Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Raigad vs M/S Jsw Ispat Steel Ltd on 13 August, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/285 & 345/12 (Arising out of Order-in-Original No. 32/KLG(32)/COMMR/RGD/11-12 dated 8.12.2011 passed by the Commissioner of Central Excise, Customs & Service Tax, Raigad). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No 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 : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== 1. Commissioner of Central Excise, Raigad 2. M/s JSW Ispat Steel Ltd. Appellant Vs. M/s JSW Ispat Steel Ltd. Commissioner of Central Excise, Raigad Respondent Appearance: Shri Shobha Ram, Commissioner (AR) Shri Vishal Agarwal, Advocate with Ms. M. Bhardwaj, Advocate for Appellant No. 1 for Appellant No. 2 Shri Vishal Agarwal, Advocate Shri Shobha Ram, Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 13.08.2013 Date of Decision: 13.08.2013 ORDER NO. Per: P.R. Chandrasekharan
The appeals are directed against Order-in-Original No. 32/KLG(32)/COMMR/RGD/11-12 dated 8.12.2011 passed by the Commissioner of Central Excise, Customs & Service Tax, Navi Mumbai.
2. The appellant, M/s JSW Ispat Steel Ltd. are engaged in the manufacture of excisable goods namely, HR Coils and sponge iron falling under Chapter 72 of the Central Excise Tariff. They entered into a contract with M/s Inox Air Products Ltd. for setting up of an Oxygen Plant. As per the arrangement, certain equipments were received by the appellants and certain equipments were procured by M/s Inox Air Products Ltd. and the Oxygen Plant was set up by M/s Inox Air Products Ltd., which was further leased to the appellant. The Revenue was of the view that the appellant is not eligible for capital goods credit on the machinery/equipment which have gone in the fabrication of the plant since the plant is an immovable structure and not excisable and since no duty has been paid on the plant, the credit is not admissible. Accordingly, a show-cause notice was issued to the appellant vide notice dated 2.7.2010 proposing to deny CENVAT Credit amounting to Rs.4,85,00,029/- availed during the period June, 2005 to March, 2010 and to recover the same under the provisions of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 along with interest thereon under Section 11AB of the said Act and also proposing to impose penalty under Section 11AC ibid. The notice was adjudicated and the impugned order was passed denying the CENVAT Credit on the capital goods used in the setting up of the Oxygen Air Plant and the same was sought to be recovered. Interest was also demanded on the credit wrongly availed and equivalent amount of penalty was imposed under Section 11AC. Aggrieved of the same, the appellant is before us.
3. The learned Counsel for the appellant made the following submissions: -
(i) The appellant had entered into a lease agreement for the lease of 1260 TPD Gas Plant with M/s Inox Air Products Ltd. They had imported certain equipment for the said gas plant which would be used in the setting up of the said plant and M/s Inox were also required to procure certain other equipment for setting up of the plant at the factory of the appellant. All the goods were procured in the name of the appellant and as per the definition of plant in the said agreement, plant means components of tanks, machinery, equipment, system, appliances, items, materials as procured by M/s Inox Air Products Ltd. for commissioning of the production facilities and which part of the production facilities would be leased to the appellant during the terms of the agreement. Thus, from the definition of plant, it includes all parts, equipments, and components etc. which form part of the plant. Further, as per article 19, on conclusion of the agreement, M/s Inox Air Products Ltd. shall dismantle and remove the plant, equipment, electrical appliances and other facilities and M/s Inox has to bear the cost of dismantling. All the equipments which were procured as part of the plant were invoiced to the appellant and were utilized and the details of these were submitted by the appellant in the monthly ER-1 Returns filed by them during the relevant period. The records of the appellants were audited during 2007 and the department was aware that M/s Inox had set up the Oxygen Plant and leased out the same to the appellant. The Audit Party raised objection only with regard to non-payment of Service Tax on the commissioning and installation charges by M/s Inox. In other words, the entire transaction was within the knowledge of the department and there was no suppression of any facts.
(ii) The learned Counsel submits that as per the decision of the Hon'ble High Court of Himachal Pradesh in the case of Gujarat Ambuja Cement Ltd., credit of parts, components, accessories is admissible even if they are assembled to form plants which are immovable or exempted as reported in 2010 (256) ELT 356 (HP). Similarly, in Rajarambapu Patil SSR Ltd. Vs. Commissioner of Central Excise, Pune-II 2007 (208) ELT 372 (Tri-Mum), this Tribunal held that components and parts of capital goods brought/manufactured by the contractor and invoices issued in the name of manufacturer, the manufacturer would be eligible for credit of the excise duty paid on components and parts. Again in the case of KCP Ltd. Vs. CCE, Guntur 2009 (237) ELT 500 (Tri-Bang), this Tribunal held that steel plates, sheets etc. used in the manufacture/fabrication of clinker silos which are storage tanks for final products in cement factory and such silos being capital goods, inputs used therein is eligible for capital goods credit, irrespective of whether the capital goods are dutiable or not. So long as inputs are used in capital goods within the factory of production, input credit has to be given in terms of Explanation 2 to Rule 2(k) of the Cenvat Credit Rules, 2004. Reliance is also placed on the decision of the Hon'ble High Court of Karnataka in the case of ICL Sugar Ltd. 2011 (271) ELT 360 (Kar.), wherein it was held that raw materials used such as plates/bottom plates/roof plates in the manufacture of tank would be eligible for capital goods credit even though the storage tank fabricated out of these items is an immovable property. Therefore, it is submitted that the various equipments, parts, components etc. which have gone into the manufacture of Oxygen Plant is an eligible item of capital goods under Rule 2(k) of the Cenvat Credit Rules as it stood at the relevant time. It is argued that merely because the plant has been leased out to the appellant, CENVAT Credit cannot be denied as ownership of the goods cannot be a criterion for availment of CENVAT Credit on capital goods. Reliance is also placed on the decision of the honble Punjab & Haryana High Court in the case of Pepsi Foods Ltd. 2010 (254) ELT 284 (P&H), wherein it was held that CENVAT Credit cannot be denied on the basis of ownership of the goods since ownership of the goods cannot be a relevant criteria for allowing Modvat Credit.
(iii) It is further argued that immovability of plant has no bearing on the eligibility for availment of CENVAT Credit in respect of capital goods and reliance is placed on the decision of the Hon'ble High Court of Karnataka in the case of Bannari Amman Sygars Ltd. Vs. CCE, Mysore 2010 (250) ELT 326 (Kar), wherein it was held that even if the capital goods become immovable after installation/commissioning, CENVAT Credit would be admissible. In the light of these decisions, it is submitted that the appellant is rightly eligible for the CENVAT Credit of the excise duty paid on various plants, machinery, equipments, appliances etc. which have gone into assembly of the plant at site.
(iv) It is further argued that the appellant had declared the availment of credit in respect of various machinery, equipment, parts, components. etc. used in the assembly of the plant in the monthly ER-1 Returns and the details of the credit taken invoice-wise were also submitted to the department. Thus, there was no suppression of any facts on the part of the appellant and, therefore, the demand of duty invoking the extended period of time is not sustainable in law.
On these grounds, it is urged that the impugned order be set aside and the appeal be allowed.
4. The learned Commissioner (AR) appearing for the Revenue, on the other hand, contends that a Larger Bench of this Tribunal in the case of Vandana Global Ltd. 2010 (250) ELT 440 (Tri-LB) had held that capital goods defined under Cenvat Credit Rules in the context of providing credit of duty paid have to be excisable goods and whether a particular plant or structure embedded to earth can be considered as capital goods or not is to be determined in the light of the decision of Hon'ble Supreme Court. In the instant case, the plant as such is an immovable property and no excise duty has been discharged on the plant. The parts/ components, machinery, equipments etc. used in the fabrication or assembly of the plant cannot be considered as capital goods for the purpose of availing of CENVAT Credit. Reliance is place on the decision of this Tribunal in the case of M/s Bharati Airtel Ltd., where a question arose whether capital goods credit can be taken on various items used in the assembly/erection of mobile towers and such mobile towers were used for rendering telecommunication services. This Tribunal held that since the mobile towers as such is an immovable property, items which have gone into the erection of mobile towers are not eligible for CENVAT Credit as parts or components of capital goods. In the present case, since the plant which came into existence is immovable and various parts have been used in the erection of an immovable property, the appellant would not be eligible for benefit of CENVAT Credit. Accordingly, it is prayed that impugned order is sustainable in law and the appeal be dismissed.
4.1 The Revenue has also filed an appeal against the impugned order for the reason that there is an error in the impugned order, which have been corrected by corrigendum dated 5.1.2012. The Revenues appeal is against the issue of this corrigendum, wherein as against the duty demand of Rs.4,85,00,029/-, in the impugned order a demand of Rs.4,40,05,465/- only has been confirmed, even though the Commissioner by issuing a corrigendum has rectified this mistake.
5. We have carefully considered the submissions made by both the sides.
5.1 As per Rule 2(a) of Cenvat Credit Rules, 2004, capital goods means: -
(A) the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank, used-
(1)
in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (2) for providing output service; Thus, it includes not only gods falling under Chapters 82, 84, 85 and 90, which are machinery, equipment, appliances and also components, spares and accessories of the goods falling under the aforesaid chapters. In the present case, the plant has been set up using various machinery and equipments falling under Chapters 82, 84, 85 or 90 or components, spares or accessories of these goods and these facts are not disputed. Merely because the various machinery, equipment, appliances and parts have been assembled at the site to set up the Oxygen Plant and such a plant being immovable property, CENVAT Credit is sought to be denied. Nowhere in the Cenvat Credit Rules, it is envisaged that the machinery, equipment, appliances or their components should be used as such in the manufacture of excisable goods. The manufacturing plant facility in a factory would comprise of a number of capital goods and all these things have to be assembled together so that they act in unison to perform the required processes. For example, in a sugar factory there may be a Boiler plant for generation of steam, a crusher installed for crushing of the sugar cane, a distillation plant for undertaking the various chemical processes involved in the manufacture of sugar. The boiler, crusher and distillation equipment, all have to be assembled together to form a sugar plant. Merely because all have been assembled together to form a sugar plant, can it be said that the capital goods credit cannot be allowed on Boiler, Crusher or a distillation equipment. Such a view according to us results in an absurd situation. In none of the manufacturing plants, all the machineries can be used as such and directly, the various machineries and equipments have to function in conjunction and in unison with each other and for this purpose, they are assembled into plant. Merely because all the individual equipment, machinery or components are assembled together, it will be pre-posterns to suggest that the capital goods credit cannot be allowed on this individual machinery/equipment or appliances. The purpose of allowing capital goods credit is to relieve the burden of cascading effect of taxes. If that purpose is to be achieved in a meaningful way, the law has to be interpreted in a reasonable manner so that the object is achieved.
5.2 In the decisions relied upon by the appellant, the issues contested by the Revenue have been adequately addressed. For example, in the case of Pepsi Foods (supra), it has been held that ownership of goods is not a criterion for denial of credit on capital goods and even if it is leased for a particular period, the assessee is eligible to take CENVAT Credit. In the present case, merely because M/s Inox Air Products Ltd. has leased out the plant to the appellant, that does not disentitle the appellant from availing CENVAT Credit of the excise duty paid on capital goods. Similarly in the case of Gujarat Ambuja Cement Ltd. (supra), Rajarambau Patil SSK Ltd. (supra) and KCP Ltd. (supra), this Tribunal and the Hon'ble High Court of Himachal Pradesh held that CENVAT Credit of excise duty paid on parts, components and accessories would be admissible under the Capital Goods Credit scheme even if they are assembled into goods which are immovable or exempted. Similarly, in the ICL Sugars Ltd. (supra), it was held that immovability has no bearing on eligibility for availment of CENVAT Credit on capital goods. In the light of these decisions, the interpretation of law undertaken in the impugned order does not appeal to any common sense or logic. So long as the individual machinery, equipment or appliance or parts and components thereof fall within the definition of capital goods under Rule 2(A) of the Cenvat Credit Rules, 2004 and so long as they are used within the factory of production for the manufacture of excisable goods which are chargeable to duty, the benefit of capital goods credit cannot be denied and we hold accordingly.
5.3 As regards the reliance placed by the Revenue on the Vandana Global (supra), the said case did not deal with the admissibility of CENVAT Credit on capital goods. The issue before the Larger Bench was whether angles, channels, cement etc. used in the erection of structures for the support of capital goods would be eligible for capital goods credit as parts and components of capital goods. The Larger Bench held that such cement, angles, channels, components etc. used in the fabrication of structures for installation of production machinery cannot be considered as inputs for the manufacture of capital goods and, therefore, it was held that they will not be eligible for the CENVAT Credit of excise duty paid under the category of capital goods. In the said decision, there was no finding by the Larger Bench stating that capital goods credit is not admissible in respect of machinery, equipments and appliances used within the factory of production which were used in the assembly of the manufacturing plant. Therefore, the facts of the said case are completely different and distinguishable from the facts of the present case and, therefore, the ratio of the said decision is not applicable to the present case. Similarly, in the case of Bharati Airtel Ltd. (supra), the question before the Tribunal was whether the erection of a tower consisting of various Iron & Steel items and cement can be considered as capital goods and this Tribunal held that tower per se is not capital goods as it does not undertake any process either in relation to manufacture of goods or in the rendering of any services and, therefore, it was held that iron and steel products and cement which have gone into the erection of any immovable property cannot be considered as capital goods. Thus, the facts involved in the said case are also completely different and distinguishable from those involved in the case before us. Therefore, the ratio of the said decision also has no application.
6. In view of the above, we are of the considered view that the appellants are rightly entitled for capital goods credit on various machinery, equipment, appliances and parts and components thereof used in the setting up of oxygen plant within the factory premises. Thus the order denying the capital goods credit is unsustainable in law. Accordingly, we set aside the same. Since the impugned order is set aside, the appeal filed by the Revenue against the corrigendum issued becomes infructous and therefore, the Revenues appeal is liable to be dismissed.
7. In sum, we allow the appeal filed by M/s JSW Ispat Steel Ltd. with consequential relief, if any and dismiss the appeal filed by the Revenue.
(Operative portion of the order pronounced in Court)
(Anil Choudhary) (P.R. Chandrasekharan)
Member (Judicial) Member (Technical)
Sinha
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