by any finding. The appellate authority held that the structural items in question were inputs as defined under Rule 2(k) of the CCR. It did so after a fairly elaborate discussion on whether the structural items could be considered as capital goods falling under Rule 2(a). Indeed, numerous decisions, wherein similar structural items were held to be capital goods, were also referred to by the appellate authority. Thus, there is a clear mismatch between the elaborate discussion and the one-line conclusion in the impugned order.
8. This apart, the question debated before me is whether the structural materials such as plates, beams, angles, channels etc. which were admittedly used for fabricating supporting structures which were, in turn, used for installing machinery (capital goods) in the factory could be considered as capital goods for the purpose of CENVAT credit. It is not in dispute that these structural materials, falling under Chapter 72/73 of the CETA Schedule, are, per se, not capital goods covered by clause (i) of the definition of capital goods under Rule 2(a). The subtle question to be considered is whether these structural items can be considered as capital goods in terms of clause (iii) of the said definition. If the structural items can be held to be components, spares or accessories of any of the goods specified in clause (i), they would fall under clause (iii) to be considered as capital goods for the purpose of CENVAT credit. Therefore the question is whether the structural items can be held to be components/spares/accessories of the machinery (capital goods) for installation of which supporting structures were fabricated from these structural materials. But such supporting structures were held to be not capital goods in the case of Vandana Global Ltd. (supra), wherein it was held that the supporting structures were neither machinery items nor components, spares or accessories of the machinery items. Para 43 of the Larger Bench decision reads thus:-
43. Since the foundation and the supporting structures cannot be considered as capital goods, nor as parts or accessories of capital goods, nor the same have been specifically listed in the definition of capital goods (as tubes and pipes and storage tank etc. have been specifically listed), the question of treating cement and steel items as inputs for capital goods cannot arise. Hence Explanation 2 to Rule 2(k) cannot be held to cover cement and steel items used for laying foundation and for building structural support even during the period prior to the 2009 amendment.
9. In the case of Saraswati Sugar Mills (supra), the substantive issue considered by the apex court is whether the assessee could claim the benefit of Notification No.67/95-CE dt. 16/03/1995 in respect of structural items such as steel sheets, angles, nuts and bolts etc. which were claimed to be capital goods as defined under Rule 57Q of the Central Excise Rules, 1944. Capital goods as defined under Rule 57Q manufactured in a factory and used within the factory of production of excisable goods were exempt from payment of duty as per the above Notification. Therefore, it became necessary for the apex court to determine whether the supporting structures fabricated from the above structural materials and used for installation of machinery in the factory could be considered to be capital goods as defined under Rule 57Q. Their lordships held as under:-
19. It appears to us, in the light of the meaning of the expression component parts that the iron and steel structures are not essential requirements in the sugar manufacturing unit. Anything required to make the goods a finished item can be described as component parts. Iron and steel structures would not go into the composition of vacuum pans, crystallizers etc. If an article is an element in the composition of another article made out of it, such an article may be described as a component of another article. Thus, structures in question do not satisfy description of components. Therefore, in our opinion, the Tribunal was right in the view it took.
10. From the above judgment, it is easy to decipher the apex courts ruling which is to the effect that a structural support to any capital goods cannot be considered to be a component of such capital goods. This decision of the apex court in Saraswati Sugar Mills (supra) supports the view taken by the Tribunals Larger Bench in Vandana Global case.
11. It is true that, in an earlier similar case of the same assessee, this Bench followed Rajasthan Spinning & Weaving Mills (supra) and held in favour of the assessee on a similar issue vide Final Order No.616/2011 ibid. The apex courts decision dt. 02/08/2011 in Saraswati Sugar Mills case was not brought to the notice of this Bench when the said Final Order was passed on 23/09/2011. Today, the case of the appellant is fully supported by the apex courts ruling in Saraswati Sugar Mills (supra). I am not impressed with the submission of the learned counsel that the said decision of the apex court cannot be followed in the instant case inasmuch as the apex court was dealing with an issue pertaining to exemption notification. The issue before the apex court was whether the structural items used by the assessee for fabricating supporting structures for machinery could be held to be capital goods as defined in Rule 57Q so as to attract the exemption. The fundamental question examined by the apex court was, therefore, whether the structural items could be considered as capital goods as defined in Rule 57Q. The fundamental question raised in the instant case is whether the structural items used by the respondent for fabricating supporting structures for machinery can be considered as capital goods as defined under Rule 2(a) of the CCR. There is an eminent parity between the two issues and, therefore, Saraswati Sugar Mills (supra) is squarely applicable to the present case.
12. In the result, the impugned order is set aside and this appeal is allowed. The order of the original authority stands restored.
( Pronounced and dictated in open court ) ( P.G. CHACKO ) MEMBER (JUDICIAL) Nr 10