Custom, Excise & Service Tax Tribunal
The Commissioner Of Central Excise & ... vs (I) M/S. Hemadri Cement Ltd. (Hcl) on 2 March, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, BANGALORE SOUTH ZONAL BENCH COURT - I Appeal No: E/1791 & 1792/2010 (Arising out of Order-in-Appeal No: 30 & 31/2010 (G) CE dated 7.5.2010 passed by the Commissioner of Central Excise Customs (Appeals), Guntur.) 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 The Commissioner of Central Excise & Customs Guntur. Appellant Versus (i) M/s. Hemadri Cement Ltd. (HCL) (ii) Shri B. Ravindranath, Stores Office and Authoried Signatory of M/s. HCL Respondent
Appearance Shri Ravi Chander, Superintendent (AR) for the Revenue.
Shri Prasanna Krishnan.V, Advocate for the appellant.
CORAM SHRI P. G. CHACKO, HONBLE MEMBER (JUDICIAL) Date of Hearing: 02.03.2012 Date of decision: 02.03.2012 FINAL ORDER Nos._______________________2012 These appeals of the department are directed against grant of CENVAT credit amounting to Rs.4,65,296/- to the respondent for the period from July 2006 to January 2009 in respect of MS plates, angles, channels, HR plates, coils, etc. which were found to have been used (a) for fabrication of capital goods viz., Fly Ash Silo, Fine Coal Hopper, Coal Mill Hot Air Duct and Raw Mill Low Grade Hopper, (b) for repairs and maintenance (reconditioning) of plant and machinery and (c) for fabricating structural support to capital goods. The appellant is also against the decision of the lower appellate authority to vacate the penalties imposed on the assessee by the original authority. In adjudication of the show-cause notice dt.13.8.2009, which had invoked the extended period of limitation on the alleged ground of suppression of facts by the assessee, the original authority denied CENVAT credit to the aforesaid extent to the assessee and appropriated equal amount already reversed by them towards such demand. Equal amount of penalty was also imposed on the assessee. A separate penalty of Rs.10,000/- was imposed on the authorized signatory of the company. The company and its authorized signatory preferred an appeal to the Commissioner (Appeals) and the latter passed the impugned order setting aside the demand of duty and vacating all the penalties.
2. On a perusal of the records and hearing both sides, I note that it is not in dispute that the plates, sheets, angles, coils, etc. were used to the quantitative extent and in the matter stated below.
(a) 25.810 MTs used for fabricating capital goods viz., Fly Ash Silo, Fine Coal Hopper, etc.; credit availed Rs.1,17,383/-.
(b) 72.069 MTs used for reconditioning of plant and machinery; credit availed Rs.3,23,165/-.
(c) 6.089 MTs used for fabricating supporting structures which in turn were used for erection of capital goods; credit availed Rs.24,748/-.
3. Considering the comparative stakes both sides have chosen to address first the question of admissibility of CENVAT credit on the structural items which were found to have been used for repairs and maintenance (reconditioning) of plant and machinery. The respondent has consistently claimed these structural items to be inputs falling under Rule 2(k) of the CENVAT Credit Rules, 2004. According to the appellant, CENVAT credit is not admissible in respect of goods used for repairs and maintenance in view of the Tribunals Larger Bench decision in the case of Jaypee Rewa Cement vs. Commissioner : 2003 (159) ELT 553 (Tri.-LB). Learned Superintendent (AR) has reiterated this view of the appellant. Per contra, the learned Chartered Accountant has referred to the Tribunals decision in Alfred Herbert Ltd. vs. Commissioner: 2009 (245) E.L.T. 407 (Tri.-Bang.) upheld by the High Court in Commissioner vs. Alfred Herbert (India) Ltd.: 2010 (257) E.L.T. 29 (Kar.). In the cited case, certain materials were used for replacement of worn out parts of machinery and such materials so used in the process of maintenance of the machinery were held to be inputs under Rule 2(k).
4. With regard to the structural items used for fabricating capital goods, the appellant submits that the plant and machinery fabricated at site were not excisable goods and hence would not be covered under the definition of capital goods and the materials used in its fabrication could not be inputs eligible for CENVAT credit. In this connection, the appellant relies on the Supreme Courts judgment in CCE, Indore vs. Virdi Brothers: 2007 (207) ELT 321 (SC). Learned Superintendent (AR) has also made submissions to the same effect.
5. On the contrary, the submission of the Chartered Accountant is that the respondent is entitled to the benefit of the Second Explanation to the definition of input under Rule 2(k) of the CCR, 2004, which (as it stood during the period of dispute) reads thus: input used in the manufacture of capital goods which are further used in the factory of the manufacturer. The date 7.7.2009 is significant, according to the learned Chartered Accountant, because an exclusion clause was added to the Second Explanation so has to restrict the scope of the explanation. By virtue of this exclusion clause which was added from 7.7.2009, construction materials such as cement, angles, channels, etc. stood excluded from the ambit of input defined under Rule 2(k). The argument is that such exclusion meant preexisting inclusion. The learned consultant means to say that, prior to 7.7.2009, the said construction materials were also within the ambit of that definition of input.
6. As regards the structural items used in the fabrication of supporting structures, the learned Superintendent (AR) has relied on the Tribunals decision in Nava Bharat Ferro Alloys Ltd. vs. Commissioner: 2004 (174) E.L.T. 375 (Tri.-Bang.). Further, he has also relied on two judgments of the Honble Supreme Court viz., Madras Cements Ltd. vs. CCE: 2010 (254) E.L.T. 3 (SC) and Saraswati Sugar Mills vs. CCE: 2011-TIOL-73-SC-CX. On this basis, it is submitted that the structural support fabricated by the appellant for the erection of capital goods cannot be called as capital goods and therefore, the materials viz. plates, angles, channels, etc. used in the fabrication would not qualify to be inputs.
7. I have given careful consideration to the submissions. On the first issue debated before me, which pertains to 72 MTs of plates, flats, channels, etc. which were used for reconditioning of plant and machinery, the respondent appears to have a formidable case based on the Second Explanation to the definition of input under Rule 2(k). The learned consultant has endeavoured to invoke the main part of the definition itself, wherein the phrase used in or in relation to the manufacture of final products were directly or indirectly contained in final product or not exists. I have not found substance in the arguments based on the main part of the definition inasmuch as that part of the definition deals with relation between input and manufacture of excisable goods, which are cleared out of the factory. There must be clear distinction between capital goods, inputs and final products. The term final products cannot be interchangeable used with capital goods as has been done by the learned consultant. Nevertheless, the Second Explanation to the definition appears to work in favour of the respondent. This Explanation (at the risk of repetition) reads thus: input includes goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Obviously, the further use is for the manufacture of final products. In the instant case, it is not in dispute that some of the structural items were used for replacement of worn out parts of the machinery. In other words, the structural items became parts of the machinery replacing worn out parts. Where the Second Explanation confers inputs status on goods used in the manufacture of capital goods which are further used in the factory, cannot be disputed that such status can be extended to goods used in the replacement of parts of capital goods, which process, in the present case, has been described as repairs and maintenance (reconditioning). Apparently, a view to this effect was taken by this Tribunal in the case of Alfred Herbert (supra) and the same was upheld by the jurisdictional High Court. Therefore the respondent is eligible for input duty credit on the structural materials used for reconditioning of existing capital goods.
8. On the second issue (whether the structural materials used in fabrication of the capital goods which were in turn used for the manufacture of cement (final product) in the factory), the respondents case is squarely supported by the Second Explanation to the definition of input. Therefore the issue is held in favour of the respondent.
9. On the third issue (whether the structural materials used to fabricate structural support for erecting capital goods can be considered to be inputs for the purpose of CENVAT credit), I have found no merit in the submissions made on behalf of the respondent. On this issue, the appellant has a valid point inasmuch as, in the case of Saraswati Sugar Mills (supra), the Honble Supreme Court refused to recognize a structural support as capital goods under Rule 57Q of the erstwhile Central Excise Rules, 1944. If the structural support by itself cannot be capital goods, the structural materials like MS plates, angles used in the fabrication cannot qualify to be inputs under Rule 2(k) read with the Second Explanation thereto. The term capital goods figuring in the Second Explanation should be understood with reference to the definition of capital goods given under Rule 2(a). As held by the apex court in the case of Saraswati Sugar Mills (supra), the structural support cannot be held to be any part/component/ accessory of any capital goods and if that be so, the structural support remains outside the ambit of the definition of capital goods, with the result that angles, sheets, plates, etc. in this case cannot be held to have been used as inputs in the manufacture of capital goods. This is the only possible view which stems from the Honble Supreme Courts judgment in Saraswati Sugar Mills case and consequently the respondent cannot claim input duty credit claim on those materials used in the fabrication of structural support. To this extent, the present appeal of the department succeeds. Needless to say that the question whether the respondents are liable to be penalized on the ground of irregular availment of CENVAT credit on sheets, plates, angles, etc. used in fabricating structural support to capital goods gets reviewed and the same needs to be revisited by the original authority.
10. Learned consultant raised the plea of limitation also before me. Apparently, this plea was not raised before the lower appellate authority and hence cannot be considered at this stage.
11. The first appeal is allowed in respect of structural materials used in the fabrication of structural support to machinery and dismissed in respect of materials used differently. The question whether the respondents would attract penalty is remanded to the original authority for fresh decision having regard to the findings on merits recorded hereinbefore. On this limited question, the respondents shall be given a reasonable opportunity of being heard.
(Pronounced and dictated in open Court) (P. G. CHACKO) Member (J) rv ??
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