Custom, Excise & Service Tax Tribunal
M/S Hyderabad Industries Ltd vs Cce, Guntur on 19 May, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench SMB Court I Appeal No. E/1805/2011, E/1596/2012 (Arising out of Order-in-Appeal No. 06/2011 (G) CE dt. 31.03.2011 & 04/2012 (G) CE dt. 06.03.2012 passed by CCE & ST (Appeals), Guntur) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member (Judicial) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s Hyderabad Industries Ltd., ..Appellant(s) Vs. CCE, Guntur ..Respondent(s)
Appearance Sh V.J. Sankaram, Advocate for the Appellant.
Sh R. Manohar, Additional Commissioner (AR) for the Respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member (Judicial) Date of Hearing: 25.04.2016 Date of Decision: FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.] The issue involved in the above appeals being the same, they were heard together and are disposed by this common order.
2. The appellants are engaged in manufacture of asbetos cement product like corrugated sheets and moulded goods. They are availing CENVAT credit facility on inputs and capital goods. During the scrutiny of ER-1 returns it was found that appellants availed CENVAT credit of duty paid on MS Plates, MS Chequered Plates, MS Angles, MS Channels under the category of capital goods during the period November, 2008 to June, 2009 (Appeal No. E/1805/2011) for an amount of Rs. 46,51,208/-. The Appeal No. E/1596/2012 pertains to credit availed during the period April, 2010 for an amount of Rs. 1,64,119/-.
3. It is the case of department that appellant availed irregular credit on MS Plates, MS Chequered Plates, MS Angles, MS Channels, MS Tor Steel Round etc., which were used by appellant in construction of new plant. The credit availed for period November, 2008 to June, 2009 is of Rs. 46,51,208/-. The appellant availed credit of Rs. 22,43,545/- being the first 50% of CENVAT credit of capital good received during the period from November, 2008 to March, 2009. The balance 50% of CENVAT credit of Rs. 22,43,545/- was availed during the month April 2009. The appellant also availed 50% of Credit on subject items as capital goods to the extent of Rs. 1,64,119/- received during the period April, 2009 to June, 2009 in the month of April, 2010. The appellant was asked to furnish details of capital goods on which credit was availed. The appellant vide letters dated 10.6.2009 and 16.09.2009 submitted the details. The appellant submitted that credit was taken on capital goods that are used in the plant and machinery for their new line of production (i.e. expansion of production capacity). It was noted that appellant had used the subject items (MS Plates, Angles etc.,) for fabricating /assembling /erection of following:
1. Plant shed
2. Machinery equipment
3. Generator Shed
4. Fibre/Cement Storage shed
5. Fibre preparation/Handling
6. Cement handling equipment
7. Fly ash handling equipment
8. Pulp handling equipment
9. Mixing & slurry preparation Cone tanks and water Recirula
10. Main machine & vaccums area
11. Sheet handling equipment
12. Heating system & Accessories
13. Waste handling equipment
14. Captive power- chimney
15. EOT crane handling equipment
4. The appellant was issued separate show cause notices (dated 19.11.2009 and 02.05.2011) raising the allegation of irregular availment of credit on subject items. After due process of law, the original authority observed that appellant is not eligible for credit as the subject items are used for construction of building. The original authority confirmed the demands along with interest and imposed penalties. Being aggrieved, the appellant filed appeals before the Commissioner (Appeals) and vide order impugned herein, the Commissioner (Appeals) upheld the order passed by original authority. The appellant is thus before the Tribunal.
5. I have heard both sides.
6. The learned counsel Sh. V.J. Shankaram explained the purposes for which the MS Angles, MS Beams, MS Channels, Rebar etc., were used. The plant was undergoing expansion and subject items were used mainly for machineries. Some quantity of subject items were used for construction of sheds. He argued that the MS items were used for machineries and equipments and the use was such that these goods became components, parts and accessories. Chapter 84 of Central Excise Tariff Act, 1985 classifies machines. The Boards Circular No.276/110/96-TRU dated 02.12.1996 is a clarification issued with regard to availment of credit on components, spares and accessories. It is clarified in the Circular that all parts, components, accessories which are to be used with capital goods of clauses (a) to (c) of Explanation 1 of Rule 57Q and classifiable under any chapter heading are eligible for availment of Modvat credit. That this circular is not withdrawn and is still in force.
7. The relevant portion of the Circular is reproduced as below:
The matter has been examined w.e.f. 23.07.1996, capital goods eligible for credit under Rule 57Q have been specified either by their classification or by their description. Clauses (a) to (c) of Explanation (1) of the said rule cover capital goods by their classification, whereas clause (d) covers goods by their description viz: components, spares and accessories of the said capital goods. It may be noted that there is a separate entry for components, spares and accessories and no reference has been made about their classification. As such, scope of this entry is not restricted only to the components, spares and accessories falling under Chapter 82, 84, 85 or 90 but covers all components, spares and accessories of the specified goods irrespective of their classification. The same was the position prior to amendment in Rule 57Q (i.e. prior to 23.07.1996) when credit was available on components, spares and accessories of the specified capital goods irrespective of their classification.
8. Clauses (a) to (c) of the explanation (1) annexed to Rule 57Q of the erstwhile Rules covered specified capital goods falling under chapters 82, 84, 85 and 90 and clause (d) covered components, spares and accessories of said capital goods. The clarification was issued because it had been brought to notice of Board that clause (d) of Explanation (1) was being interpreted by some of the field officers covering only such components, spares and accessories which would fall under Chapters shown in clause (a) to (c) and credit was being allowed only on those components, spares and accessories which are covered under the said chapters.
9. The Revenue contested this contention of appellant that credit is not admissible on the MS Angles, MS Channels, MS Beams etc. Credit would be admissible to such goods falling under the category of components, parts and accessories of capital goods. That parts, spares and components referred in the definition of capital goods as per the Circular No. 276/110/96 dated 02.12.1996 need not fall under chapter 82, 84, 85 and 90. That credit has been rightly denied observing that subject items do not come within chapter 82, 84, 85 and 90 or under parts, components or accessories and are therefore not capital goods.
10. It then becomes necessary to analyse whether the subject goods will fall under parts, components and accessories. In various judgments it has been settled that an object or device not essential in itself, but adding to beauty, convenience or effectiveness of something else is an accessory. In CCE, Salem Vs Chemplast Sanmar Ltd., [2014 (310) ELT 870 (Mad)], the Honble High Court of Madras held that credit is admissible on Iron & Steel products falling under chapter 73 which are used as structural support to plant and machinery. That by applying the user test, these items become component of machineries and credit could not be denied on the ground that these items were not covered under definition of capital goods, under erstwhile Rule 57Q of Central Excise Rules, 1944.
11. The original authority has arrived at the conclusion that the impugned items are used in construction work, to make wall erections, foundations, sheds, support structures etc. It is observed that said structures cannot be considered as capital goods, and that these structures came into existence as a result of assembly/erection of steel plates, angles, bars etc. That assembled goods are used as support structures and sheds and therefore credit is not admissible.
12. It is seen mentioned in the show cause notice that appellant used the impugned items for the purpose of Plant shed, Machinery equipments, Generator shed, Fibre/cement storage shed, Fibre preparation/handling equipment, Cement handling equipments, Fly ash handling equipment, pulp handling equipment, Mixing & slurry preparation cone Tanks & Water recirula, Main machine and Vaccums area, sheet handling equipment, Heating system & Accessories, wet waste handling equipment, captive power-chimney, EOT crane handling equipment. Per se, it can be seen that the conclusion of the authorities below that the impugned items were used for civil construction works is incorrect. They were used in regard to machineries and equipments also. The credit has been disallowed for the reason that MS items were used for civil construction work and for the reason that they are neither by themselves capital goods, nor are they components, parts, accessories of capital goods.
13. The Honble Apex Court, in the case of CCE Coimbatore Vs Jawahar Mills Ltd., [2001 (132) ELT 3 (S.C)] evolved the user test and held credit is admissible on capital goods, if they satisfy the test. The court referred to the erstwhile definition of capital goods (explanation to Rule 57Q), and observed that the definition of capital goods is very wide. At this juncture, the Board Circular No. 276/110/96 TRU dated 02.12.1996 becomes relevant. Further, as per definition of capital goods contained in Rule 2 (a), those goods falling under the clause A (i) to A (viii) when used in the factory of the manufacturer of the final product would come within the definition of capital goods. The activities carried out by machines/equipments listed by the appellant being essential part for completing manufacture of final product, in my view, the MS items used for erection/fabrication of such machines/equipments would also fall into the category of components/spares/accessories of capital goods.
14. The authorities below have placed reliance on the judgment of Larger Bench of Tribunal in the case of Vandana Global Ltd., case [2010 (253) ELT 440 (LB)] to hold that support structures for a machinery cannot be considered to be part or accessory of the machinery and that credit is not admissible. The Honble High Court in the case of India Cements Ltd., Vs CESTAT, Chennai [2015 (321) ELT 209 (Mad)] following the ratio laid in Commissioner Vs Rajasthan Spinning & Weaving Mills Ltd., [2010 (255) ELT 481 (S.C.)] held that credit is admissible on MS items used for erection of capital goods when without such structural, the machinery could not be erected or put to use.
15. In Mundra ports and SEZ Ltd., Vs CCE reported in [2015-TIOL-1288-HC-Ahm-ST] the Honble High Court opined that the amendment to Rule 2 (k) of CENVAT Credit Rules is prospective only. The Honble Court did not concur to the view taken by Tribunal in the case of Vandana Global Ltd., (supra). Again, the Tribunal in the case of CCE & Cus, Vishakapatnam Vs M/s APP Mills Ltd., [2011-TIOL-01378 CESTAT, Banglore] held that the decision in Vandana Global Ltd., (supra) was rendered much before the Honble Apex Courts decision in Rajasthan Spinning & Weaving Mills Ltd., case (supra) and therefore the decision made in Vandana Global Ltd., case is no longer good law. The said judgment in Vandana Global has been appealed before the Honble Chattisgarh High Court. It is to be mentioned that the Honble Court in the case of UOI Vs Associated Cement Company Ltd., [2011 (267) ELT 55 (Chattisgarh)] relied on the judgments in Jawahar Mills Ltd., case and Rajasthan Spinning & Weaving Mills Ltd., case to hold that credit availed on Ms items as capital goods and used for connecting/fitting fans, casing, ducting in kilns etc., is admissible.
16. From the above discussions, I am of the opinion that the reliance made by authorities below on the case of Vandana Global Ltd., to disallow the credit on MS items used for machines/equipment is misplaced. Accordingly, I hold that credit availed on MS items used for machinery and equipments is to be allowed. The impugned items used for plant shed, generator shed, fibre/cement storage shed, is not admissible. The credit availed for the purpose of shed is disallowed. The records do not separately show the quantification of credit availed on MS items used for sheds. I therefore direct the Range Superintendant to quantify the credit availed on MS items used for shed. The issue being an interpretational issue and as the matter was referred to Larger Bench of Tribunal during the material time, I do not consider it fit to impose penalty for the credit availed on MS items used for shed.
17. From the above, the impugned orders are set aside to the extent of demand of credit availed on MS items used for machinery and equipments. The demand of credit availed on MS items used for shed is sustained along with interest. The penalties imposed are set aside. The appeals are partly allowed in above terms.
(Pronounced in open court on.) (SULEKHA BEEVI C.S.) MEMBER (JUDICIAL) Jaya.
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