Commissioner Central Excise, ... vs M/S Mankapur Chini Mills, Gonda
2019 Latest Caselaw 4927 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

RESERVED
 
Case :- CENTRAL EXCISE APPEAL No. - 4 of 2018
 
Appellant :- Commissioner Central Excise, Lucknow
 
Respondent :- M/S Mankapur Chini Mills, Gonda
 
Counsel for Appellant :- Dipak Seth
 
Counsel for Respondent :- Arvind Kumar Saxena,Jai Prakash Tripathi,Rahul Agrawal,Sudeep Kumar
 

 
Hon'ble Dr. Devendra Kumar Arora,J.

Hon'ble Narendra Kumar Johari,J.

1. Heard Sri Dipak Seth, Senior Advocate, appearing for the appellant and Sri Rahul Agarwal, learned Counsel for the respondent.

2. The instant appeal under Section 35-G of Central Excise Act, 1944 (hereinafter referred to as "1944 Act") read with Section 174 of Central Goods & Services Tax Act, 2017 (hereinafter referred to as " 2017 Act" ) arises out of the judgment and order dated 15.5.2017 passed by Customs, Excise & Service Tax Appellate Tribunal, Allahabad (hereinafter referred to as "Tribunal") in Appeal No. E/686 of 2011 EX (DB) : M/s Mankapur Chini Mills Vs. Commissioner Central Excise, Allahabad, whereby the appeal preferred by the respondent against the order dated 13.10.2010 passed by the Commissioner of Central Excise & Service Tax, Allahabad, has been allowed and the order dated 13.10.2010 by which the demand was confirmed, has been set-aside.

3. Vide order dated 20.2.2019, the present appeal was admitted on the following three substantial questions of law:-

"1. Whether the Customs Excise & Service Tax Appellate Tribunal, Allahabad is correct in setting aside the Order in Original dated 13/10/2010 ignoring the decision of this Hon'ble Court in case of Bajaj Hindistan Ltd. Vs. Union of India reported in 2013 (295) ELT 20 (All), on the same issue.

2. Whether the Customs Excise & Service Tax Appellate Tribunal, Allahabad is correct in ignoring the Circular No.966/09/2012-CX.1 dated 18/05/2012.

3. Whether the impugned Final Order dated 15/05/2017 passed by the Customs Excise & Service Tax Appellate Tribunal, Allahabad is not substantial as in terms of Rule 2 (k) of the Central Credit Rules 2004."

4. Shorn off unnecessary details, the facts of the case are as under :

Respondent-assessee, M/s Mankapur Chini Mills, is engaged in manufacturing V.P. sugar, molasses, SDS and absolute Denatured Alcohol. It has availed Cenvet Credit Facility under Cenvat Credit Rules, 2002 upto 9.9.2004 and under Cenvat Credit Rules, 2004 w.e.f.10.9.2004.

5. During the course of audit for the period 2005-06 to September, 2008, it was noticed that the respondent-assessee had taken Cenvet credit on items, namely, M.S. Plates, M.S. Channels, H.R. Coils, M.S. Angles etc., which are falling under Chapter heading 72 and 73 of the Central Excise Tariff Act, 1985 as ''capital goods'.

6. According to revenue, the aforesaid items did not appear to be covered under the category of ''capital goods' in terms of Rule 2 (b) of the Cenvat Credit Rules, 2002 and Rule 2 (a) (A) of Cenvat Credit Rules, 2004, as the aforesaid items were either used by the respondent in repair or maintenance of existing plant or in modification of their existing plant and machinery which are embedded to the earth and do not fulfill the conditions of move-ability and marketability to be accorded the status of ''goods'. For this purpose, a show cause notice dated 27.1.2010 was issued to the respondent, raising a demand for Rs.99,94,125/- along with education cess and interest.

7. The aforesaid show cause notice dated 27.1.2010 was adjudicated by the Adjudicating Authority vide order-in-original dated 13.10.2010 and the demand of Rs.99,94,125/- with education cess & interest and equal penalty was duly confirmed by the Adjudicating Authority.

8. Aggrieved by the aforesaid order-in-original dated 13.10..2010, the respondent has approached the Tribunal by means of Appeal No. A/70742/2017-EX (DB) dated 15.5.2017), which was allowed by the Tribunal by the impugned order.

9. Hence the revenue has preferred the instant appeal.

10. Sri Dipak Seth, learned counsel for appellant/revenue has contended that the respondent has claimed the Cenvat Credit on M.S. Plates, M.S. Channels, H.R. Coils, M.S. Angles etc. declaring them as inputs used for manufacturing/installation of Capital Goods/Structures for capital goods inside their plants, which is contrary to Rule 2 (h) read with Rule 2 (k) of Cenvat Credit Rules, 2004.

11. Elaborating his submission, Sri Seth has submitted that the Tribunal, while setting aside the order-in-original dated 13.10.2010, has erroneously not dealt with the findings recorded by the Commissioner to the effect that the items used for repair and maintenance or modification of plant and machinery as mentioned in Chapter 72 and 73 of the Central Excise Tariff Act, 1985 are not eligible for credit. The Tribunal has also erred in law in not considering the fact that the Board has issued clarification vide Circular No. 966/09/2012-CX.1 dated 18.5.2012, in respect of Circular No. 964/07/2012-CX dated 2.4.2012, wherein it was reiterated that in terms of Rule 2 (k) of the Cenvat Credit Rules, 2004, while Cenvat credit is available in respect of parts of Boiler, the same is not admissible in respect of the ''structural components used for laying foundation or making structures for support of capital goods'.

12. Learned Counsel for the appellant-revenue has further contended that the Tribunal has erred in not applying the decision of this Court rendered in the case of Bajaj Hindustan Ltd. Vs. Union of India : 2013 (295) ELT 20 (All.), which is in favour of the department wherein it has been observed that Cenvat credit is not admissible on the inputs which were not used for manufacture of capital goods.

13. Per contra, Sri Rahul Agarwal, learned Counsel for the respondent has supported the decision of the Tribunal and has submitted that the respondent-assessee is manufacturer of sugar, molasses etc. which are excisable product. It takes CENVAT Credit on the excise duty/service tax paid by it under the CENVAT Credit Rules, 2004. During the period 2005-06 to August, 2008, the respondent-assessee availed CENVAT credit of Rs.99,94,125/- on MS Plates, MS Channels, HR Coils, M.S. Angles etc. by treating these goods as ''inputs' withing the meaning of Rule 2 (k) of the CENVAT Credit Rules, 2004. These goods were used in the fabrication of capital goods, staging/supporting structures and also for modification for plant and machinery, which were allegedly used in the factory of the respondent-assessee in the manufacturing process.

14. Learned Counsel for the respondent-assessee has submitted that a show cause notice dated 27.1.2010 was issued, proposing a demand of Rs.99,94,125/- of CENVAT credit availed by the respondent-assessee. According to the show-cause notice, MS Plates, MS Channels, HR Coils, M.S. Angles etc. were neither capital goods under Rule 2 (a) nor inputs under Rule 2 (k) of the CENVAT Credit Rules, 2004. Thereafter, the Adjudicating Authority passed an order dated 13.1.2010, confirming the aforesaid demand by relying Explanation 2 to Rule 2 (k) inserted by Notification No. 16/2009-CE (NT) dated 7.7.2009 and the judgment of the larger Bench of the CESTAT in Vandana Global Ltd. Vs. C.C.E. : 2010 (253) ELT 440. The CESTAT, by the impugned order dated 15.5.2017, allowed the appeal preferred by the respondent-assessee.

15. Elaborating his submission, learned Counsel for the respondent has submitted that the period involved in the present dispute pertains to 2005-06 to August, 2008. At that relevant time, Explanation-2 of Rule 2 (k) of the CENVAT Credit Rules, 2004 provides that inputs include goods used in the manufacturer of capital goods, which are further used in the factory of the manufacturer. The aforesaid Rule 2 (k) was amended by the notification No. 16/2009-C.E. (NT) w.e.f. 7.7.2009. Consequently, w.e.f. 7.7.2009, Explanation-2 to Rule 2 (k) provides that inputs include goods used in the manufacturer of capital goods which are further used in the factory of the manufacturer but shall not include cement, angles, channels, Centrally Wasted Deform bar (CTD) or Thermo Mechanically Treated Bar (TMT) and other items used for construction of factory, shed, building or laying of foundation or making of structures for support of capital goods.

16. Learned Counsel for the respondent-assessee has submitted that a larger Bench of the CESTAT in Vandana Global Ltd. Vs. Commissioner of C.Ex. Raipur : (2010) 253 ELT 440, has held that the amendment introduced by the notification dated 7.7.2009 was a clarifactory amendment and was applicable retrospectively. His submission is that it was the amended Explanation 2 to Rule 2 (k) as also the interpretation by Vandana Glopal (supra) that was applied by the Adjudicating Authority to hold that the respondent is not entitled to claim CENVAT credit on MS Plates, MS Channels, H.R. Coils, MS Angles, Etc. as they are not inputs.

17. It has been contended by the learned Counsel for the respondent that the Gujarat High Court in Mundra Ports & Special Economic Zone Ltd. Vs. C.C.E. & Customs : 2015 (39) STR 726 (Guj.), the Madras High Court in India Cement Ltd. Vs. CESTAT, Chennai : 2015 (321) ELT 209 (Mad.) and Thiru Arooran Sugars Vs. CESTAT, Chennai : 2017 (355) ELT 373 (Mad.) have held the judgment of Vandana Global (supra) not good in law. Therefore, the reasoning of the Adjudicating Authority, which imposed the demand along with interest and also penalty on the respondent assessee, by relying upon the amendment in Explanation-2 to Rule 2 (k) and also Vandana Global (supra) is clearly unsustainable.

18. Insofar as the judgment relied by the revenue i.e. Bajaj Hindustan Ltd. Vs. Union of India : 2013 (295) ELT 20 (All.) is concerned, learned Counsel for the respondent-assessee has submitted that in Bajaj Hindustan Ltd. (supra), the Court was faced with the situation where the assessee had failed to demonstrate that the items on which it had claimed CENVAT credit had actually been used for fabrication of the goods used in the manufacture of final product. His submission is that Bajaj Hindustan Ltd. (supra) does not lay down law for the items where the CENVAT is not available and further no question of law formulated & answered in this regard.

19. Learned Counsel for the respondent-assessee has next submitted that circular dated 2.4.2012 has been issued in the context of the amended definition of inputs under the CENVAT Credit Rules 2004. Rule 2 (k) was completely substituted by the notification No. 3/2011-CE (NT) dated 1.3.2011 and a specific exclusion was provided for goods used for laying of foundation or making of structures for support of capital goods. It was in the context of the amended definition (w.e.f. 1.3.2011) of inputs in Rule 2 (k), the Circular dated 2.4.2012 was issued. It would be hazardous to rely upon the Circular dated 2.4.2012 to interpret the scope of inputs as it stood during the period 2005-06 to August, 2008, when the statutory frame work was entirely different.

20. In the aforesaid backgrounds, submission of the learned Counsel for the respondents is that in view of the findings recorded by the CESTAT, which is the last fact finding authority, the respondent-assessee is eligible to avail CENVAT Credit on MS Plates, MS Channels, HR Coils, M.S. Angles etc. used in the installation of capital goods inside their plaint. Thus, there is no error in the order of the Tribunal in allowing the appeal of the assessee. The present appeal is liable to be dismissed.

21. To strengthen his submission, learned Counsel for the respondents has also relied upon Commissioner of C.Ex., Jaipur Vs. Rajasthan Spinning & Weaving Mills Ltd. :2010 (255) E.L.T. 481 (S.C.), Commissioner of C.Ex. Tiruchirapalli Vs. India Cements Ltd. : 2012 (285) E.L.T. 341 (Mad.), Mundra Ports & Special Economic Zone Ltd. Vs. C.C.E. & Cus. : 2015 (39) S.T.R. 726 (Guj.), and Thiru Arooran Sugars Vs. CESTAT, Chennai : 2017 (355) E.L.T. 373 (Mad.).

22. We have examined the submissions advanced by the learned Counsel for the parties and gone through the record.

23. The issue in hand pertains to the period 2005-06 to August, 2008, wherein the respondent-assessee, who is the manufacturer of V.P. Sugar and molasses, had procured CENVAT credit on items such as MS Plates, MS Channels, HR Coils, M.S. Angles etc. The revenue issued a show cause notice proposing to disallow the credit on the ground that these items had been used either for repair and maintenance of plant and machinery or modification of their existing plant and machinery. The Original Authority, vide order dated 13.10.2010, disallowed the credit by holding that items used for repair and maintenance or modification of plant and machinery are not eligible for credit. It was also held that items embedded to earth are also not covered in the definition of capital goods and items of Chapter 72 and 73 are not eligible for the credit.

24. Not satisfied with the order dated 13.10.2010, the respondent-assessee had approached the Tribunal by means of Appeal No. E/686/2011-EX (DB). The Tribunal, after hearing the learned Counsel for the parties, allowed the appeal by means of order dated 15.5.2017, which is impugned in the present appeal. The operative portion of the order dated 15.5.2017 reads as under :

"Having considered the rival contention, I hold that the appellant is entitled to Cenvat credit on items of iron and steel in question as the same have been used for fabrication of capital goods, for repair and maintenance of capital goods, for fabrication of staging structures and supporting structures etc., as no excisable products can be manufactured without the same. Further, the amended definition of ''inputs' under Cenvat credit Rules provides for availability of Cenvat credit to a manufacturer on all items utilized by the manufacturer in the factory for or of production.

Accordingly, I allow this appeal and set aside the impugned order. The appellant will be entitled to consequential benefit in accordance with law"

25. Feeling aggrieved by the aforesaid order of the Tribunal, the revenue has filed the present appeal inter alia stating that the Board has issued clarification vide Circular dated 18.5.2012, in respect of its Circular No. 2.4.2012, wherein it was reiterated that in terms of Rule 2 (k) of the CENVAT Credit Rules, 2004, while CENVAT credit is available in respect of parts of Boiler, the same is not admissible in respect of structural components used for laying of foundation or making of structures for support of capital goods/Boiler, therefore, the Tribunal has erred in not considering the issue in its correct prospective. Furthermore, the Tribunal has erred in not applying the decision of Bajaj Hindustan Ltd. (supra), wherein this Court has held that CENVAT credit is not admissible on the inputs which were not used for manufacture of capital goods.

26. Refuting the submissions of the learned Counsel for the revenue, the stand of the learned Counsel for the respondent-assesee is that the Tribunal has rightly passed the order and there is no illegality in the impugned order inasmuch as there is no dispute on the use of steel items in their factory and during the relevant period, the capacity of the plant had been extended and the said goods have been used as structural support for capital goods.

27. In order to consider rival submissions, first of all we would like to refer Rule 2 (k) of CENVAT Credit Rules, 2004 which defines "input". This Rule as framed initially in 2004, read as under:

"2(k) "input" means all goods, except light diesel Oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils coolants, accessories of the final products cleared alongwith the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production.

Explanation 1. - The high-speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.-

Explanation 2. - Inputs include goods used in the manufacture of capital goods, which are further used in the factory of the manufacturer."

(emphasis supplied)

28. Definition of "input" under Rule 2 (k) was amended vide notification dated 7.7.2009. Amended provision inserted following clause in Explanation 2 by Cenvat Credit (Amendment) Rules, 2009 with effect from 7.7.2009:

"but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, in building or laying of foundation or making of structures for support of capital goods"

29. Consequently, w.e.f. 7.7.2009, Explanation-2 to Rule 2 (k), as a whole, read as under :

"Explanation 2 - ''Input' include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer but shall not include cement, angles, channels, Centrally Wasted Deform bar (CTD) or Thermo Mechanically Treated Bar (TMT) and other items used for construction of factory, shed, building or laying of foundation or making of structures for support of capital goods."

(emphasis supplied)

30. It may be noted that the Rule 2(k) was further substituted by notification dated 03/2011-CE(NT) dated 01.03.211 and a specific exclusion was provided for goods used for laying of foundation or making of structures for support of capital goods. Rule 2(k) as substituted w.e.f. 01.03.2011 reads as under:

"2(k) "input" means:

               (a)     all goods used in the factory by the manufacturer of 	the final product; or
 
               (b) 	any goods including accessories, cleared along with 	the final product, the value of which is included in the 	value of the final product and goods used for providing 	free warranty for final products; or
 
               (c)	all goods used for generation of electricity or steam 	(or pumping of water) for captive use; or
 
               (d) 	all goods used for providing any (output service, or);
 
               (e)	 all capital goods which have a value upto ten 	thousand rupees per piece.] but excludes
 
                       (A)	light diesel oil, high speed diesel oil or motor 	spirit, commonly known as petrol.
 
                       (B) 	Any goods used for-
 
                           (a) Construction or execution of works contract of a building or a civil structure or a part thereof; or
 
                           (b)     Laying of foundation or making of structures 	for support of capital goods, except for the 	provision of service portion in the execution 	of a works contract or construction service 	as listed under clause (b) of Section 66E of 	the Act];
 
               (C)    capital goods, except when,-
 
                       (i)	used as parts or components in the 	manufacturer of a final product; or
 
                       (ii) 	the value of such capital goods is upto then 	thousand rupees per piece;]
 
               (D)	motor vehicles;
 
               (E)	any goods, such as food items, goods used in a 	guesthouse, residential colony, club or a recreation 	facility and clinical establishment, when such goods 	are used primarily for personal use or consumption of 	any employee; and
 
               (F)	Any goods which have no relationship whatsoever with 	the manufacture of a final product.
 
           Explanation.-  For the purpose of this clause, " free warranty means a warranty provided by the manufacturer, the value of which is included in the piece of the final product and is not charged separately from the customer]."
 
       
 

31. From perusal of the circulars dated 2.4.2012 and 18.5.2012, it comes out that these circulars have been issued in the changed context of the definition of Section 2 (k) of Cenvat Credit Rules, 2004 and both circulars have no concern for the period in issue. Thus, we find that the reliance placed by the revenue in this regard has no substance.

32. On going through the record, we find that the Revenue has relied upon the larger Bench decision of the Tribunal in the case of Vandana Global (supra), wherein it was held that the explanation added to the definition of capital goods w.e.f. 07.07.2009 has to be held as explanatory and thus retrospective in nature. The said decision of the Tribunal was considered by the Honble Gujarat High Court in the case of Mundra Ports & Special Economic Zone Ltd. (Supra), wherein the said decision was not approved by the Honble High Court and observed that the amendment made on 7-7-2009 cannot be held to be clarificatory and as such would be applicable only prospectively.

33. The Madras High Court in India Cement (supra) noticed Vandana Global (supra) but relied upon the Apex Court judgment in Rajasthan Spinning & Weaving Mills Ltd. (supra), wherein the Apex Court has considered an issue of steel plates and MS channels used in the fabrication of chimney for diesel generating set and after considering it, the Apex Court allowed the cenvet credit on MS Rod, sheets, MS Channel, MS Plate etc. used for fabrication of structures to support various machines/capital goods.

34. In Thiru Arroran Sugars (supra), a Division Bench of the Madras High Court specifically considered as to whether MS structural, (which support plant and machinery), cement and steel (which are used in erecting foundations to hold plant and machinery) are integral part of capital goods eligible for cenvat credit under the Cenvat Credit Rules, 2004 prior to the amendment of Explanation 2 to Rule 2 (k) by notification dated 7.7.2009. The Madras High Court has held that irrespective or whether ''user test' is test applied, or the test that they are in the integral part of the capital goods is applied, all such items fell within the scope and ambit of both Rule 2 (a) (A) and 2 (k) and, therefore, CENVAT credit was to be allowed on such goods.

35. In view of above settled position of law, since items used by the respondent-assessee were used as structure to hold the capital goods, hence, it is wrong to say that respondents are not eligible to CENVAT credit. Therefore, in our considered opinion, the Tribunal has rightly allowed the appeal and the reasoning given by the Tribunal cannot be said to be not cogent or correct appreciation of evidence on record.

36. Insofar as the assertions of the revenue that while passing the impugned order, the Tribunal has ignored to consider the judgment rendered in Bajaj Hindustan Ltd. (supra) is concerned, we find that the Bajaj Hindustan Ltd. (Supra) was a case where the assessee had failed to demonstrate the usage of the material itself and the Court, therefore, found that there was no substantive of question of law involved but it was only a question of fact that the assessee was raising before it. In the case in hand, the respondent-assessee has specifically stated that during the relevant period, the said items were used as structural support of capital goods. Moreso, Bajaj Hindustan Ltd. (supra) does not lay down law for the items Cenvat is not available and there is no question of law formulated and answered. Thus, we are of the view that ratio laid down by the Bajaj Hindustan Ltd. (supra) is not at all applicable under the facts and circumstances of the case.

37. In view of above discussion and after giving careful consideration to the submissions, we have no manner of doubt that the Tribunal has rightly held respondent-assessee is entitled to Cenvat Credit in respect of items used as structural support for capital goods.

38. In the result, we answer the questions formulated above against the revenue and in favour of assessee.

39. The appeal lacks merit. Dismissed without there being any order as to costs.

Order Date :- 23 May, 2019

Ajit/-