Madras High Court
Commissioner Of Central Excise vs M/S Chemplast Sanmar Ltd on 4 September, 2014
Bench: R. Sudhakar, G.M. Akbar Ali
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:04.09.2014 CORAM THE HON'BLE MR.JUSTICE R. SUDHAKAR AND THE HON'BLE MR.JUSTICE G.M. AKBAR ALI T.C.(A) No.1380 of 2006 Commissioner of Central Excise No.1, Foulkas Compound, Anaimedu, Salem-636001 ... Appellant vs M/s Chemplast Sanmar Ltd No.9, Cathedral Road, Chennai-600 086 Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Shastri Bhavan Annexe Building, 26, Haddows Road, Chennai-600 006 .... Respondent Appeal filed under Sec.35G of Central Excise Act 1944 against the Final Order passed by the Customs, Excise and Service Tax Appellate Tribunal, Chennai in No.720/2005 dated 9.5.2005. For Appellant : Mr.K. Ravi Anantha Padmanabhan For 1st respondent : Ms.L. Maithili For 2nd respondent : Tribunal JUDGMENT
(Judgment of the Court delivered by R. SUDHAKAR,J.,) The respondent/assesse are holding Central Excise Registration Certificate No.3/92 and are engaged in the manufacture of Chloromethane Product, TCE Product, STC etc., falling under Chapter 29 of the Central Excise Tariff Act, 1985. On verification of RT 12 submitted by the assessee for the months of October 1996 to December 1996, it was noticed that they have taken credit of duty in RG 23C Part II on goods such as pumps, iron and steel, motor, cables, electrical appliances etc.,
2. According to the Jurisdictional Superintendent, the goods referred above do not either bring about any change in the material used in the manufacture of final product or are used for processing of excisable finished product. As such the credit taken on the goods as "capital goods" is in contravention of the provisions of Rule 57Q and hence are liable to be expunged under the relevant provisions.
3. Consequently, a show cause notice was issued on 10.04.1997. Reply was submitted on 22.4.97 along with Explanation that the capital goods are used in the manufacture of final products.
4. The Assistant Commissioner, Central Excise, who adjudicated the matter, allowed credit in respect of certain items and disallowed for some items. The order reads as follows:
"I disallow the modvat credit of Rs.1,38,712/- being the credit on the ineligible capital goods, under Rule 57U of Central Exercise Rules 1944 read with Section 38A of Central Excise Rules, 1944 pertaining to items under Sl.Nos.1,2,5,8,9,10,12,13,16,21 to 30, 37, 44 & 45 of the Show Cause Notice. Since the assessee have reversed a part of wrong credit amounting to Rs.117/- in respect of Sl.No.1 of the notice. I appreciate the said amount towards the irregular credit to be reversed.
Regarding the rest of the items specified in the Show Cause Notice, I drop further proceedings.
5. This includes MS Tanks which is the subject matter of the present appeal.
6. The Commissioner (Appeal), who heard the case of the respondent/assessee, seeking the benefit of Modvat credit on capital goods, which were not accepted by the original authority, came to the conclusion that MS Tanks is eligible for Modvat Credit and held as follows:
"6.2.6 MS Tanks:
The Hon'ble Tribunal in the case of STS Chemicals Limited vs CCE, Mumbai III reported in 2001 (132) 704 (Tri. Mum) held that storage tanks used for storing finished goods including by-products are eligible for modvat credit under rule 57Q. The above said decision was followed by the Hon'ble Tribunal, Chennai in the case of EIP Parry (I) Ltd., Vs CCE, Trichy reported in 2002 (150) ELT 765 (Tri. Che) wherein it was held that Acetaldehyde Tank, Condensate Tank and FRP Tank, required for storing intermediate products and processed material, are eligible for modvat credit as capital goods. By applying the ratio of the above decisions of the Hon'ble Tribunal, I hold that MS Tank is eligible for modvat credit.
7. Against which, the Department went on appeal before the Tribunal and contended that MS Tanks (Heading No.73.09 of the CETA Schedule) were brought within the scope of "capital goods" for Modvat purpose only with effect from 01.03.2001 vide Notification No.6/2001-CE(NT) dated 01.03.2001 and therefore, so far as MS Tanks are concerned, modvat credit was not available for this capital goods prior to 01.03.2001. This was rejected by the Tribunal interpreting the provisions of Rule 57Q of Central Excise Rules, 1944, as it stood on the date when the credit was taken.
8. The Tribunal also relied on the decision of the Larger Bench of the Tribunal in Commissioner of Central Excise, Indore vs Surya Roshini Ltd reported in 2001 (128) ELT 293 (Tri-LB) and came to the conclusion that the Rule should be interpreted as prevailing during the relevant period.
9. According to the Tribunal, Clause (a) of Explanation 1 to Rule 57Q which reads as follows:
"Explanation - For the purpose of this section:-
(1) "capital goods"means -
(a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products"".
10. It was clear that the finding of the Tribunal that MS Tanks is a part of manufacturing plant and therefore, clause (a) of Explanation 1 of Rule 57Q would stand attracted and MS Tanks being a capital goods, eligible for modvat credit.
11. The Tribunal rejected the plea of the Department that the goods falling under Heading No.73.09 would be entitled to the benefit of capital goods only with effect from 01.03.2001 and the benefit would not be attracted to a case of modvat credit available during the period October 1996 to December 1996.
12. Further reliance was placed on the larger Bench decision of the Tribunal on which there appears to be no dispute. The Tribunal held that the law prevailing during the period of dispute permitted Modvat credit on plant and machinery etc. used for manufacture of final products vide Clause (a) of Explanation 1 to Rule 57Q and rejected the appeal. Aggrieved against the same, the Revenue has preferred the present appeal.
13. On admission of the appeal, the following substantial questions of law were formulated:
(a) Whether the Hon'ble Tribunal is right in allowing Modvat credit, holding that M.S. Tanks falling under Chapter 73 are pack of the capital goods as per the erstwhile rule 57Q of the Central Excise Rules, 1944?
(b) Whether the Hon'ble Tribunal is correct in interpreting M.S. Tank as part of Plant or Machinery used for manufacturing final product as per Clause (a) of Explanation I to Rule 57Q(I), when the said goods have been defined as Capital goods only from 1.3.2001 onwards?
) Whether the Hon'ble Tribunal is correct in holding that M.S. Tank as Capital goods, entitled to credit under Rule 57Q, in the absence of a express provisions in the Rule, prevailing during the relevant period? And
(d) Whether the Hon'ble Tribunal is right in extending modvat credit, in the absence of any clarification from the Ministry to the effect that M.S.Tank would also fall under the definition or plant or machinery used for manufacturing final product?
14. The question is whether M.S. Tanks, used as a capital goods is entitled to the benefit of modvat credit under sec.57Q.
15. The Commissioner (Appeals) as well as the Tribunal have given clear finding that M.S. Tanks, in question, is a capital goods used in the process of manufacturing plant relying on the findings in the case of STS Chemicals Limited vs CCE, Mumbai III reported in 2001 (132) 704 (Tri. Mum) and EID Parry (I) Ltd vs CCE, Trichy reported in 2002 (150) ELT 765 (Tri.Che), wherein it was held that MS Tank is eligible for modvat credit as it is a capital goods and therefore entitled to the benefit of Rule 57Q.
16. We find that this finding, on fact, read with Explanation 1 to Rule 57Q get clearly attracts the goods in question. By no stretch of imagination one can deny that MS Tank used in the manufacturing process is not a plant, machinery, apparatus, equipment etc., Similar issue was considered by our Bench of this Court in C.M.A.No.1265 of 2014 dated 10.07.2014, wherein, this court has held as follows:
5. The Tribunal considered the contention of the assessee as well as the Revenue and held that the assessee satisfied the user test. The Tribunal, while allowing the appeal, followed the earlier order of this Court and the law laid down in the case of Commissioner of Central Excise, Jaipur vs Rajasthan Spinning & Weaving Mills Ltd., reported in 2010 (255) ELT 481) and in paragraph Nos.7 and 8, held as follows:
7. In the present case, it is seen that the items in question were used in the erection of various machineries such as, - new additional Electrostatic Precipitator for raw mill project, additional fly ash handling system, MMD crusher etc., for the Dry Process Cement Manufacturing Plant. It is evident that MS Angles, MS Beams,MS Channels etc., were used in the erection of machineries it become component of the same, which are integral part of Dry Process Cement Manufacturing Plant. It is noted that Fly Ash handlish system is a pollution control equipment and particularly mentioned in 2(A)(A)(ii) of Rules, 2004. The allegation in the above show-cause notice that the Chapter Heading of these items were not covered under Rule 2(a) of the Rules, 2004, is not sustainable, in respect of Pollution control equipments because the rule does not specify the tariff headings under which pollution control equipment should be falling. The appellant established that these items were used for erection of capital goods namely Dry Process Cement Manufacturing Plant, which falls under Chapter 84, as mentioned in Serial No.(i) of Rules 2(a)(A). Thus, the items in question are covered in serial No.(iii) of Rules 2(a)(A) of the Rules, CBEC has clarified that all parts, components, accessories which are to be used with capital goods in serial (i) and (ii) of Rules 2(a)(A) and classifiable under any chapter heading are eligible for availment of CENVAT credit. A plain reading of serial (iii) cannot lead to a different conclusion either.
8. After considering the use of the goods in question, in our considered view, the present case is covered by the decision of the Hon'ble Madras High Court in appellant's own case as referred above. We have also noticed that the Hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills Ltd (supra) as relied upon the Hon'ble High Court in the appellant's own case, allowed MODVAT credit on MS channels, steel plants etc., as capital goods used for erection of chimney for diesel generating set. The findings of the Commissioner that these are structures fixed to earth with concrete foundations and are immovable appears to be beyond the scope of the show-cause notice. So, the case of M/s Triveni Engineering & Industries Ltd (supra) as relied upon by the learned AR is not applicable in the present case.
17. Learned counsel for the respondent/assessee placed reliance of the Karnataka High Court reported in 2011 (271) E.L.T. 360 (Kar.) (Commissioner of C.Ex., Mysore vs ICL Sugars Ltd).
18. Learned counsel for the Revenue also placed reliance of the Apex Court judgment reported in (2014) 1 SCC 597 (KCP Limited vs Commissioner of Central Excise, Chennai), wherein it is held that to avail MODVAT credit, input on which excise duty is paid must be used in the manufacture of the final product in factory of the assessee. There cannot be any doubt on this proposition. The fact of the KCP Limited is not similar to that of case on hand and it will be appropriate to extract paragraph-7 of the Judgment, which reads as follows:
7. It was mainly submitted in the appeals on behalf of the Department that the goods in respect of which the MODVAT credit was availed by the appellant were not capital goods as per the provisions of Rule 57-Q of the Rules. It was also submitted that such goods were not used in the factory premises of the appellant in any manufacturing process and therefore, the said goods were not capital goods as claimed by the appellant. It was also the case of the Department that the said goods had been exported by the appellant along with parts of machinery manufactured by the appellant in a container and the said parts i.e. the parts purchased by the appellant had been exported in the same condition i.e. even without opening the packages or testing them. Thus, the role of the appellant was merely like a trader who had purchased certain goods including parts of machinery, cables, etc., from dealers in our country and thereafter exported the same in the exact condition in special containers along with the machinery manufactured by it.
19. In the case of KCP Limited, there is a clear finding that the goods were purchased and exported and was not used in the manufacturing process. The facts of the above case is distinct from the present case.
20. Learned counsel tried to convince this court that MS Tank is not relatable to the manufactured product. This contention is not tenable. The keyword is that such goods must be used in the factory for the manufacture of the final products and it is relatable to plant, equipment, machinery set out in Explanation (1)(a) to Sec.57Q and which is used for producing or processing any goods or bringing about any change in any substance for the manufacture of final product. The intent is wide enough to accept MS Tank as capital goods.
21. We hold that the Tribunal is right in rejecting the plea of the Revenue. We therefore answer the question of law against the revenue and in favour of the assessee.
22. In the result, the appeal is dismissed and the order passed by the by the Customs, Excise and Service Tax Appellate Tribunal, Chennai in No.720/2005 dated 9.5.2005 stands confirmed. No costs.
(R.S.J.,) (G.M.A.J.,)
04-09-2014
sr
Index:yes
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To
Commissioner of Central Excise
No.1, Foulkas Compound,
Anaimedu, Salem-636001
R. SUDHAKAR,J.,
AND
G.M. AKBAR ALI,J.,
sr
C.M.A No.1380 of 2006
04-09-2014