Custom, Excise & Service Tax Tribunal
Hindustan Zinc Ltd vs Commissioner, Central Excise & ... on 13 May, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH, COURT NO. 1
Excise Appeal No. 51503 of 2022
[Arising out of Order-in-Appeal No. UDZ-EXCUS-000-COM-011-023/2021-22 dated
31.01.2022 passed by The Commissioner, Central Excise and Service Tax,
Commissionerate, Udaipur (Rajasthan)].
M/s. Hindustan Zinc Ltd. ...Appellant
Zinc Smelter, Debari,
District - Udaipur (Raj.)
VERSUS
The Commissioner, Central Excise & ...Respondent
CGST, Commissionerate, 142-B, Hiran Magri, Sec-11, Udaipur (Raj.) With E/51490/2022 E/51491/2022 E/51494/2022 E/51495/2022 E/51497/2022 E/51501/2022 E/51502/2022 E/51504/2022 E/51505/2022 E/51506/2022 E/51507/2022 E/51554/2022 APPEARANCE:
Shri B.L. Narasimhan and Ms. Mehak Mehra, Advocates for the appellant. Shri Rakesh Agarwal, Authorized Representative for the Department CORAM:
HON‟BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON‟BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing: 03.01.2025 Date of Decision: 13.05.2025 FINAL ORDER No‟s. 50649-50661/2025 JUSTICE DILIP GUPTA:
The order dated 31.01.2022 passed by the Commissioner CGST and Central Excise, Commissionerate, Udaipur1 that adjudicates thirteen show cause notices has been assailed in all these thirteen appeals filed by M/s. Hindustan Zinc Ltd. Zinc Smelter, Debari,2.
1. the Commissioner
2. the appellant 2 E/51503/2022 & 12 others
2. Excise Appeal Numbers, dates of issuance of show cause notices, the periods involved, the amount of CENVAT credit disallowed and ordered to be recovered, and the penalties imposed by the order dated 31.01.2022 are as follows:
Appeal Nos. Date of Show Period Cenvat Credit Penalties Cause Notice disallowed in imposed in Rs. Rs.
E/51490/2022 18.05.2007 01.05.2006 - 31.01.2007 4,74,10,186 47,41,019 E/51491/2022 04.01.2006 01.02.2004 - 30.11.2004 7,10,21,959 71,02,196 E/51494/2022 23.07.2004 16.07.2003 - 31.01.2004 4,33,49,691 43,34,969 E/51495/2022 14.09.2011 01.12.2010 - 30.06.2011 2,68,532 26,853 E/51497/2022 05.06.2012 01.07.2011 - 31.03.2012 3,576 358 E/51501/2022 21.09.2006 01.09.2005 - 30.04.2006 3,15,65,215 31,56,521 E/51502/2022 21.01.2009 01.12.2007 - 30.09.2008 3,78,48,616 37,84,862 E/51503/2022 05.12.2003 01.11.2002 - 15.07.2003 4,23,00,687 4,23,00,687 E/51504/2022 20.02.2008 01.02.2007 - 30.11.2007 7,55,07,425 75,50,743 E/51505/2022 18.01.2011 01.01.2010 - 31.11.2010 3,61,730 36,173 E/51506/2022 23.09.2009 01.10.2008 - 30.06.2009 5,09,14,680 50,91,468 E/51507/2022 05.04.2010 01.07.2009 - 31.12.2009 1,21,15,099 12,11,510 E/51554/2022 04.10.2006 01.12.2004 - 31.08.2005 6,63,94,181 66,39,418 41,10,94,874 8,59,76,777
3. The appellant is engaged, inter alia, in the manufacture of zinc ingots and lead falling under Chapters 78 and 79 respectively of the First Schedule to the Central Excise Tariff Act, 19853. It availed CENVAT credit on various inputs, capital goods, and input services under the provisions of the CENVAT Credit Rules 2002/CENVAT Credit Rules 20044.
4. The following three issues arise for consideration in the appeals:
(i) Whether the order directing for reversal of CENVAT credit availed by the appellant of duties paid on capital goods and inputs transferred by the appellant to its Captive Power Plant 5 Unit, located within the factory
3. the Tariff Act
4. the Credit Rules
5. the Captive Power Plant 3 E/51503/2022 & 12 others premises and created by the appellant as a separate Unit in the Books of Account for compliance of statutory requirements under Section 80IA of the Income Tax Act, 1961, for the reason that it would amount to removal of inputs/capital goods in terms of rule 3(4)/rule 3(5) of the Credit Rules is justified?
(ii) Whether denial of CENVAT credit of duties paid on components/parts of the Captive Power Plant installed by a third-party contractor, i.e., Wartsila Finland Oy 6, within the factory premises of the appellant for generation of electricity used in manufacture of excisable dutiable final goods during the period from November 2002 to July 2003 is justified? and
(iii) Whether CENVAT credit of duties paid on „structures of Iron and Steel‟ used in erection and installation of „Chimney‟ in the manufacture of dutiable final products would qualify as „accessories‟ eligible for credit as capital goods under rule 2(a)(A) of the Credit Rules during the period from April 2002 to April 2003?
5. Excise Appeal No. 51503 of 2022 relates to the period from 01.11.2002 to 15.07.2003 and involves all the aforesaid three issues. The remaining twelve appeals relate to the first issue only.
6. During the relevant period, the appellant purchased a Captive Power Plant consisting of four DG sets of 29.62 MW from the Contractor for generation of electricity. The Power Plant was to be installed within the factory premises for captive use in manufacture of dutiable final goods. For this purpose, the appellant entered into four separate
6. the Contractor 4 E/51503/2022 & 12 others agreements, all dated 14.8.2002, with the Contractor for procurement of imported/indigenous components, erection, commissioning, manufacturing, and regular operation/maintenance of the said plant. According to the appellant, the complete functional Captive Power Plant was handed over to the appellant on 25.3.2003. However, the appellant availed CENVAT credit of duties paid on the components/equipments used in the manufacture of the power plant as and when they arrived in the factory from November 2002 onwards.
7. During the scrutiny of records, it was observed by the department that the appellant had incorrectly availed CENVAT credit of duties paid on parts/components of the Captive Power Plant used by the Contractor for installation and commissioning of the said Captive Power Plant. It was believed that it was the Contractor who would be eligible to take credit as the real manufacturer and not the appellant in terms of rule 3 (1) of the Credit Rules. It was also believed that appellant had availed CENVAT credit of duties paid on steel items namely, angles, frames, floor plate and hardware falling under Chapter 73 of the Tariff Act, which items were used as supporting structure of Chimney and would not fall in the specified category of capital goods under rule 2(a)(A) of the Credit Rules. It was also believed that appellant would have to reverse CENVAT credit availed of duties paid on the capital goods and inputs which were transferred from the factory of the appellant to the Captive Power Plant that had been created as a separate Unit for generation of electricity in the Books of Accounts for compliance of section 80 IA of Income Tax Act, 1961, and hence, would amount to removal in terms of rule 3(4)/rule 3(5) of the Credit Rules. Accordingly, 5 E/51503/2022 & 12 others thirteen periodical show cause notices were issued to the appellant proposing to deny CENVAT credit and recover the same.
8. The appellant filed replies to the show cause notices and contended that CENVAT credit was correctly availed of duties paid on capital goods/inputs used in the installation of the Captive Power Plant in the factory premises in terms of the Credit Rules. The appellant also denied all the other allegations that were made in the show cause notices.
9. What transpires from the records is that the matters were transferred to the call book for the reason that though the Tribunal in regard to a similar matter in M/s. Aditya Cement Ltd. vs. CCE, Jaipur 7 had decided in favour of Aditya Cement by order dated 06.03.2002 and the reference application filed by the department before the Rajasthan High Court was rejected by a judgment dated 27.03.2018 and the order dated 06.03.2002 of the Tribunal was upheld, but this judgment of the Rajasthan High Court was assailed by the department before the Supreme Court. Ultimately, when Civil Appeal No. 5256 of 2009 filed by the department was dismissed by the Supreme Court on 06.02.2019 for the reason that the department did not intend to pursue the Civil Appeal because of low monetary limit that the thirteen show cause notices were taken up for adjudication.
10. The relevant portions of the order dated 31.01.2022 passed by the Commissioner are reproduced below:
"34.2 The assessee received these components, purchased by the supplier as per their norms and requirement in their factory and avail Cenvat Credit of duty paid on them and then has transferred the same goods to power plant unit/ supplier. The
7. Excise Appeal No. 227 of 2001 decided on 06.03.2002 6 E/51503/2022 & 12 others supplier i.e. M/s. Wartsila then, out of these components, have manufactured the complete Power Plant (including manufacturing, erection, commissioning and installation etc.) and sold this completed Power Plant to the assessee on 25.03.2003. The documents in respect of components supplied by the supplier were so prepared so as to enable the assessee to avail Cenvat credit on the same i.e. M/s. Wartsila were shown as 'buyers' and the assessee as 'consignee' as required under Cenvat Credit Rules. But it is on record that, the components in question were purchased by the supplier and used by the supplier for manufacturing of complete power plant.
34.3 Further it is also on record and not denied by the assessee, that the assessee had availed Cenvat credit on some "Structural items of Iron and Steel"
namely columns, platforms, hardware, angles, frames, beam etc. by treating them as Capital Goods while these goods were classifiable under Chapter Heading Nos. 7308.90 and 7326.90 of the Central Excise Tariff Act, 1985 and had, been used for construction of building and civil structure for supporting the 'Chimney'. However credit taken on these items has been included in the amount of credit taken on the components as detailed above.
34.4 It is further observed that, they have created the Power Plant as a separate "business entity" in the name of "Hindustan Zinc Ltd.-CPP". They are maintaining separate books of accounts for this unit, which included account ledger, journal vouchers for debit/credit of accounts and the Balance Sheet in order to claim exemption from Income Tax under Section 801A of the Income Tax Act, 1961. The assessee was availing cenvat credit on the components/accessories and fuel and then had sold/transferred the same to "M/s. Hindustan Zinc Ltd.-CPP" which is a separate unit of their Company and for this they were debiting cost of such items to the CPP account.
The CPP is manufacturing and selling the electricity to the assessee at the rate which was charged by the govt. (M/s. AVVNL) and it approx.@ Rs. 4.04 per unit. 7
E/51503/2022 & 12 others While, the actual cost of generation of electricity incurred in the CPP was approx Rs. 2.90 per unit at the relevant period. The cost of this electricity received by the assessee was also credited to the Power Plant account. xxxxxxxxxx 36.1 I find that, the facts of the case emerged from the case record as detailed above in para 34 are unambiguous and clear and also the same has not been disputed by the assessee. The contention of the assessee that, Cenvat credit on DG set has been denied in the show cause notice is not correct. As reflected from the case records, Cenvat credit in respect of components and inputs of the power plant which was manufactured by the supplier using the components and parts also supplied by the supplier has been questioned by the revenue and not in respect of the DG Sets.
I find that as detailed above, the assessee has placed order for complete power plant to M/s Wartsila the supplier. As per agreements, supplier was required to procure all the parts/components/accessories etc. either through imports or from indigenous suppliers. The supplier was also required to manufacture, erection, commissioning and installation of the power plant. They were required to hand over complete functioning power plant to the assessee and further had also entered into an agreement for regular operation and maintenance of the power plant. Sh. R.K. Pokharna, Sr. Manager materials and authorized signatory of the assessee in his statement dated 16.07.2003 has admitted that they have purchased the said Power Plant from M/s. Wartsila who have manufactured the complete Power Plant at the site in their factory. He also stated that as per clause 1.5 of the "Agreement for sale of plant and equipment" dated 14.08.2002, the supplier had to design, engineer, manufacture and supply the DG sets. As per "Agreement for sale of indigenous plant and equipment" dated 14.08.2002, the supplier had to design, engineer, manufacture, supply, inspect, test and transport to the site in their factory, the accessories and auxiliaries of the DG Sets. As per Agreement the supplier was also responsible for "erection and commissioning of power plant. He further stated that M/s. Wartsila have supplied 8 E/51503/2022 & 12 others the imported components, indigenous components of the Power Plant, transported the same to their site and have manufactured and supplied the Power Plant on 25.03.2003.
36.2 From the above facts, it is clear that the supplier was the actual manufacturer of the power plant, who purchases the components etc., brought them to the site, and manufactured the power plant and then hand over to the assessee on 25.03.2003. As such the assessee was not the manufacturer of the power plant in the case.
xxxxxxxxxxxxx 36.3 The agreements were entered between the assessee and the supplier was for the supply of complete and operational Power Plant and not parts / components thereof. As per record and as admitted by the Sr. Manager materials and authorized signatory of the unit in his statement dated 16.07.2003, that the complete Power Plant was handed over to the assessee after erection / installation by M/s Wartsila Ltd on 25.03.2003. Contracts all dated 14.08.2002 were made with M/s Wartsila Ltd. for supply of components, erection & commissioning and operation of power plant at the site in the factory of the assessee. As such the payment was also made for complete D.G. set by the assessee thought the agreement was splitted for the convenience. In the instant case the components were not consumed by the assessee in the manufacture of their excisable final product. Said components were not the parts and components of any capital goods used by the assessee in manufacture of their final product. Assessee placed purchase order for Power Plant and not for the components and had taken over complete and operational DG Sets from M/s. Wartsila as per admitted facts of the case. Said components could be inputs for the supplier but they were also unable to take credit of these goods as they did not discharged any duty on such assembled and commissioned Power Plant.
36.4 I find that it has also been alleged in the notice that, the assessee had even availed Cenvat credit on "Structurals of Iron and Steel" namely columns, 9 E/51503/2022 & 12 others platforms, hardware, angles, frames, beam members, floor plate etc. by treating them as Capital Goods. These goods were covered under Chapter Heading Nos. 7308.90 and 7326.90 of the Central Excise Tariff Act, 1985 and used for construction of building and civil structure for supporting the 'Chimney' and not used in the manufacture of Chimney. In this regard, I observe that as per definition of the capital goods under Rule 2(b) of the Cenvat Credit Rules, 2002 as detailed above, goods covered under specified chapters were eligible for availing Cenvat credit including components, spares and accessories of these goods. Since the assessee has used the above goods in question for manufacturing of building and civil structure for support capital goods and not in manufacturing the capital goods, cannot be considered as eligible capital goods for availing Cenvat credit.
xxxxxxxxx As such the credit in respect of structural steel items used in manufacturing of building and support structure are not available to them. Otherwise also the same is found not eligible as discussed above. xxxxxxxx. 36.5 As such I find that, the demand was rightly issued for recovery of credit of Rs. 82,20,337/- (in/r/o SCN dated 05.12.2003) taken on the parts/components of power plant as capital goods, since the aforesaid parts/components were not received by the assessee for further use in assembly/erection of final product by them and they were not found to be the manufacturer of power plant. Further, as no duty was paid on power plant by the supplier, no credit was available to the assessee. Therefore, the assessee appeared to have wrongly availed credit directly on parts/ Components of power plant for which they were not entitled at all. The said components were also particular and specified components of power plant supplied by M/s. Wartsila and not purchased by the assessee from the market on their own choice."
(emphasis supplied) 10 E/51503/2022 & 12 others
11. The operative part of the said order dated 31.01.2022 adjudicating the show cause notice dated 05.12.2003 and the remaining twelve show cause notices is as follows:
"(a) In respect of show cause notice dated 05.12.2003 mentioned at Sr. No. 1 of the table given in Para 1 above:
(i) I disallow the credit of Rs. 4,23,00,687/-(Rs.
82,20,332/- in respect of Capital Goods, which also includes Cenvat credit of Rs. 11,26,005/- pertaining to ineligible Capital Goods+ Rs. 3,40,80,355/- in respect of inputs) under Rule 12 of the Cenvat Credit Rules, 2002 read with proviso to Section 11A of the Central Excise Act 1944 and order it to be recovered from M/s. Hindustan Zinc Ltd., Zinc Smelter, Debari, Udaipur along with interest under Rule 12 of the Cenvat Credit Rules, 2002 read with Section 11AB of the Central Excise Act 1944.
(ii) I impose a penalty of Rs. 4,23,00,687/- under Rule 13(2) of the Cenvat Credit Rules, 2002 read with Section 11AC of the Central Excise Act 1944. However, the benefit of reduced penalty of 25%, of the amount of credit disallowed to them as per the provisions of Section 11AC of the Act ibid is available to the assessee subject to the condition that the disallowed credit and the interest payable thereon is paid by them within a period of thirty days from the date of communication of this order and the amount of penalty so determined has also been paid within the period of thirty days from the date of communication of this order.
(iii) I do not impose penalty under Rule 25 of the Central Excise Rules, 2002, as discussed above.
(b) In respect of Show Cause Notices mentioned at Sr. No. 2 to 13 of the table given in Para 1 above:
(i) I disallow the amount of credit as mentioned in column 5 of the table given in Para 1 above under Rule 12 of the Cenvat Credit Rules, 2002/Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act 1944 and order it to be recovered from M/s Hindustan Zinc Ltd., Zinc Smelter, Debari, Udaipur along with interest under Rule 12 of the Cenvat 11 E/51503/2022 & 12 others Credit Rules, 2002/Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB/ 11AA of the Central Excise Act 1944.
(ii) I impose a penalty equal to 10% of the credit held disallowed as above in each case, under Rule 13(1) of the Cenvat Credit Rules, 2002/Rule 15(1) of the Cenvat Credit Rules, 2004.
(iii) I impose a penalty equal to 10% of the credit held disallowed as above in each case, under Rule 25 of the Central Excise Rules, 2002.
(iv) The above order is passed in terms of provisions of Section 174 read with Section 142(8)(a) of the Central Service and Goods Act, 2017."
(emphasis supplied)
12. The impugned order mainly holds:
A. Period involved from 01.11.2002 to 15.07.2003
(i) The appellant is not the „manufacturer of final goods‟ under rule 3(1) of the Credit Rules. It is the manufacturer who alone is entitled to take credit of specified duties of excise paid on any inputs or capital goods in terms of rule 2(g) and 2(b) of the Credit Rules. Thus, the Contractor, as the real manufacturer of the Captive Power Plant, was entitled to take credit.
(ii) The appellant is not entitled to take credit on steels items, namely columns, platforms, hardware, angles and floor plate used as supporting structures of „Chimney‟ as they do not fall within the specified category of capital goods under rule 2(a)(A) of the Credit Rules.
B. Common allegation for the relevant period i.e., from 01.11.2002 to 31.3.2012
(i) The appellant is liable to reverse CENVAT credit of duties paid on capital goods and inputs transferred to the Captive Power Plant created as a separate Unit as separate Books of Account have been maintained vis-a-vis profits earned on account of generation of electricity in statutory compliance to 12 E/51503/2022 & 12 others section 80IA of Income Tax Act. Such transfer of inputs/capital goods would amount to removal in terms of rule 3(4)/rule 3(5) of the Credit Rules.
13. Shri B.L. Narasimhan, learned counsel for the appellant assisted by Ms. Mehak Mehra made the following submissions:
(i) The dispute regarding availment of CENVAT credit on capital goods used as parts/components in the installation of the Captive Power Plant by the Contractor in the factory of the appellant premises is admissible. In support of this contention learned counsel placed reliance on the following decisions:
(a) M/s. Hindustan Zinc Ltd. vs.
Commissioner, Central Goods and
Service Tax Commissionerate, Udaipur8;
(b) The Commissioner, Central Excise & CGST, Udaipur vs. M/s. Rajasthan Spinning & Weaving Mills (RSWM) Ltd.9;
(c) Gujarat Ambuja Cements Ltd. vs.
10
Commissioner of C. Ex., Chandigarh ;
(d) Commissioner of Central Excise,
Mumbai-III vs. N.R.C. Ltd.11;
(e) Commissioner of Central Excise l,
Chandigarh vs. Ambuja Cement Ltd.12;
(ii) Ownership of goods is irrelevant to decide admissibility
of CENVAT credit. In support of this contention learned counsel placed reliance upon the following decisions:
(a) CCE, Ludhiana vs. Pepsi Foods Ltd.13;
(b) Indian Oil Corporation Ltd. vs. Commr. of C. Ex. & S.T., Panshkula14;
(iii) Iron and Steel used in fabrication/structural support for installation and operation of Chimney falls within the
8. Excise Appeal No. 51598 of 2022 decided on 08.02.2024
9. Excise Appeal No. 50890 of 2020 decided on 11.04.2023
10. 2001 (130) E.L.T. 129 (Tri.- Del.)
11. 2001 (135) E.L.T. 1012 (Tri.- Mumbai)
12. 2022 (65) G.S.T.L. 3 (S.C.)
13. 2010 (254) E.L.T. 284 (P & H)
14. 2021 (46) G.S.T.L. 61 (Tri.- Chan.) 13 E/51503/2022 & 12 others ambit of „capital goods‟ and thus, eligible for credit. In support of this contention learned counsel placed reliance upon the following decisions:
(a) M/s. Hindustan Zinc Limited vs. Commissioner, Central Goods & Service Tax15;
(b) M/s. Hindustan Zinc Ltd. vs. C.C. Jaipur16;
(c) M/s. Vikram Pvt. Ltd. vs. C.C.E. & ST- BBSR-ll (Vice-Versa)17;
(d) Singhal Enterprises Pvt. Ltd. vs. Commr.
of Cus. & C. Ex., Raipur18;
(e) M/s. India Cements Ltd. vs. The Custom, Excise and Service Tax & The Commissioner of Central Excise19;
(iv) Maintenance of separate Books of Account for Captive Power Plant though located within the factory premises of the appellant is for statutory compliance of the provisions of section 80IA of the Income Tax Act for claiming exemption/deduction in respect of profits from generation of electricity. It cannot be treated as two different business entities/units. Both the appellant and the Captive Power Plant together constitute as one factory, in view of exclusive use of electricity by the appellant. Hence, the appellant is entitled to avail credit on capital goods as well as inputs used in the Captive Power Plant generation of electricity, which is ultimately used by the appellant in production of excisable final goods. In support of this contention learned counsel placed reliance upon the following decisions:
15. 2020 (4) TMI 415 - CESTAT New Delhi
16. 2017 (8) TMI 148 - CESTAT New Delhi
17. 2018 (11) TMI 727 - CESTAT Kolkata
18. 2016 (341) E.L.T. 372 (Tri.- Del.)
19. 2015 (321) E.L.T. 209 (Mad.) 14 E/51503/2022 & 12 others
(a) Dhampur Sugar Mills Ltd. vs. Commissioner of C. Ex., Meerut20;
(b) Century Denim vs. Commissioner of Central Excise, Indore21;
(c) Reliance Industries Ltd. vs. Commissioner of C. Ex., Raigad22;
(d) Sangam Spinners vs. Commissioner of C. Ex., Jaipur23
(v) Order-in-Original No. 08-09/2023-CGST-B(Dem.-CE) passed by the Commissioner on 30.10.2023 dropping the proceedings initiated by the show cause notices dated 02.04.2008 and 16.04.2008 covers the controversy;
(vi) The provisions of rule 3(4)/rule 3(5) of the Credit Rules are not invokable as there is no actual or physical removal of goods from factory of the appellant to the Captive Power Plant located within the same premises;
(vii) The extended period of limitation is not invokable in Excise Appeal No. 51554 of 2022; and
(viii) Penalty is not imposable and interest is not recoverable.
14. Shri Rakesh Agarwal, learned authorized representative appearing for the department, however, supported the impugned order and made the following submissions:
(i) The order dated 08.02.2024 passed by the Tribunal in the 37 appeals in Hindustan Zinc has been challenged before the Rajasthan High Court and substantial questions law have been framed after admitting the
20. 2001 (129) E.L.T. 73 (Tri.- Del.)
21. 2014 (301) E.L.T. 358 (Tri.- Del.)
22. 2007 (215) E.L.T. 413 (Tri.- Mumbai)
23. 2007 (208) E.L.T. 386 (Tri.- Del.) 15 E/51503/2022 & 12 others appeal. Thus, the adjudication of these appeals should be kept in abeyance;
(ii) The Captive Power Plant had not came into existence for being bought and sold, and thus had the character of "goods" to qualify as part and components of capital goods. Part and components would become capital goods only when they are procured for capital goods in existence and not when they are used for manufacture of capital goods by other manufacturers;
(iii) The goods were inputs for manufacture of Captive Power Plant. However, no credit was availed as inputs and, therefore, no consideration can be given to such goods in the nature of inputs for allowing credit;
(iv) The cases relied upon by the learned counsel for the appellant are distinguishable;
(v) The distinction between „inputs‟ and „capital goods‟ is based on their application. If goods are subjected and used in the manufacture of other goods, it will be inputs. If goods are used in the process of manufacture, it will be capital goods. The parts/components were not part/component for the manufacture of Captive Power Plants, which is not the final product of the appellant;
(vi) Having known that credit on inputs or input services, used in manufacture of immovable goods will not be available, the appellant has drawn a process in such way that they could avail CENVAT credit in the guise of capital goods, which were actually inputs;
(vii) Since the parts and components were used in the manufacture of Captive Power Plant, credit cannot be 16 E/51503/2022 & 12 others allowed even if parts and components are considered as capital goods; and
(viii) The contractor was under an obligation to supply/hand over the complete power plant. After taking over the power plant, risk of loss or damage to the Unit has passed on to the assessee and the assessee has taken over the care, custody and control of the power plant form the contractor. As such the contractor was a separate entity, it cannot be considered as working on behalf of the assessee.
15. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
16. The issue as to whether the appellant could avail credit of duties paid on parts, components used in the Captive Power Plant has been settled in the own case of the appellant in Hindustan Zinc in the decision rendered on 08.02.2024 in Excise Appeal No. 51598 of 2022. The relevant portion of the order of the Division Bench is reproduced below:
"11. We have heard the Authorised Representative and the learned Counsel for the appellant. At the outset we note that identical issue of the appellant has been decided by the Principal Bench of this Tribunal vide its Final Order no. 50856/2022 dated 10.07.2023, wherein the appeal filed by the Revenue was dismissed and the benefit of Cenvat credit on TGT plant was allowed to the assessee.
12. We further note that the appellant had availed credit on goods mentioned in the invoices provided by the contractor to the appellant. The goods on which such credit was taken are components, spares and/or accessories of goods classifiable under chapter 84, 85 17 E/51503/2022 & 12 others or 90 of the First Schedule to the Central Excise Tariff Act, 1985. It is not disputed that the component/parts of captive power plant (hereinafter referred to as CPP/KPTA plant) were received in the factory premises of the appellant under duty paid invoices which was in the name of the appellant. Admittedly, the CPP/KPTA plant was manufactured out of such parts/spares/ components and such plant was used in the manufacture of the dutiable final product. There is no dispute that machineries/components received at the factory of the appellant on which the credit has been availed are indeed capital goods in terms of Rule 2(a) of the CENVAT Credit Rules, 2004 as is evident from the fact that the credit arrangement has been restricted in the impugned show cause notice to 50% in each year. We note that the Tribunal in several earlier decisions has held that the prerequisite for availment of CENVAT credit in respect of capital goods in the factory of manufacturer is its receipt in the factory and use in the manufacture of dutiable final product."
17. In coming to the aforesaid conclusion, the Division Bench placed reliance upon the decision of the Tribunal in Gujarat Ambuja Cements, which decision was upheld by the Himachal Pradesh High Court.
18. The Tribunal in Gujarat Ambuja Cements, observed as follows:
"7. We have carefully considered the rival submissions. We see force in the plea regarding applicability of Rule 57-T (7) to the present case. This Rule states that „the Assistant Commissioner may, on sufficient cause being shown to him, allow the manufacturer to take credit of the specified duties on capital goods paid by a contractor or job-worker who undertakes the job of initial setting up, renovation, modernisation or expansion of the plant on behalf of the manufacturer of final products, subject to such procedure and conditions as may be specified by the Commissioner or the Central Board of Excise and Customs‟. The DG sets in question are power plants. WDIL was engaged for initial setting up of 18 E/51503/2022 & 12 others this captive power plant in the factory of GACL. Parts, components and accessories of DG sets are capital goods in terms of the definition given in Rule 57-Q (covered by Sl. No. 5 of the Table to the Rule). Even if the DG sets which have been manufactured out of these parts and components and accessories, have not discharged duty liability, there is no bar to availment of Modvat credit duty paid on such parts, components, accessories. A comparison of the provisions of Rules 57-D(2) and 57-R(2) will clarify the above position.
Rule 57-D(2) states that credit of specified duty shall be denied in case inputs are used in the manufacture of capital goods which are not chargeable to excise duty; however, there is no such stipulation in Rule 57-R(2). There was also no need for such stipulation since Sl. No. 5 of the Table appended to Rule 57-Q(1) covers components, parts and accessories themselves as capital goods. The Commissioner‟s finding in para 23 of the impugned order that it is only complete DG sets which are capital goods within the meaning of Rule 57-T(7) is not correct since credit of duty, if paid on DG sets, would have been availed of by the appellants herein under the provisions of Rule 57-Q itself, as DG sets were undoubtedly used in the factory of the appellants who are the manufacturers of final products - the place where the DG sets were assembled is the factory premises of the appellants cannot be treated as the factory of WDIL - and resort to the provisions of Rule 57-T(7) need not be made by the appellants for availing credit on complete DG sets. In the above view of the matter, we hold that the finding of the Commissioner in para 23 of the impugned order that the benefit of Modvat credit under Rule 57- T(7) is not admissible, is not correct."
(emphasis supplied)
19. The appeal filed by the department before the Himachal Pradesh High Court to assail the order of the Tribunal in Gujarat Ambuja Cements was dismissed. The decision is Commissioner of Central 19 E/51503/2022 & 12 others Excise vs. Gujarat Ambuja Cements24. The relevant portion of the judgment of Himachal Pradesh High Court is reproduced below:
"3. The facts necessary for decision of the case are that the respondent Company manufactures cement within the State of Himachal Pradesh. It has set up its factory for the manufacturing of cement at Darlaghat within the State of Himachal Pradesh. The respondent while setting up the factory also got installed a DGPP through another Company M/s. Wartsila Diesel India Ltd. (WDIL). WDIL further contracted out some of the works of the plant, especially the erection of the cooling tower to M/s. Paharpur Cooling Towers Pvt. Ltd. It is not disputed that the DGPP is used for running the factory of the respondent when there is power cut in the area in question.
4. On behalf of the Revenue the main ground taken is that since the DGPP is not exigible to excise the question of giving Modvat credit for the same does not arise. It has also been urged that the DGPP is not used for the manufacture of the final product.
5. Both the arguments raised are without any merit. There can be no dispute that excise has been paid on some of the components of the DGPP. Since the DGPP is exempt from payment of excise no Modvat credit can be claimed by the manufacture of the DGPP, in the present case WDIL. However, there is no dispute that this DGPP is part and parcel of the factory of the respondent. It is definitely a capital good and therefore Rule 57Q is applicable. Rule 57Q enables a party to claim credit of duty paid on capital goods by the manufacturer of specified goods. Under Sr. No. 5 to the table of the said Rule, a manufacture is entitled to claim Modvat Credit on account of the excise paid on the components, spares and accessories of the goods exempt. A DGPP is a capital good. If duty is paid on the components used in its manufacture, we see no reason why the manufacturer cannot claim Modvat credit for such duty.
24. 2010 (256) E.L.T. 356 (H.P.) 20 E/51503/2022 & 12 others
6. It would also be pertinent to mention that on the basis of the order passed by the CEGAT in the present case, manufacturers in other parts of the Country claim Modvat credit of the excise paid on the components of the DGPP. These matters were decided by different Bench of the CEGAT in favour of the manufacturers following the decision rendered by the CEGAT in the present case. The Revenue filed a reference petition against one such order in the High Court of Rajasthan in Jodhpur being other Tax Reference Civil Appeal No. 18 of 2003 (Union of India v. Aditya Cement and another) which reference was rejected by a Division Bench of said High Court on 27-3-2008. Another case was decided by another Bench of the CEGAT in the case of M/s. Century Rayon Ltd. The Revenue challenged this order in Central Excise Application No. 12 of 2002 which has also been rejected by the Bombay High Court on 7th October, 2008. It is thus clear that two other Courts have decided this issue in favour of the manufacturers.
7. For the reasons given above which finds support from the judgments of the High Courts of Bombay and Rajasthan, we find no merit in the petition which is dismissed. The questions of law are decided against the Revenue and in favour of the Manufacturers. No order as to costs."
(emphasis supplied)
20. It is not possible to accept the contention advanced by the learned authorized representative appearing for the department that the hearing of these appeals should be adjourned since the decision of the Tribunal in Hindustan Zinc has been challenged by the department before the Rajasthan High Court. Even otherwise, the Tribunal in Hindustan Zinc has placed reliance upon an earlier decision of the Tribunal in Gujarat Ambuja Cements, which decision of the Tribunal has been upheld by the Himachal Pradesh High Court.
21
E/51503/2022 & 12 others
21. It needs to be noted that before the Commissioner the appellant had placed reliance upon a decision of the Tribunal in Aditya Cement in which the Tribunal followed the decision of the Tribunal in Gujarat Ambuja Cements and observed as follows:
"5. It remains undisputed that the components of the D.G. Sets received by the appellants were covered by the definition of „capital goods‟ in terms at rule 57-Q of the Rules. The documents through which these components were received by them, were drawn in their favour and duty in respect thereof was paid by them. The issue as to whether they could claim modvat credit in respect of those components already stands covered in their facour by the decision of the Tribunal in the case of Gujarat Ambuja Cement vs. CCE reported in 2009(93) ECR-226. The facts of that case were identical to the present case. In that case also, purchase order for the D.G. Sets were placed by Gujarat Ambuja Cement company on M/s. Wartsil Diesel India Ltd. and the components were received by them through the invoices issued in their manes and they paid duty. The Tribunal in that case observed that M/s. Gujarat Ambuja Cement were entitled to claim the modvat credit of the duty paid on the components. That judgment was again followed by the Tribunal in NRC Ltd. and Century Rayon - 2001 (46) E.L.T. 609. The learned SUR has not been able to cite any contrary judgment of the Tribunal, or of any other High Court.
6. Therefore, keeping in view the ratio of law, laid down in the above referred cases, the impugned order of the Commissioner denying the modvat credit is the appellants cannot be sustained and is set aside. The appeal of the appellant accordingly stands allowed with consequential relief, if any, permissible under the law."
(emphasis supplied) 22 E/51503/2022 & 12 others
22. The Rajasthan High Court, in the appeal filed by the department to assail the decision of the Tribunal in Aditya Cement, observed as follows:
"The Revenue submits the question of law being, as to whether Tribunal is correct in allowing modvat credit on parts/components of D.G. Set to assessee, who is not a manufacturer of the D.G. Set as it was commissioned/ erected by another person, who in fact received and used the parts/components of D.G. Set. The other question being, whether the assessee are entitled for credit on parts/components of D.G. Set when they have received a complete D.G. Set from supplier on which on excise duty was discharged by the supplier, do arise out of the impugned order of the learned Tribunal.
xxxxxxxxxxx The learned Tribunal in appeal found that it remains undisputed, that the components of the D.G. Set received by the assessee were covered by the definition of capital goods in terms of Rule 57Q, and the documents through which the components were received, were drawn in their favour, and duty in respect thereof was paid by them. Then it was held, that the issue as to whether they could claim modvat credit in respect of the components, already stands covered in their favour, by decision of the Tribunal in the case of Gujarat Ambuja Cement vs. CCE reported in 2009(93) ECR-226, in which case also, the order was placed or D.G. Set by the assessee on the same M/s. WDIL, and components were received by them through invoices issued in their name, and they paid duty. In that case, the Tribunal observed, that the assessee is entitled to claim the modvat credit of the duty paid on the components. It was also considered, that this judgment was followed in the case of NRC Ltd. and Century Rayon reported in 2001 (46) RLT 609, and it was also found, that the departmental representative has not been able to cite 23 E/51503/2022 & 12 others any contrary judgment of the Tribunal, or any other High Court.
While arguing the appeal, we also did put specific question to the learned counsel for the appellant, as to whether these judgments in cases of Gujarat Ambuja Cement, NRC Ltd. and Century Rayon had been set aside, or not, and as to whether there is any other judgment of any other High Court, or even Tribunal, taking any contrary view but the learned counsel for the appellant could not point out either.
In our view, when the learned Tribunal has followed the consistent practice, as laid down in the various judgments, and there is no contrary judgment, shown, it cannot be said that any substantial questions of law arise, as claimed."
(emphasis supplied)
23. It was also contented by the appellant before the Commissioner in the present matter that the decision of the Tribunal in Aditya Cement should be followed since the appeal filed by the department before Rajasthan High Court to assail the decision of the Tribunal in Aditya Cement had been dismissed, but what prevailed upon the Commissioner not to follow the decision of the High Court or the Tribunal is the fact that the appeal filed by the department before the Supreme Court to assail the decision of the High Court was withdrawn by the department because of monetary limits and would, therefore, have no precedent value. The said portion of the order of the Commissioner is reproduced below:
"37.1 Further the assessee has relied the decision of Hon'ble CESTAT in the case of M/s. Aditya Cement Ltd. Appeal filed against the same was rejected by the Hon'ble High Court of Rajasthan and further department preferred appeal against the same before the Hon'ble Supreme Court. But later on in compliance to 24 E/51503/2022 & 12 others department's litigation policy, the same was withdrawn due to low monetary value. As such it does not have any precedence value. As per Instruction F. No. 390/Misc./163/2010-JC, dated 12-12-2013 issued by CBEC (now (CBIC), Ministry of Finance, GOI it has been clarified that:
"Sub-Section (3) of Section 35R and Section 131BA provides that if an 2. appeal has not been filed by the Department following Instructions issued for not filing appeal below the monetary limit, no person, being a party in appeal, shall contend that the Department has acquiesced in the decision on the disputed issue by not filing appeal. In effect, the decisions/judgments accepted for reasons of monetary limit do not have precedent value."
(emphasis supplied)
24. The Commissioner was not justified in not following the decision of the Rajasthan High Court and the Tribunal in Aditya Cement merely because the appeal filed by the department before the Supreme Court was ultimately withdrawn by the department because of monetary limits. The Commissioner placed reliance on the Instructions, as is clear from paragraph 37.1 of the order, to hold that in such a case the decision would not have any precedence value. The Instructions only provide that in such a situation it should not be contended by an assessee that the department has acquiesced to the order, if the appeal is withdrawn. This cannot mean that the order against which the appeal was filed would cease to have any precedence. The Commissioner was not justified in taking such a view.
25. The factual position that arose in Gujarat Ambuja Cements is almost identical to the present case. The same Contractor had been engaged for setting up the D.G. Sets in question. It was held that the 25 E/51503/2022 & 12 others D.G. Sets, which had been manufactured out of the parts, components and accessories would be entitled to avail MODVAT credit of duty paid on such parts, components and accessories. It was also found that the D.G. Sets were part and parcel of the factory and were capital goods. The decisions of the Tribunal in Gujarat Ambuja Cements and Aditya Cement, which decisions have attained finality would, therefore, be applicable to the facts of the present case.
26. The contention advanced by learned authorized representative appearing for the department that the aforesaid decisions of the Tribunal in Hindustan Zinc and Aditya Cement would not be applicable in the present case is not correct. It would also, therefore, not be possible to accept the contentions advanced by learned authorized representative appearing for the department on merits on this issue.
27. It, therefore, follows that the appellant was justified in availing credit of duties paid on parts, components used in the Captive Power Plant installed by the Contractor.
28. The ownership of goods is not relevant for deciding admissibility of CENVAT credit. The finding recorded by the Commissioner that at the time of receipt of „capital goods‟ in the factory for use in installation of the Captive Power Plant, it is the Contractor who is the real manufacturer of the said plant and would eligible to take credit and not the appellant is, therefore, not correct.
29. The next issue that requires determination is whether iron and steel used in fabrication/structural support for installation and operation of chimney would fall within the ambit „capital goods‟ and, therefore, be eligible for credit. During the period from April 2002-April 2003, the 26 E/51503/2022 & 12 others appellant had availed CENVAT credit amounting to Rs. 11,26,005/- on duties paid on iron and steel items as capital goods for use as parts/components/accessories of Chimney, specified capital goods falling under Chapters 82, 84 and 85 of First Schedule to Tariff Act, inasmuch as without the fabrication or providing the requisite supporting structure, operation of the Chimney of the Captive Power Plant would not be possible. According to the appellant these technological structures qualify to be considered as parts/components/accessories of capital goods under rule 2(a)(A) of Credit Rules.
30. The said technological structures of iron and steel such as columns, plates, platforms and angles, provide necessary support to the chimney for its proper and smooth functioning, which further facilitates manufacture of dutiable final goods. The said steel has to be considered as used in or in relation to manufacture of dutiable final products since without use of such steel, capital goods could not have been manufactured/fabricated and without that the manufacturing activity could not have been undertaken. Thus, the steel items form an integral part of the Chimney and would fall within the ambit of „capital goods‟ and eligible for credit.
31. This issue has been settled in the case of the appellant in Hindustan Zinc decided on 03.03.2020. The relevant portion of the decision of the Tribunal is reproduced below:
"5. The facts of the case are not in dispute that all the items in question has been used by the appellant for fabrication of capital goods. Therefore, I hold that the items in question has been used by the appellant for fabrication of capital goods which are inputs for the appellant and they are entitled to avail cenvat credit in 27 E/51503/2022 & 12 others terms of Rule 2(k) of Cenvat Credit Rules, 2004. The same view was taken by the Tribunal in the appellant‟s own case vide Final Order Nos. 50385 - 50387/2020 dated 27.01.2020."
32. The maintenance of separate books of accounts for the Captive Power Plant located within the factory premises of the appellant to enable compliance of the statutory requirements of section 80IA of the Income Tax Act would not mean that there are two different business entities. According to the appellant they constitute one factory and the appellant would be entitled to avail credit of capital goods as well as inputs used in the Captive Power Plant for generation of electricity which is ultimately used by the appellant in the production of excisable final goods.
33. It is not in dispute that the Captive Power Plant unit was installed in the factory premises of the appellant and all such inputs and capital goods were received within the premises registered in the name of appellant under duty paid excise invoices. Such goods were admittedly used in the fabrication of Power Plant for generation of electricity and its captive/exclusive use in the factory of appellant for manufacturing finished goods cleared on payment of excise duty. The inputs like Furnace Oil/LSHS and capital goods were not removed outside the factory premises of appellant. The appellant in order to meet its increased manufacturing requirement, enhanced the capacity of power generation by installing a power plant within the factory premises for captive and exclusive use in the manufacture of its finished goods.
34. The Commissioner has denied credit on inputs/fuels and capital goods on the ground that the appellant had claimed the benefit of section 80IA of the Income Tax Act, by treating the captive power plant 28 E/51503/2022 & 12 others as a new industrial undertaking and, therefore, the same cannot be held to be a part of the factory of the appellant for the purpose of excise duty and CENVAT credit availed on inputs/capital goods which were transferred to Captive Power Plant would, therefore, have to be reversed in terms of rule 3(4) rule 3(5) of the Credit Rules.
35. The appellant had created a separate unit namely, Captive Power Plant in the books of accounts as per the requirement of section 80IA of the Income Tax Act wherein entries were made for purchase and receipt of inputs as well as capital goods and power was debited to Capital Power Plant Debari at normal electricity rate and accordingly, profit was calculated separately for this Captive Power Plant unit in statutory compliance of Income Tax Act. The undisputed fact is that the Captive Power Plant is situated within the central excise registered premises of the Captive Power Plant Debari and not outside. All inputs and capital goods for use in Captive Power Plant were received within the premises registered under central excise and consumed therein and were not removed outside such premises. Credit of the same would, therefore, be available. Notional entries in the books of accounts for Captive Power Plant is as per requirement under Income Tax law and thus cannot affect the eligibility to credit under central excise law.
36. In this connection, it needs to be noted that the Assistant Commissioner CGST, Udaipur passed an Order-in-Original No. 08- 09/2023-CGST-B (Dem.-CE) dated 30.10.2023 dropping the proceedings initiated by show cause notices dated 02.04.2008 and 16.04.2008 on the ground that denial of input service credit on repair and maintenance services provided by the contractor in relation to the power plant installed in the factory premises of appellant for the period 29 E/51503/2022 & 12 others from April 2005-07 to April 2007-December 2007, would be unsustainable inasmuch as the Captive Power Plant, which is merely created in the books of accounts for statutory compliance of section 80IA of Income Tax Act, is an integral part of the factory of the appellant and has no separate existence. It is stated by the appellant that the said order dated 30.10.2023 passed by the Assistant Commissioner has not been challenged by the department and has attained finality.
37. The provisions of rule 3(4)/rule 3(5) of the Credit Rules are not invokable as there is no actual or physical removal of goods from factory of the appellant to the Captive Power Plant located within the same premises. The power plant is a Captive Power Plant and part of the factory premises of the appellant. The entire power generated from Captive Power Plant is used in the factory for manufacture of the finished goods which are cleared on payment of excise duty. There is no physical removal of either the „capital goods‟ or „inputs‟ outside the factory premises of the appellant. Rule 3(4) read with rule 3(5) of the Credit Rules provides that a manufacturer of final goods or a provider of output service shall pay an amount equal to the CENVAT credit availed on inputs or capital goods which are physically removed from the factory or the premises of the provider of such output service. In the present case there is no physical removal of inputs/capital goods from the factory premises of the appellant as the Captive Power Plant is located with the factory premises. Thus, the provisions of rule 3(4)/rule 3(5) of the Credit Rules are not applicable and denial of credit on this account is unsustainable.
30
E/51503/2022 & 12 others
38. As the order cannot be sustained on merits, it will not be necessary to examine the contention raised by learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case.
39. The imposition of penalty upon the appellant under section 11AC of the Excise Act in Excise Appeal No. 51503 of 2022 and the imposition of penalty equal to ten percent of the credit demand under rule 13 of the Credit Rules cannot also be sustained. The demand relates to an interpretational issue and the issue has also been settled in favour of the appellant by the Tribunal in the matter of the appellant itself.
40. Once the demand of CENVAT credit is not sustainable, the recovery of interest does not arise.
41. The impugned order dated 31.01.2022 passed by the Commissioner, therefore, cannot be sustained and is set aside and all the thirteen appeals filed by the appellant are allowed.
(Order pronounced on 13.05.2025) (JUSTICE DILIP GUPTA) PRESIDENT (P. V. SUBBA RAO) MEMBER (TECHNICAL) Jyoti