Custom, Excise & Service Tax Tribunal
M/S. Jsw Steel Ltd vs Cce, Salem on 7 November, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
E/62/2010
(Arising out of Order-in-Appeal No. 144/2009 dated 10.12.2009, passed by the Commissioner of Central Excise (Appeals), Salem).
For approval and signature
Honble Shri R. PERIASAMI, Technical Member
M/s. JSW Steel Ltd. : Appellant
Vs.
CCE, Salem : Respondent
Appearance Shri M.S. Nagaraja, Adv., for the appellant Shri K.P. Muralidharan, AC (AR), for the respondent CORAM Honble Shri R. PERIASAMI, Technical Member Date of Hearing/Decision: 07.11.2014 FINAL ORDER No. 41046 / 2014 The present appeal is arising out of the Order-in-Appeal dated 10.12.2009 passed by the Commissioner (Appeals). The brief facts of the case are that the appellants are the manufacturers of Iron and Steel falling under Chapter 72 of the Central Excise Tariff and registered with Central Excise. They availed 100% modvat credit on the item Runner Mass falling under Chapter 38 of the Central Excise Tariff. The Department issued show cause notice dated 20.03.2009 and alleged that runner mass is not an input for manufacture of final products but it is used in the runner path of the blast furnace. Therefore, the item falls under the definition of capital goods and the appellants are not eligible for 100% credit. The adjudicating authority in his order dated 10.06.2009 disallowed the credit in excess of 50% ie., Rs. 9,68,260/- and also imposed equal penalty along with interest. On appeal, the Commissioner (Appeals) rejected the appeal filed by the appellant and upheld the order-in-original. Hence, the present appeal.
2. The Ld. Advocate for the appellant submits that they have rightly availed 100% credit on the input runner mass as the item is classified under chapter 38 and it is not covered under the definition of capital goods. He submits that runner mass is used in the runner path of the blast furnace, and it is coated on the flow path from mouth of the laddle where the molten metal flows out from the blast furnace. It is an input and not a part of the blast furnace. Therefore, the appellants have correctly availed 100% credit whereas both the authorities below have wrongly classified the runner mass as part of the blast furnace. He relied upon the following decisions in support of his argument.
1. CCE, Bangalore Vs. Escorts Mahle Ltd.
2003 (154) ELT 321 (SC)
2. CCE Vs. Steel Strips Alloys Ltd.
2008 (232) ELT 395 (H.P)
3. CCE Vs. Steel Strips Alloys Ltd.
2008 (232) ELT 598 (H.P)
4. CCE Chandigarh Vs. Steel Strips Alloys Ltd.
2010 (254) ELT 410 (P & H)
5. Indian Oil Corporation Vs. CCE Delhi-IV 2005 (187) ELT 241 (Tri.-Del.)
6. Continental Foundation Jt. Venture Vs. CCE, Chandigarh 2007 (216) ELT 177 (SC)
7. Sipani Fibres Ltd. Vs. CCE, Bangalore-I 2007 (212) ELT 374 (Tri.-Bang.) He submits that as per the definition given in the dictionary of Law Lexicon parts and accessories are clearly defined. Therefore, runner mass is not a part or accessory. He further submits that the demand is hit by limitation. The appellants have rightly declared the item runner mass as input in their declaration and also filed monthly returns to the department indicating credit availed on inputs. The Department has conducted internal audit and CERA also conducted audit and visited the factory from 2004-08 onwards and carried out the audit and accepted the records and not raised any objection on availing credit on runner mass as inputs. Therefore, larger period of limitation cannot be invoked. It is only a question of interpretation, and no suppression can be involved and they have bonafidely availed credit on the belief that it is an input.
3. On the other hand, the Ld. DR on behalf of the Revenue reiterated the findings from the adjudication order as well as from the impugned order. He relied upon para 3, 6.3 and 6.5 of the impugned order and submits that the adjudicating authority has rightly disallowed 50% of the credit availed in the first year. He submits that runner mass which is a part of the blast furnace as rightly held by the lower authority and also show cause notice is rightly issued invoking extended period as the appellant has suppressed the facts. He relied upon the following case laws in support of his contention.
1. Balmer Lawrie & Co. Ltd. Vs. CCE, Belapur 2014 (301) ELT 573 (Tri.- Mum.)
2. Lacto Cosmetics (Vapi) Pvt. Ltd.
2013 (30) STR 107 (Tri.-Ahmd.)
4. I have carefully considered the submissions of both sides and also examined the records. Prima facie, the issue relates to availment of credit on the item runner mass, whether it is to be treated as an input for manufacture of the final product and eligible for 100% credit or it is a part of the capital goods and not eligible for 100% credit, whether the appellants are liable for penalty and whether the demand is hit by limitation or otherwise.
5. On perusal of records I find that runner mass is a chemical item classifiable under chapter 38 of the Central Excise tariff and used in the runner path outside the furnace for flow of molten metal from the blast furnace. Neither this item is used inside the blast furnace nor it is a part of the blast furnace. In the OIO, the adjudicating authority described that runner mass formed part of the blast furnace and on the other hand the Commissioner (Appeals) held as it is used in the blast furnace. As seen from the facts that runner mass is used only in the runner path which is located outside the blast furnace ie., from the mouth of the blast furnace to the laddle. Therefore, it cannot be considered to be a part of the blast furnace. The runner mass is coated on the flow path of the runner path which aids smooth flow of the molten metal. Therefore, it is evident that runner mass is only applied on the runner path and the same cannot be considered as farming part of the blast furnace ie.(capital goods). On a similar issue pertaining to Ramming mass, the Honble Supreme Court in the case of CCE, Bangalore Vs. Escorts Mahle Ltd., (supra) held that Ramming mass, fibre glass and filter mesh etc., are used in the manufacture of steel to line the furnaces to neutralise the effect of acidic vapours produced during the course of melting steel are eligible for modvat credit.
3. In respect of this contention that it is? necessary to use such processes like Ramming Mass, the learned counsel appearing for the assessees drew our attention to a book titled as Electric Furnace Steel Making (American Institute of Mining) wherein while dealing with electric arc furnace refractories, it is stated on page 157 as under :
It is well known that much of steel making and refining is concerned not only with the removal of carbon to steel chemistry ranges but also with the removal of phosphorus and sulfur to appropriately low values. Since phosphorus and sulfur are chemically acidic materials, their removal from the melt is effected by combining them with the basic material lime (CaO) which holds them in the slag. However, for the lime to function in this role it must be allowed to react with the sulfur or phosphorus in the melt and not with the silica from the refractories - a more acidic material than phosphorus or sulfur. Accordingly, a basic refractory-lined container (of dolomite or magnesite) is provided to allow the removal of the undesirable phosphorus and sulfur from the melt to the slag without excessive corrosion of the refractory lining.
4. Keeping the aforesaid manufacturing process in view and also bearing in mind that it is essential to control the acidic vapours generated during the steel manufacturing process, this Bench has held in C.A. No. 6615/2003 [Collector of Central Excise v. Steel Authority of India Limited] that use of such chemicals is essential for the manufacturing process. Specifically, it was observed that :
As discussed by the concerned authority burnt dolomite is used so as to neutralize the acid which is formed at the time of manufacturing steel. This burnt dolomite is, therefore, used in relation to manufacturing of the final product. It has been rightly pointed out that respondent is using burnt dolamite in relation to manufacture of final product so that it may combine with acid which is formed at the time of manufacture of the steel and neutralize the said acid so that it may prevent damage to the furnace. But the used burnt dolomite is for neutralizing the acid formed in the course of manufacture of steel. Hence, the judgment cannot be said to be, in any way, illegal or erroneous. The appeal is, therefore, dismissed. There shall be no order as to costs.
5. Manufacturing process being the same in these cases, we hold that the assessees are entitled to Modvat credit on Ramming Mass, Fibre glass and filter mesh.
6. The above Apex Court decision was relied on by the Honble High Court of Himachal Pradesh and Honble High Court of P & H in the case of CCE Vs. Steel Strips Alloys Ltd. (supra), held that ramming mass, foundry flux, mortar, ILR Mix and Castable powder etc. are used as layer in the furnace have been considered in the manufacture of final products and the manufacturer would be entitled to modvat credit. The Apex Court decision squarely applicable to the facts of the present case. In the present case, the runner mass is not even used inside the furnace but it is used in the runner path which allows smooth flow of the molten metal therefore, the credit availed by the appellants as inputs is valid.
7. As regards the limitation as contented by the Ld. Advocate I find that the show cause notice was issued on 20.03.2009 demanding reversal of credit availed for the period from April,2005 to August, 2007, invoking the extended period. They have correctly declared the item as input to the department and availed 100% credit and also filed regular returns. As seen from the grounds of appeal at para-36, CERA carried out Audit in July 2004, August, 2008, and October, 2007, and internal audit of the department carried out audit in November,2003, March, 2005 and February, 2007 and February, 2008, no objection was raised either by CERA or by the internal audit. Considering it is only a question of interpretation and there is no suppression involved in this case. Therefore, the demand is also hit by limitation.
8. Therefore, respectfully following the Apex Court decision in the case of CCE, Bangalore Vs. Escorts Mahle Ltd. (supra), I hold that the appellants are eligible to avail 100% credit on the runner mass as inputs. Accordingly, the impugned order is set aside and the appeal is allowed.
(Operative part of the Order pronounced in the Open Court on 07.11.2014) (R. PERIASAMI) TECHNICAL MEMBER BB 1