Madras High Court
The Commissioner Of Cgst & Central ... vs Page No.1 Of 49 on 3 April, 2025
Author: R.Suresh Kumar
Bench: R.Suresh Kumar
W.A.(MD).Nos.557 to 568 of 2024
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on : 25.07.2024
Pronounced on : 03.04.2025
CORAM:
THE HON'BLE MR. JUSTICE R.SURESH KUMAR
AND
THE HON'BLE MR.JUSTICE G.ARUL MURUGAN
W.A.(MD).Nos.557 to 568 of 2024
in Rev.Appln.(MD).Nos.139 to 150 of 2023
in W.P.(MD).Nos.6895 to 6906 of 2022
and W.M.P.(MD).Nos.4190, 4191, 4192, 4195, 4196, 4197,
4198, 4200, 4201, 4202, 4203, 4199, 4193, 4207, 4208, 4211,
4212, 4215, 4216, 4219, 4220, 4224 and 4225 of 2024
1. The Commissioner of CGST & Central Excise
No.1, Williams Road, Cantonment,
Trichy, Tamil Nadu - 600 001.
2. The Deputy Commissioner of Central Excise & Service Tax
Central Excise & Service Tax 2 Division,
No.1, Williams Road, Cantonment,
Trichy, Tamil Nadu - 600 001.
3. The Assistant Commissioner of Central Excise & Service Tax
Central Excise & Service Tax 2 Division,
No.1, Williams Road, Cantonment,
Trichy, Tamil Nadu - 600 001.
4. The Superintendent of Central Excise & Service Tax,
Central Excise Range,
Oppillatha Amman Kovil Street,
Ariyalur, Tamil Nadu .... Appellants in all the writ appeals
Vs.
Page No.1 of 49
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W.A.(MD).Nos.557 to 568 of 2024
1. Kothari Sugars and Chemicals Ltd.,
Represented by its Company Secretary,
Mr.R.Prakash, having an office at No.115,
Kothari Buildings, Mahatma Gandhi Road,
Nungambakkam,
Chennai - 600 034. ... Respondent in all the writ appeals
Common Prayer : Writ Appeals filed under Clause 15 of the Letters Patent
to set aside the order passed in Rev.Appln.(MD).No.139 to 150 of 2023
dated 10.10.2023 in W.P.(MD).No.6895 to 6906 of 2022 dated 28.06.2023.
For Appellants : Mr.N.Dilipkumar in all the writ appeals
For Respondent : Mr.Joseph Kodianthara, Senior Counsel
for Mr.B.Vikram Veerasamy
in all the writ appeals
COMMON JUDGMENT
R.SURESH KUMAR, J.
Since the issue raised in all these writ appeals arise out of the
common order passed in Rev.Appln.(MD).Nos.139 to 150 of 2023 in W.P.
(MD).Nos.6895 to 6906 of 2022 by the writ court, these writ appeals were
heard together and are disposed of by this common order.
2. The respondent Kothari Sugars and Chemicals Ltd., is a
manufacturer of sugar and molasses falling under Chapter sub-heading
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1701-1190, 1703-1000 of the Central Excise Tariff Act 1985. The
respondent has availed CENVAT Credit for the capital goods used in
establishing a captive power plant of the respondent and the said availing of
Cenvat Credit, according to the Revenue was wrongly availed by the
respondent / assessee, thereby show cause notices were issued covering
from the period 2008 to 2015 on various dates.
3. The first show cause notice is dated 16.06.2009 for the period
between February 2008 and January 2009 and the remaining show cause
notices were issued in the year 2010, 2011, 2012, 2013, 2014 and 2015 and
the last show cause notice is dated 09.11.2015 for the period from October
2014 to March 2015.
4. These show cause notices, in fact were under challenge in a batch
of writ petition in W.P.(MD).Nos.6895 to 6906 of 2022 filed by the
respondent / assessee.
5. Before the writ court, arguments on merits even though were
submitted, at one point of time, i.e., on 28.06.2023, it was submitted on
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behalf of the assessee / writ petitioner that the show cause notices have been
issued asking the petitioner to show cause why CENVAT Credit availed on
capital goods used in co-generation plant should not be demanded under the
relevant provisions together with interest and penalty and the said issue
since has already formed the subject matter of the order passed by the office
of the Commissioner of CGST and the Central Excise in order-in-original
dated 31.03.2023 relates to yet another similarly placed sugar factory with
co-generation plant called M/s. EID Parry India Ltd., Pugalur and the said
order has become final, on the same line, the issue raised in the batch of writ
petitions could be decided.
6. When this representation had been made on behalf of the writ
petitioner, the learned counsel appearing for the Revenue before the writ
court in fact had stated that, this representation can directly be made before
the officer concerned.
7. Recording these submissions made by the learned counsel
appearing for both sides, the learned writ court disposed the said batch of
writ petitions by order, dated 28.06.2023 giving a direction that on behalf of
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the petitioner, they shall appear before the Commissioner of CGST and
Central Excise, i.e., the first respondent in the writ petitions on 12.07.2023
at about 11.30 a.m and the first respondent therein shall follow the order,
dated 31.03.2023, passed order-in-original in respect of M/s.EID Parry
(India) Ltd., allowing the CENVAT Credit in respect of the machineries
that the writ petitioner used in their co-generation captive power plant and
such an order shall be passed within a period of two weeks from the date of
appearance.
8. The learned Judge also recorded that, the writ petitioner's counsel
had in fact conceded that in respect of two cases, i.e., in W.P.(MD).Nos.
6896 and 6903 of 2023, they were not pressing the arguments with
reference to the input credit since they have already made the payments.
Except these two aspects, the learned writ court has allowed all those writ
petitions with the aforesaid directions by the order, dated 28.06.2023.
9. Pursuant to the said order passed by the writ court, dated
28.06.2023, the writ petitioner approached the officer concerned as directed
by the writ court. However, during the hearing, the Revenue, i.e., the first
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respondent in the writ petitions insisted upon the petitioner to produce the
User Test Certificate, in short (UTC), as in the earlier case in respect of
M/s.EID Parry (India) Ltd., the officer concerned had passed orders on
behalf of the Revenue only on the basis of User Test Certificate, therefore,
the User Test Certificate shall also be filed by the present writ petitioner.
10. Aggrieved over this demand made on behalf of the Revenue
seeking the production of the User Test Certificate by the assessee / writ
petitioner, the assessee had filed a batch of Review Applications in
Rev.Appln.(MD).Nos.139 to 150 of 2023 seeking to review the order
passed by the writ court dated 28.06.2023.
11. Those Review Applications had been heard by the writ court,
where it is not only the issue as to whether the UTC was required to be
produced as a mandatory one or not but also the learned writ court since had
heard the matter in full on merits submitted by both sides, had decided the
matter on merits. By thus, the Review Applications as well as the Writ
Petitions in toto were allowed by the order, dated 10.10.2023. That is the
order impugned in this batch of writ appeals, as aggrieved over the said
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order of the writ court, dated 10.10.2023, the Revenue has preferred these
Intra Court Appeals. That is how these appeals have come up for hearing
and disposal.
12. The learned standing counsel Mr.N.Dilipkumar appearing for the
Revenue / appellant has made submissions stating that, 12 number of show
cause notices had been issued from the year 2008 to 2015. At that time, the
same issue was pending against the very same writ petitioner / assessee
before the Hon'ble Supreme Court in its own matter, all the show cause
notices issued by the Revenue were kept under the Call book. In fact, the
respondent herein / assessee by letter, dated 05.12.2012, requested the
transfer of the show cause notices to the call book as the earlier case was
pending before the Hon'ble Supreme Court. It is inconsonance with the
departmental procedures as per the Board's Circular dated 10.03.2017 the
show cause notices had been transferred and kept in the Call book.
13. When the said issue was pending before the Hon'ble Supreme
Court, the Revenue at a later point of time had decided to withdraw the
appeals against the Kothari Sugars in terms of the low monetary value as per
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the National Litigation Policy and thus, the SLPs in C.A.No.2039-2040 of
2011 were withdrawn on low monetary limit. Therefore all the show cause
notices which have been kept under call book have been taken out from the
Call book for adjudication.
14. Only at that juncture, according to the learned counsel appearing
for the Revenue, those 12 writ petitions were filed and while orders were
passed on those writ petitions on 28.06.2023, the writ petitioners were
directed to appear before the Adjudicating Authority on 12.07.2023 and also
directed the Department to follow the order-in-original in the case of
M/s.EID Parry (India) Ltd., Pugalur, where the Adjudicating Authority had
in fact allowed the CENVAT Credit on the machinery that was used in the
co-generation / captive power plant based on the user Test certified by the
Chartered Engineer.
15. The learned counsel for the Revenue has further submitted that,
since the Department had initiated adjudicating proceedings in respect of
M/s.EID Parry (India) Ltd., based on the law having been declared by the
Hon'ble Supreme Court in the decision in Commissioner of C.Ex.,
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Coimbatore v. Jawahat Mills Ltd., reported in 2001 (132) E.L.T.3 (S.C.) and
Commr. of C.Ex., Jaipur v. Rajasthan Spinning & Weaving Mills Ltd.,
reported in 2010 (255) E.L.T.481 (S.C.) and had allowed the proceedings in
respect of M/s.EID Parry (India) Ltd., to have the benefit of CENVAT
Credit only on the basis of the user test for which the necessary certification
had been produced by the M/s.EID Parry (India) Ltd. Therefore since the
present assessee / writ petitioner, namely Kothari Sugars also is similarly
placed, in order to complete the adjudication as directed by the Court, by
order, dated 28.06.2023, the Adjudicating Authority required the assessee to
produce the User Test Certificate (UTC).
16. Therefore it cannot be stated that, it was an after thought or new
invention or only now demanded on behalf of the Revenue to file the User
Test Certificate and therefore the very Review Applications filed by the writ
petitioner ought not to have been entertained by the writ court , however,
the learned writ court having entertained the Review Applications in fact
had allowed the same by allowing the writ petitions also not only on the
point of User Test Certificate but also on merits including the delay. Hence
such an order passed by the learned writ court through the order impugned
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in a batch of Review Applications dated 10.10.2023 is erroneous. Hence the
learned standing counsel Mr.N.Dilipkumar appearing for the Revenue
would seek indulgence of this Court against the order impugned.
17. On the other hand, Mr.Joseph Kodianthara, learned Senior
counsel assisted by Mr.B.Vikram Veerasamy, learned counsel appearing for
the respondent / assessee would contend that, both in the Jawahar Mills case
as well as in the Rajasthan Spinning and Weaving Mills case it has not been
decided by the Hon'ble Supreme Court that, the User Test Certificate is a
mandatory one or as a pre-requisite one before starting with the adjudication
process or completing the same. If at all there has been any doubt over the
usage of such capital machineries in the co-gen plant or the captive plant,
then only the question of production of certificate would arise. However
here in the case in hand, according to the learned Senior counsel appearing
for the Assessee, no such doubt has arisen and it is not the case of the
Revenue even emanating from the show cause notice that, there has been a
doubt over the utility or usage of these machineries as capital goods for the
purpose of availing the CENVAT Credit. When that being so, the sudden
insistment on the part of the Revenue at the time of adjudication process to
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produce the User Test Certificate is an after thought and a new invention,
therefore it cannot be imposed on the Assessee / Respondent herein, he
contended.
18. The learned Senior counsel would also submit that, insofar as the
reason assigned by the Revenue for issuing the show cause notices is that,
the assessee has availed the CENVAT Credit wrongly for the capital goods
used in the co-gen plant from where the end project would be the electricity
which is exempted from excise duty. When that being so, as per the
provisions of the CENVAT Rules, CENVAT Credit cannot be availed by
the assessee. However, that issue was already concluded or given up against
the own case of the assessee, as the matter though has gone up to the
Hon'ble Supreme Court, ultimately it has been withdrawn. Therefore the
only reason cited in the show cause notice since has gone out or exhausted,
the question of testing as to whether the assessee has used those capital
goods or not does not arise, hence, such an insistment of User Test
Certificate is an unwarranted demand and superfluous one as it is not a
mandated one even according to the two decisions mainly relied upon by the
Revenue and therefore the learned Senior Counsel appearing for the
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Assessee / Respondent would contend that, such an insistment of User Test
Certificate by the Adjudicating Authority before deciding the claim of the
assessee to avail the CENVAT Credit was unjustifiable.
19. The learned Senior counsel also would submit that, not only on
the basis of the User Test Certificate but also on the basis of merits,
arguments were advanced by both sides in the writ court in the Review
Applications, where the point of delay also had been raised on behalf of the
assessee and on merits as well on the point of delay, the learned writ court
has considered the issue at length and ultimately concluded that on merits as
well as on the ground of delay, the show cause notices which were
originally impugned before the writ court under the writ petitions would not
be sustained and therefore, the learned writ court has allowed the Review
Applications filed by the Assessee, by thus, allowed the writ petitions also
through the order impugned. Hence, the learned Senior counsel would
contend that, absolutely there has been no scope for interference against the
order impugned by this Court and hence, the learned Senior counsel seeks
indulgence of this Court to dismiss all these writ appeals.
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20. We have considered the rival submissions made by the learned
counsel appearing for both sides and have perused the materials placed
before this Court.
21. The issue in fact has emanated from the issuance of show cause
notices starting from 2008 till 2015.
22. If we look at the show cause notices initially issued against the
assessee on 16.06.2009, inter alia it states as follows :
"2. The assessee have set-up a co-generation plant in their
factory premises. Part of the electricity generated is captively
consumed and the balance quantity is being sold to TNEB.
Electricity is an exempted product. During the course of audit of
the records and accounts maintained by the assessees, it was
noticed that they had availed Cenvat Credit to the tune of Rs.
3,20,880/- on capital goods used in Co-generation plant as
detailed below:
Sl.No Name of the Invoive No. Basic ECess SHE. Total RG-23C Part-II
Supplier & date Excise CESS Sl.No.
Duty
1. Krishnaveni 324/ 325 7 3 335 348/31.10.08 &
Carbon Brush 16.10.2008 0/01.04.09
2. TEE CEE E101/ 11059 222 110 11391 349/31.10.08
Enterprises 15/09/2008 & 0/01.04.09
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Sl.No Name of the Invoive No. Basic ECess SHE. Total RG-23C Part-II
Supplier & date Excise CESS Sl.No.
Duty
3. K-Life 2284/ 2625 53 26 2704 62/30/05/08 &
Industries 19/03/2008 & 0/01/04/09
4. Yokogawa 794/ 1876 37 19 1932 385/26.11.08
India Ltd., 24/10/2008 & 0/01/04/09
5. Yokogawa 795/ 257208 5145 2572 264925 386/26.11.08
India Ltd., 24/10/2008 & 0/01/04/09
6. Yokogawa 797/ 34916 697 348 35961 386/26.11.08
India Ltd., 24/10/2008 & 0/01/04/09
7. Dynamic 2139/ 30 1 0 31 472/31.01.09
Gasket 23/01/09 & 0/01/04/09
8. Shanthi Gears C/10805506/ 3496 70 35 3601 320/03/10/08
Ltd., 02/09/09 &0/01/04/09
...
...
...
6. Whereas it appears that the assessee had availed cenvat credit
on capital goods used in the co-generation plant which
generates electricity, an exempted product to the tune of Rs.
3,20,880/- during the period from February, 2008 to January,
2009, which is ineligible under the provision of Rule 6(1) of
COR
...
...
...
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7. Now, therefore, M/ Kothari Sugars and Chemicals Ltd.,
Kattur are required to show cause to the Deputy Commissioner
of Central Excise, Central Excise || Division, No.1 Williams
Road, Cantonment, Trichy -01 with in 30 days from the receipt
of this notice,an to why;
1. the cenvat credit Rs.3,20,880/- (Rupees Three lakhs twenty
thousand eight hundred and eighty only) (BED Rs.3,11,535/-
Ed. Cess Rs.6,231/-and SHE.Cess Rs.3,114/-) availed on
capital goods used in co-generation plant during the period
from February, 2008 to January, 2009 should not be demanded
under Rule 14 of CCR read with proviso to section 11A(1) of
the Central Excise Act, 1944 as ineligible credit;
ii. interest at appropriate rate on the above said amount should
not be collected under Rule 14 of CCR read with section 11AB
of the Central Excise Act, 1944 from the date of availment of
such ineligible credit to till the date of either reversal or
recovery;
iii. penalty should not be imposed on them under Rule 15 CCR
read with section 11AC of the Central Excise Act, 1944."
23. The next show cause notice is dated 24.02.2010, where inter alia
the Revenue has stated the following :
"3. In terms of Rule 6(4) of CENVAT Credit
Rules 2004, "No CENVAT credit shall be allowed
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on capital goods which are used exclusively in the
manufacture of exempted goods or in providing
exempted services other than the final products
which are exempted from the whole of Excise duty
leviable thereon under any Notification where
exemption is granted based upon the value or
quantity of clearances made in a financial year."
4. The assessee have used the above Capital
Goods in the co-generation plant installed in their
factory premises for the manufacture of Electricity
which is an exempted product.
...
...
...
7. Now, therefore, M/s. Kothari Sugars &
Chemicals Ltd., Kattur are required to show cause
to the Deputy/Assistant Commissioner of Central
Excise, Central Excise & Service Tax II Division,
No.1, Williams Road, Cantonment, Trichy -
620001 within 30 days from the receipt of this
notice as to why:
i) the CENVAT Credit of Rs. 198669/- (Rupees
One lakhs ninety eight thousand six hundred and
sixty nine only) (BED: Rs. 192891/-; Edu. Cess
Rs.3852/-; and S.Edu.Cess: Rs. 1926/-) availed on
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Capital Goods used in Co-generation plant during
the period from April 2009 to December 2009
should not be demanded from them under Rule 14
of the CENVAT Credit Rules 2004 read with Sec.
11A(1) of. Central Excise Act 1944 as ineligible
credit;"
24. Almost similar reasons or similar text has been mentioned in all
such show cause notices from 2008 to 2015.
25. If we look at the show cause notices issued by the Revenue, we
can find that the stand of the Revenue is that, the assessee has set up a co-
generation plant in their factory premises, part of the Electricity generated is
captively consumed and the balance quantity is being sold to TNEB, i.e.,
Tamil Nadu Electricity Board, presently, TANGEDCO and the electricity is
an exempted product and during the audit it was noticed that they had
availed CENVAT Credit on capital goods used in co-generation plant and
what are all the machineries, i,e., capital goods which were used or installed
in the co-generation plant also had been enumerated as eight items were
mentioned in the notice dated 16.06.2009 and it appears that, the assessee
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had availed CENVAT Credit on the capital goods used in the co-generation
plant which generates electricity, it is an exempted product and therefore
show cause notice now had been issued as to why the CENVAT Credit
availed on capital goods used in co-generation plant during the period
should not be demanded under Rule 14 of CCR r/w proviso to Section
11(A)(1) of the Central Excise Act, 1944.
26. In the notice dated 24.02.2010 as extracted herein above, the
Revenue has stated that, the assessee has used the above capital goods in the
co-generation plant installed in their factory premises for the manufacture of
electricity which is an exempted product.
27. Therefore from the content of the show cause notices, we can
easily ascertain that, it is the definite case on the part of the Revenue that,
the assesee has used the capital goods or machineries in the co-generation
plant which generates the electricity which is the main product. Electricity
being an exempted product, the assessee is not entailed to avail the
CENVAT Credit, however the assessee since has availed the CENVAT
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Credit, it become necessitated to recover the said amount availed by them
and therefore show cause notices have been issued.
28. Nowhere it is stated or asserted by the Revenue in the show cause
notices that, the assessee has claimed to have used machineries, capital
goods in the co-generation plant or captive unit in the factory premises but
no certification to that effect has been filed by the assessee and therefore in
order to ascertain or assess such usage of capital goods in the cogent plant
of the assessee, either inspection has to be undertaken or a User Test
Certificate issued by the Chartered Engineer to be produced. Unless these
Certification are produced to the satisfaction of the Revenue, the CENVAT
Credit availed by the assessee cannot be accepted and therefore such
availment of CENVAT Credit wrongly could be recovered from the
assessee, to that extent a show cause notice is issued, could have been the
show cause notice issued by the Revenue, had there been the definite stand
of the Revenue that, the claim made by the assessee to have used or utilised
the capital goods is not supported by any evidences.
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29. When that was not the stand of the Revenue and no where it has
raised any doubt over the utility or usages of these capital goods in the
cogent plant of the assessee and the only reason for which the series of
show cause notices were issued by the Revenue was that, the co-generation
plant generates electricity which is an exempted product, therefore
CENVAT Credit cannot be availed, the Revenue at no stretch of
imagination at a later date can change their stand by insisting upon the User
Test Certificate which is an after thought as a new demand which has not
been form part of the original show cause notices.
30. It is a settled legal proposition that, the Revenue cannot improve
their case beyond what has been shown in their show cause notices.
Umpteen number of decisions have been rendered that, the Revenue must
confine with the content of the show cause notice, as the show cause notice
is the basis, based on which only adjudication process has to go on and to be
decided.
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31. To substantiate the aforestated principle, though number of
citations could be relied upon, the following two decisions can be usefully
referred to :
(i) CCE v. Shital International reported in (2011) 1 SCC 109, wherein
the Hon'ble Supreme Court has held as follows :
"19. As regards the process of electrifying polish,
now pressed into service by the Revenue, it is trite
law that unless the foundation of the case is laid in
the show- cause notice, the revenue cannot be
permitted to build up a new case against the
assessee. (See:Commissioner of Customs, Mumbai
Vs. Toyo Engineering India Ltd, Commissioner of
Central Excise, Nagpur Vs. Ballarpur Industries
Ltd and Commissioner of Central Excise,
Bhubaneshwar-I Vs. Champdany Industries
Limited). Admittedly, in the instant case, no such
objection was raised by the adjudicating authority
in the show cause notice dated 22nd June 2001
relating to the assessment year 1988-89 to
2000-01. However, in the show cause notice dated
12th December 2000, the process of electrifying
polish finds a brief mention. Therefore, in light of
the settled legal position, the plea of the learned
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counsel for the Revenue in that behalf cannot be
entertained as the revenue cannot be allowed to
raise a fresh plea, which has not been raised in the
Show Cause notice nor can it be allowed to take
contradictory stands in relation to the same
assessee."
(ii) Techno Prints v. Chhattisgarh Textbook Corporation and Ors.,
reported in MANU/SC/0230/2025, it has been held as follows :
"32. We may put it in a slightly different way. Take
for instance, the show cause notice in the present
case is the final order of blacklisting. The final
order in any case cannot travel beyond the show
cause notice. Therefore, we take the show cause
notice as the final order. Whether it makes out a
case for blacklisting? This should be the test to
determine whether it is a genuine case to blacklist a
contractor or visit him with any other penalty like
forfeiture of EMD, recovery of damages etc. We
say so because once an order of blacklisting is
passed the same would put an end to the business
of the person concerned. It is a drastic step. Once
the final order blacklisting the Contractor is passed
then the Contractor is left with no other option but
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to go to the High Court invoking writ jurisdiction
Under Article 226 of the Constitution and
challenge the same. If he succeeds before the
Single Judge then it is well and good otherwise he
may have to prefer a writ appeal or LPA as the case
may be. This again would lead to unnecessary
litigation in the High Courts. The endeavour
should be to curtail the litigation and not to
overburden the High Courts with litigations of the
present type more particularly when the law by and
large is very well settled and there is no further
scope of any debate."
32. That apart, there has been a comparison between two cases, i.e.,
the case of M/s.EID Parry (India) Ltd., and the present assessee, namely
Kothari Sugars and Chemicals Ltd.,
33. Insofar as the M/s.EID Parry (India) Ltd., there has been a show
cause notice dated 07.05.2008. When this M/s.EID Parry (India) Ltd., case
was adjudicated, the Adjudicating Authority by order-in-original dated
31.03.2023 has exhaustively discussed the issue and decided the issue in
favour of M/s.EID Parry (India) Ltd.,
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34. In the said order of M/s.EID Parry (India) Ltd., dated 31.03.2023,
the Adjudicating Authority has given the following findings :
"12. I find that the Show cause notice alleges that
any components, spares and accessories used in
the said Captive Power Plant do not fall under the
definition of capital goods as per Rule 2(a)(A)(i)
of CENVAT credit Rules, 2004 in view of the fact
that the turnkey projects are not excisable goods as
they are not 'goods' conforming to the description
of any machinery which fall under the chapter
numbers mentioned in the definition of capital
goods. In this regard, I have gone through the
definition of Capital Goods, which clearly states
that the goods mentioned under Rule 2(a)(A) ibid
are to be used in the factory of the manufacture of
the final products. It is immaterial whether they
are erected/installed in a plant, they will fall under
the definition and eligible for CENVAT credit.
Thus, to fall under the scope of the definition of
Capital Goods (as applicable to the case on
hand)-1) They should fall under the Chapter
Heading mentioned under Rule 2(a)(A)(i) ibid;
2)It should be Pollution Control Equipments;
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3)Components, Spares and accessories of the
above said goods/equipment.
13. The moot question in respect of captive power
plant remained legally disputed because of the
doubtful nature of tax liability on capital power
plants and the consequential credit eligibility in
respect of goods used as inputs for the assembly or
the manufacture of such captive power plants. The
second issue involved is in case of any inputs that
are used for the manufacture of electricity whether
credit availed on such inputs is legal or otherwise
in view of electricity reportedly being non-
excisable goods and even otherwise a part of
electricity so produced is being wheeled out
instead of being used in the manufacture of final
product by the factory.
All these disputes are legally settled by the
Hon'ble Apex Court after prolonged legal
deliberation at lower forum and as such, I am
constrained to see the issue involved here in with
regard to settled legal precedents.
14. In this case on hand, the issue involved is
a) Whether the credit availed in respect of
machineries, components and other accessories
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used towards setting up of a captive power plant is
eligible or not?
b) Whether the credit on inputs or services used
towards setting up of a captive power plant is
eligible or not?
...
...
...
16. I have perused the subsequent version of
Cenvat Credit Rules, 2004 which was in force
during the disputed period and noticed that there
has not been any paradigm shift in the legislative
intention to prohibit credit with regard to capital
goods. On the other hand, the definition for capital
goods is much more liberal under Cenvat Credit
Rules, 2004. In the case of CCE Vs. Rajasthan
Spinning and Weaving Mills Ltd. - 2010(255)
ELT 481 (SC), the Hon ble Apex Court further
reiterated the principles laid down by the Apex
Court in the case of Jawahar Mills cited above in
interpreting the definition of capital goods to
determine its credit eligibility. This settled legal
provision has been followed up by various lower
juridical and Appellate forums subsequently. In
the absence of any change in legislative intention,
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I am duty bound to decide the issue on hand on the
basis of legal interpretation given by the Hon'ble
Apex Court in the above cited cases and hence
disregard the clarification issued by the Board in
the above cited circular as irrelevant for the
subject matter inasmuch as there is no question of
excisability of capital power plant disputed herein
but only the eligibility of credit on goods used in
establishing the captive power plants within the
frame work of Cenvat Credit Rules, 2004. Further
there is no dispute in the subject notice with regard
to the status of Captive Power Plant falling within
the parameter of Plant and Equipments.
17. I find that the goods falling under Chapters
mentioned under Rule 2(a)(A)(i) ibid would be
eligible for credit unless it is proved that they were
not used in the factory of manufacture by the
assessee in the instant case. Similarly, if it is in the
nature of Pollution Control Equipment also it is
extendable. In respect of the goods which neither
fall under Rule 2(a)(A)(i) & Rule 2(a)(A)(ii) ibid it
has to be examined whether they are covered
under Rule 2(a)(A)(iii) ibid. The Apex Court in
the ease of Commissioner of Central Excise,
Jaipur vs. Rajasthan Spinning & Weaving Mills
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Ltd. reported in 2010 (255) ELT 481 (SC) has
allowed the credit in respect of steel plates and
M.S. Channels, used in the fabrication of chimney
in the case of Commnr. of Central Excise, Jaipur
vs. M/S. Rajasthan Spinn. & Weaving... on 9 July,
2010 by applying the user test. The relevant
portion of the order is reproduced below
...
...
...
21. It has to be determine as to whether the
aforementioned materials/components/services
form integral part of the Captive Power Plant and
further whether the aforementioned
materials/components/services satisfy the user test
propounded by the Hon'ble Supreme Court in the
case of M/s. Rajasthan Spinning & Weaving Mills
Ltd. in order to ascertain the usage of impugned
goods, the jurisdictional Assistant Commissioner
of GST and central Excise, vas directed to cause
factual verification so as to determine as to
whether the aforementioned materials/components
satisfy the 'user test and fall under the ambit of
capital goods or otherwise.
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USER-TEST VERIFICATION REPORT
22. In the jurisdictional range officer's verification
report dated 31.03.2023, it is submitted as under.
"It is submitted by the Jurisdictional
superintendent of GST and central Excise that the
goods have been verified and the same were
installed and visually inspected with reference to
the description of goods/components. Details
pertaining to each of the said goods like
description of the goods, sample invoices, photos
and Chartered Engineer Certificate were obtained
from the assessee. Physical verification of the
goods installed was conducted in presence of
Chartered Engineer, vis-a-vis the description of
the goods and the use thereof. On inspection, it is
observed that each of the said goods/components
form integral part of the power plant and the same
are essential for the efficient functioning of the
power plant. Hence, the impugned goods satisfy
the "User Test". The Certificate issued by
chartered Engineer ELBI/CHE/2223/1223 dated
27.03.2023 is forwarded by the Range officer."
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35. The Adjudicating Authority in the case of M/s.EID Parry (India)
Ltd., has stated that the User Test theory propounded by the Hon'ble
Supreme Court in the case of Rajasthan Spinning and Weaving Mills Ltd.,
(cited supra) to satisfy that the materials, components have been used in the
captive power plant was applied and therefore the Adjudicating Authority
before whom infact, the Jurisdiction Range Officer had filed Verification
Report dated 31.03.2023 after conducting the verification and inspection by
the Chartered Engineer and thereafter, has allowed the case of the M/s.EID
Parry (India) Ltd.,
36. Therefore the counsel appearing for the Revenue in the present
case has argued that, no doubt the assessee herein, i.e., Kothari Sugars may
be entitled to get the benefit of availing the CENVAT Credit for the capital
goods which they installed and used in the co-generation power plant
provided only on the basis of the case of M/s.EID Parry (India) Ltd., which
was allowed by the Adjudicating Authority, if so, whether the same
treatment can be meted out by the present assessee, if it is asked. The same
can be availed by the present assessee in the similar fashion as has been
adopted in the case of M/s.EID Parry (India) Ltd., i.e., on satisfaction of the
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User Test Certificate or User Test Theory. In support of this contention, the
learned Standing counsel relied upon the said two decisions, namely
Jawahar Mills Ltd., case and Rajasthan Spinning and Weaving Mills
Ltd.,case cited supra.
37. This issue in fact has been considered by the learned writ court in
the order impugned, where the learned writ court has discussed the import
of the two decisions, namely Jawahar Mills Ltd., case and Rajasthan
Spinning and Weaving Mills Ltd., case and has decided as follows :
"23. The show cause notices which are the subject
matter of these writ petitions have been issued
between the period 2009 to 2015 on the ground
that the machineries/components which are used in
the cogeneration plant is being used for generating
electricity which is an exempted commodity and
therefore the petitioners are not entitled to
CENVAT Credit. This conclusion has been arrived
at by applying the provisions of Rule 6(4) of the
CENVAT Credit Rules 2004 which states that
CENVAT Credit cannot be allowed on capital
goods which are used exclusively in the
manufacture of exempted goods other than the
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final products which are exempted from whole of
duty of Excise duty leviable. Therefore, it is
clearly seen that the respondents whose earlier
show cause notices have reached finality are
attempting to raise a new issue which was not
pleaded earlier. Their demand for User Test
Certificates based on the judgements of the
Hon'ble Supreme Court in the Jawahar Mills Ltd
and the Rajasthan Spinning & Weaving Mills is
also not maintainable for the simple reason that at
no point in time either in the earlier show cause
notices or in the show cause notices now
impugned has the respondents raised a doubt that
all the components in respect of which CENVAT
Credit has been availed are not being put to use in
the co-generation plant. This stand has been taken
up for the first time only when the petitioner had
appeared before the 1st respondent after the order
of this Court dated 28.06.2023. Further the show
cause notice clearly states that the components are
being used to generate electricity which is an
exempted good; therefore is clear that the
respondents had no doubt that the equipments
were being put to use for generating electricity.
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24. The demand for the User Test Certificate is on
the basis that the Hon’ble Supreme Court has
given its stamp of approval to the production of
the User Test Certificate in its judgements in the
Jawahar Mills Ltd and the Rajasthan Spinning &
Weaving Mills which have been referred earlier.
Therefore, it is necessary to consider the dicta laid
down in the above two cases.
25. In the case of Jawahar Mills Ltd, the Hon'ble
Supreme Court was considering the issue of
availing MODVAT Credit in respect of certain
items by the manufacturers treating them as capital
goods in terms of rules 57 Q of the Central Excise
Rules 1944. The controversy in that case was as to
whether these items would come within the ambit
of capital goods as set out in Rule 57-Q. The
learned Judges had observed that the definition of
capital goods is wide and capital goods could be
machines, machinery, plants, equipment and
apparatus tools or appliances which are used for
producing or processing any goods or for bringing
about any change in any substances for
manufacturing of the final products qualifying for
availing a MODVAT Credit. In the said case, the
Hon’ble Supreme Court had observed that at no
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point in time before the authorities had the
revenue raised a case that the items do not satisfy
the requirements of capital goods within the
meaning of the Rule 57-Q, on the ground of User
Test and it was only before the Hon'ble Supreme
Court that the same has been urged. Therefore, the
learned Judges had refused to remand the matter
for fresh decision. The learned Judges had simply
given its concurrence to an argument advanced by
the learned Additional Solicitor General that the
user of a particular component would determine
whether or not it qualifies the requirement of
clause 1A of the definition of capital goods as
given in the explanation to Section 57-Q of the
Central Excise Rules. This is only a reference in
the passing. In fact, a reading of the said
judgement nowhere indicates that the Hon’ble
Supreme Court had directed the production of a
User Test Certificate.
26. This Judgement has been followed by the
Supreme Court once again in the case of Rajasthan
Spinning & Weaving Mills which is the other
judgement on the basis of which the respondents
seek to justify their demand for a User Test
Certificate. In the case of Rajasthan Spinning &
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Weaving Mills the issue was whether the steel
plates and M.S channels used for the fabrication of
the chimney in a diesel generating shed would
qualify to be termed as capital goods and thereby
entitled to MODVAT Credit. Ultimately, the
Hon’ble Supreme Court had held that the steel
plates and M.S channels fall within the definition
of capital goods and therefore the petitioner was
entitled to avail MODVAT Credit. In the said case
the Hon’ble Supreme Court had applied the ''User
Test'' to come to the conclusion that the steel
plates and M.S channels are used for the
fabrication of the chimney and would therefore fall
within the purview of Serial No.5 of table attached
to Rule 57Q of the Central Excise Rules, 1944.
These judgments have not set a precedent that a
User Test Certificate is mandatory. On the
contrary, in the case of Jawahar Mills Ltd, the
Hon’ble Supreme Court had observed that the plea
of User Test had not been raised earlier by the
respondent/ revenue and therefore, they had
become disentitled to raise the plea. In the case of
Rajasthan Spinning & Weaving Mills, the User
Test has been used in the context of coming to the
conclusion as to whether the steel plates and M.S
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Channel are being used for the fabrication of
chimney."
38. We are in complete agreement with the discussion made and
conclusion reached by the learned writ court insofar as the applicability of
the two decisions on the case in hand.
39. In fact, in CCE v. Jawahar Mills Ltd., case reported in (2001) 6
SCC 274, the relevant para, i.e., para 6 of the order reads thus :
"The contention of learned Additional Solicitor
General that the aforesaid decision and other
decisions referred by the Tribunal in the impugned
order were cases involving sales tax and income
tax and, therefore, the Tribunal should not have
relied on those decisions is without any substance
because the real question is that of the principle
laid down by a decision. In view of the liberal
language of the provision, Mr. Rohtagi fairly and
very rightly did not seriously dispute that if any of
the items enumerated in explanation 1(a) is used
for any purpose mentioned therein for the
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manufacture of final products, it would satisfy the
test of `Capital goods'. The main contention of Mr.
Rohtagi, however, is that the question whether an
item falls within the definition of `Capital goods'
would depend upon the user it is put to. The
submission is that parts of the items in respect
whereof availing of Modvat credit has been
allowed by the Tribunal could not be treated as
'Capital goods' as the manufacturer could not
establish that the entire item was used in the
manufacture of final product. To illustrate his
point, Mr. Rohtagi submitted that part of a cable
may go into the machine used by the manufacturer
and, thus, may qualify the requirement of clause
1(a) and, at the same time, another part of the
cable which is used only for lights and fans would
not so qualify. We have no difficulty in accepting
the contention of the learned Additional Solicitor
General that, under these circumstances, user will
determine whether an item qualifies or not the
requirement of clause 1(a). However, in the
present cases this aspect has no relevance. It was
not the case of the revenue at any stage before the
authorities that an item does not satisfy the
requirement of `Capital goods' within the meaning
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of the Rule on the ground of its user as it now
sought to be urged by the learned counsel. The
case of the revenue has all through been that the
items in question per se are not `Capital goods'
within the meaning of the expression as defined in
Explanation 1(a). In respect of the cables of which
Mr. Rohtagi gave example, the stand of the
revenue before the Tribunal was that the cables per
se cannot be treated as `Capital goods'. The stand
of the revenue was not as has been projected now
by Mr. Rohtagi. In this view, the question of
directing remand of these matters for fresh
decision by the Tribunal does not arise. On the
facts and circumstances of these cases, therefore,
the stand that the items in question are not used for
manufacture of final product cannot be accepted
for the reasons aforestated."
40. Even in Jawahar Mills Ltd., case, this kind of User Test Principle
by requiring a User Test Certificate as a mandatory one before the
Adjudication has not been propounded. What is the case of the Revenue
right from the beginning is the matter. As the case of the Revenue should
emanate from the show cause notice, where what was the stand that has
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been taken by the Revenue, that shall be taken into account. The case of the
Revenue all through has been whether the goods utilised or used by the
assessee are the capital goods or not and if they are capital goods, whether
the assessee would be entitled to avail the CENVAT Credit or not are the
only question to be answered by the Adjudicating Authority in every such
case.
41. Therefore based on the facts that has been emanated from the
show cause notice, which are the basic content of the Revenue, if we apply
the principle of Jawahar Mills Ltd., case that would not advance the case of
the Revenue, instead that would advance the case of the assessee.
42. Almost is the similar situation, if we apply the principle of
Rajasthan Spinning and Weaving Mills Ltd., case also.
43. It was in fact, relied upon by the learned Standing counsel
appearing for the Revenue about an order passed by the Adjudicating
Authority in similar case pertains to Dhanalakshmi Sugars Pvt., Ltd., where
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also such an issue had come up, where the learned counsel relied upon
paragraph 21 and 34(b) which reads thus :
"21. It has to be determined as to whether the
aforementioned materials / components / services
form integral part of the Captive Power Plant and
further whether the aforementioned materials /
components / services satisfy the user test
propounded by the Hon'ble Supreme Court as in
the case of M/s.Rajasthan Spinning & Weaving
Mills Ltd. In order to ascertain the usage of
impugned goods, the jurisdictional Assistant
Commissioner of GST and Central Excise, was
directed to cause factual verification so as to
determine as to whether the aforementioned
materials/components satisfy the 'user test' and fall
under the ambit of capital goods or otherwise.
...
...
...
34.(b). I disallow the CENVAT credit on Items,
where no proof is rendered by the assessee that
item was used as goods specified in Rule2(a)(A)
(i)&(ii) of CCR, 2004 as indicated in Table B (out
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of materials listed in Annexure-I of Chartered
Engineer Certificate)."
44. By citing this order, the learned Standing counsel has submitted
that, whether those materials, i.e., capital goods or machineries have been
used or utilised in the captive plant or co-gent plant by any assessee, that
has to be tested to the satisfaction of the Adjudicating Authority, then only
the assessee would be allowed to avail the CENVAT Credit. If such a
satisfaction is not made by the assessee concerned to the Adjudicating
Authority, the availment of the CENVAT Credit shall be treated as a wrong
availment as without using or utilising such a capital goods, such a
availment of CENVAT Credit should not have been availed and therefore
on that ground adjudication can be decided, he contended.
45. We are not impressed with the said arguments advanced by the
learned Standing counsel appearing for the Revenue, for the simple reason
that, as we stated in the earlier paragraphs of this order, it is a settled
proposition that, the case of the Revenue should only emanate from the
show cause notice. Here in the case in hand, the first show cause notice was
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given on16.06.2009 and a copy of which have been filed before this Court
in the typed set of documents by the Revenue.
46. The show cause notice dated 16.06.2009 having been perused, the
relevant portions have already been extracted herein above, where it is the
definite case of the Revenue that, the assessee had set up a co-generation
plant in their factory premises. During the course of audit of the records and
accounts maintained by the assessee, it was noticed that they have availed
CENVAT Credit on capital goods used in co-generation plant as detailed
below. By stating this, eight items have been mentioned as capital goods,
which had been used in co-generation plant.
47. After setting out the same, the Revenue has further stated in
paragraph 5 of the show cause notice that, it appears that the assessee had
availed CENVAT Credit on capital goods used in the co-generation plant
which generates electricity an exempted product.
48. Nowhere in the show notice it has been stated by the Revenue
that, the assessee has claimed to have used the capital goods and availed
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CENVAT Credit, however, in order to satisfy the Revenue that those capital
goods were really used in the captive plant or the co-gent plant necessary
documents or certification including the User Test Certificate shall be
produced.
49. There was no such assertion mentioned in any of the show cause
notices which were challenged before the writ court. Therefore it is not the
case at all of the Revenue that there had been a doubt in the minds of the
Revenue as to whether the assessee has used or utilised the capital goods or
not.
50. The only reason for issuing these show cause notices by the
Revenue is that, in the co-generation plant capital goods were used, for
which CENVAT Credit was availed, however the co-generation plant
generates electricity, which is an exempted product. Being the exempted
product, the assessee since could not get or avail the CENVAT Credit and
that basis only or on that premises only, the show cause notices since have
been issued and in any of the show cause notices, other than this reason, no
other reasons have been given doubting the usage of the very capital goods
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of the assessee, that case cannot be improved or modified by the Revenue at
a later point of time when it comes for adjudication before the court of law.
51. Therefore merely because in respect of some other assessees, such
a User Test Certificate was sought for or produced voluntarily or the User
Test Theory has been adopted by the Adjudicating Authority, in each and
every case, such an User Test Theory need not be adopted, as that kind of
proposition has not been propounded in those two cases, i.e., in Jawahar
Mills Ltd., case and Rajasthan Spinning and Weaving Mills Ltd., case.
cited supra.
52. The law that has emanated from all these decisions after having
gone through the factual matrix of these cases and the materials placed
before this Court that, if the Revenue doubts the usage and utility of the
capital goods for the purpose of claiming or availing the CENVAT Credit,
certainly the Revenue would be at liberty to seek for such proof including
the User Test Certificate issued by the Chartered Engineer by adopting the
theory of User Test Theory. But at the same time, if it is not the case of the
Revenue, doubting over the utility or usage of the capital goods itself and if
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show cause notice is issued for any other reasons like the reason of captive
plant or co-generation plant, generates electricity which is an exempted
product, therefore CENVAT Credit cannot be availed, for such reasons if
show cause notice is issued, where if adjudication is taken place, the pre-
requisite demand and insistence of User Test Certificate or adoption of User
Test Theory is totally unwarranted and therefore in the case in hand, since it
is not the case of the Revenue as culled out from the show cause notices
that, the capital goods have not been used at the time of installation of the
co-gent plant or the captive plant in the factory premises of the assessee, the
Revenue cannot insist upon a User Test Certificate issued by the Chartered
Engineer by adopting the User Test Theory.
53. Therefore we do not have any hesitation to hold that, apart from
the reason that has been given by the learned Judge, for the reasons and
discussions herein above made by us, the show cause notices which were
under challenge before the writ court cannot be adjudicated merely on the
ground that the User Test Certificate has not been produced by the assessee.
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54. Insofar as the delay is concerned, since at the request of the
assessee in the year 2012, the show cause notices have been transferred to
call book as the own case of the assessee was pending at that time before the
Hon'ble Supreme Court which has subsequently been withdrawn by the
Revenue by virtue of Low Tax Effect and thereafter if they decided to take
back the show cause notices from the call book and to adjudicate, such a
decision cannot be found fault with. Therefore it cannot be stated that, the
show cause notices are lapsed by virtue of the limitation as has been held by
the learned Judge. Therefore to that extent, the reasoning given by the
learned Judge is not agreeable and hence that reason cannot be sustained in
our legal scrutiny.
55. However, that would not ipso facto render the show cause notices
valid for further adjudication, because, the show cause notices has got self-
defect in view of the only reason cited by the Revenue for issuing such
show cause notice as if that the plant generate electricity which is a totally
exempted product and therefore for that reasons since the show cause notice
have been issued and the adjudication is not going to be conducted by the
Revenue on that reason and if it is for the other reason of adopting the User
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Test Theory it cannot be accepted, as we have held above, the show cause
notices for any other reason cannot be proceeded further for adjudication.
56. Hence for all these reasons, we are of the considered view that,
the order impugned in these appeals cannot be assailed successfully by the
Revenue.
57. Resultantly, all these writ appeals are failed, therefore they are
liable to be dismissed. As a result of which, all these writ appeals are
dismissed. However, there is no order as to costs. Consequently, connected
miscellaneous petitions are closed.
(R.S.K., J.) (G.A.M., J.)
03.04.2025
Index : Yes
Speaking Order : Yes
Neutral Citation : Yes
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https://www.mhc.tn.gov.in/judis ( Uploaded on: 03/04/2025 06:46:22 pm )
W.A.(MD).Nos.557 to 568 of 2024
To
1. The Commissioner of CGST & Central Excise
No.1, Williams Road, Cantonment,
Trichy, Tamil Nadu - 600 001.
2. The Deputy Commissioner of Central Excise & Service Tax
Central Excise & Service Tax 2 Division,
No.1, Williams Road, Cantonment,
Trichy, Tamil Nadu - 600 001.
3. The Assistant Commissioner of Central Excise & Service Tax
Central Excise & Service Tax 2 Division,
No.1, Williams Road, Cantonment,
Trichy, Tamil Nadu - 600 001.
4. The Superintendent of Central Excise & Service Tax,
Central Excise Range,
Oppillatha Ammn Kovil Street,
Ariyalur, Tamil Nadu
https://www.mhc.tn.gov.in/judis ( Uploaded on: 03/04/2025 06:46:22 pm )
W.A.(MD).Nos.557 to 568 of 2024
R.SURESH KUMAR, J.
AND
G.ARUL MURUGAN, J.
tsvn
Common Judgment in
W.A.(MD).Nos.557 to 568 of 2024
03.04.2025
https://www.mhc.tn.gov.in/judis ( Uploaded on: 03/04/2025 06:46:22 pm )
