Ghcl Limited VERSUS C.C.E. & S.T.-Bhavnagar 

Excise Appeal No. 676 of 2012

(Arising out of OIA-46-48/2012/BVR/COMMR-A-/RBT/RAJ dated- 18/05/2012 passed by

Commissioner of Central Excise-BHAVNAGAR)

 

Ghcl Limited

VERSUS

C.C.E. & S.T.-Bhavnagar 

WITH

Excise Appeal No. 677 of 2012

(Arising out of OIA-46-48/2012/BVR/COMMR-A-/RBT/RAJ dated- 18/05/2012 passed by

Commissioner of Central Excise-BHAVNAGAR)

Ghcl Limited

VERSUS

C.C.E. & S.T.-Bhavnagar

AND

Excise Appeal No. 678 of 2012

(Arising out of OIA-46-48/2012/BVR/COMMR-A-/RBT/RAJ dated- 18/05/2012 passed by

Commissioner of Central Excise-BHAVNAGAR)

Ghcl Limited

VERSUS

C.C.E. & S.T.-Bhavnagar

 

Appearance:

Shri Anand Nainawati & Shri Ishan Bhatt, Advocates appeared for the Applicant

Shri Dinesh Prithiani, Assistant Commissioner (AR) for the Respondent

CORAM:

HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR

Final Order No. A/ 10272-10274 /2023

DATE OF HEARING: 10.10. 2022

DATE OF DECISION: 09.02.2023

RAMESH NAIR

The brief facts of the case are that the appellant are engaged in

manufacture of Soda Ash which is cleared on payment of duty. During the

course of manufacture of soda ash the appellant manufactured intermediate

goods i.e. coke briquettes from coke breeze. For manufacturing of Coke

briquettes, the appellant has set up a plant for which certain plant and

machinery were purchased. The appellant availed cenvat credit of excise

duty paid on such plant and machinery by treating the same as capital

goods. The show cause notices were issued to the appellant proposing to

deny the cenvat credit availed on such plant and machinery used in the

manufacture of coke briquettes on the following grounds:

1. a) The capital goods have been used in the manufacture of

exempted goods i.e. briquette classified under Tariff Item

2701 20, which attracts NIL rate of duty. The same is not

eligible under Rule 6 (4) of the Cenvat Credit Rules, 2004 (All

3 SCNs.)

1. b) That some of the itmes listed in Annexure- B to the SCN are

not covered by the definition of capital goods under Rule 2

(a) of Cenvat Credit Rules, 2004 although credit has been

availed on such items under Rule 2 (a) of the Cenvat Credit

Rules,2004. [Only in SCN dated 30.12.2009 and 18.10.2010]

1.2 The 3 Show cause notices were adjudicated by the Learned Joint

Commissioner of Central Excise, Bhavnagar by 3 separate Order in original,

wherein demands of cenvat credit on capital goods were confirmed. Being

aggrieved by the Orders in Original, the appellant filed the appeal before

the Commissioner (Appeals) who has rejected the appeals and upheld the

demand confirmed by the Learned Joint Commissioner. Both the lower

authorities have denied the cenvat credit on capital goods on the ground

that the capital goods is exclusively used in manufacture of

briquettes which is exempted from central excise duty. Therefore, in terms

of Rule 6 (4) of CCR, 2004 the appellant is not eligible for cenvat credit.

Being aggrieved by the Orders in Appeal, the appellant filed the present

appeals.

2. Shri Anand Nainawati, Learned Counsel along with Shri Ishan Bhatt,

Learned Advocate appearing on behalf of the appellant submits that

even though the plant and machinery were used in manufacture

of briquettes but briquettes are ultimately used for manufacturing of 

soda ash which are cleared on payment of duty. The briquettes are

the intermediate product and not cleared under exemption from the

factory. Therefore it cannot be said that the plant and machinery were

used in manufacture of exempted goods. He placed reliance on the

following judgments :

 Ispat Metallics Ltd vs. CCE Raigad- 2005 (191) ELT 1107 (Tri. Mum)

 Indira Sahakari Soot Girni Maryadit vs. CCE, Aurangabad- 2017 (2)

TMI 667- CESTAT- Mumbai

 CCE vs. United Phosphorous Ltd –2015 (315) ELT 360 (Guj.)

 Union of India vs. HEG Ltd – 2012 (275) ELT 316 (Chattisgarh)

 Bharat Forge Ltd vs. CCE, Pune- III – 2004 (165) ELT 339 (Tri.- Mum)

 Rana Sugar Ltd vs. CCE, Ludhiana – 2012 (281) ELT 617 (Tri. Del)

 CCE vs. Sudarsanam Spinning Mills Ltd – 2012 (275) ELT 430 (Mad.)

3. Shri Dinesh Prithiani, Learned Assistant Commissioner (AR) appearing

on behalf of the Revenue reiterates the finding of the impugned order. He

submits that the capital goods on which credit was availed were

exclusively used for manufacture of exempted goods i.e. briquettes in

terms of Rule 6 (4) of CCR, 2004. Therefore, the appellant is not eligible for

the cenvat credit.

4. I have carefully considered the submission made by both sides and

perused the records. I find that there is no dispute that even

though plant and machinery on which credit was availed as capital goods

though they were used in the manufacture of bricks which in turn used

in the manufacture of final product i.e. soda ash and the same

was cleared on payment of duty . In this fact, in my considered view it

cannot be said that the capital goods were used exclusively for

manufacture of exempted goods. This is for the reason the process

of manufacture of soda ash is consist of various processes and the

entire process is considered to be the process of manufacture of Soda

ash which is indeed cleared on payment of duty. Therefore, the

provision of Rule 6 (4) of CCR is not applicable in the present case. The

said provision is applicable only when the final product in which the

capital goods is used is exclusively, cleared under exemption. This issue has

been considered in the various judgment cited by the appellant which are

referred below:

Ispat Metallics Ltd vs. CCE Raigad- 2005 (191) ELT 1107 (Tri. Mum)

“Heard both sides and considered the issue.

1.2. issue is The case eligibility of Capital goods entitled and credit on

“Coal Briquette Plant” where the appellants converted Iron Ore fines

received on job work under Rule 4(5)(a) of CENVAT Rules from M/s.

Ispat Industries Ltd. and returned the Briquette, for further use there

for manufacture of Iron & Steel Products.

1.3. being Credit is denied on the grounds :-

I have perused the case records and considered the arguments

advanced in the appeal memorandum and reiterated at the time of

personal hearing. The dispute lies in a narrow compass. The only point

involved is whether the appellants were entitled to take capital goods

credit on machine used for manufacture of non-dutiable goods. The

appellants were using the said machine for making briquettes from

fine ore which does not amount to manufacture. This aspect is not in

dispute. The contention of the appellant is that there is no bar on such

credit in terms of Rule 6(4) of Cenvat Credit Rules. The argument is

fallacious. There is no absolute or unqualified right to credit. The right

to take Cenvat Credit is itself a creature of the statute. Therefore the

correct way to proceed will be to ascertain whether such a right is

available under the law. The right to take the credit is granted vide

sub-rule (1) of Rule 3 which states that :

“- A manufacturer of the final product shall be allowed to take the

credit of the duty ……. paid on inputs or capital goods ……. received

by the manufacture for use in, or in relation to the manufacture of final

product……”

The term final product is defined under Rule 2(e) ibid. as follows :

“final products” means excisable goods manufactured or produced

from inputs except matches.

The term excisable goods is defined in Section 2(d) of the Act as

follows :

“excisable goods” means goods specified in the First Schedule and the

Second Schedule to the Central Excise Tariff Act, 1985, (5 of 1986) as

being subject to a duty of excise and includes salt.

A harmonious reading of the relevant provision given above makes it

abundantly clear that there is no right to take credit, if the final

products are not subject to a duty of excise. When the process of

conversion of fine ores into briquettes does not amount to

„manufacture‟ under the Central Excise Act, then nothing in the said

Act or Rules made thereunder will apply to the said goods. The

position is also clear from the CEGAT judgment in case of Gujarat

State Fertilizer Co. Ltd. v. CCE – 1995 (80) E.L.T. 812 (Bom. CEGAT)

in which the Hon‟ble Tribunal dismissed the appeal.

“….. in so far as the eligibility of Modvat credit in respect of duty paid

on plain or coloured chips brought back and used in the process for

obtaining plain or coloured chips holding that there is no manufacture

involved and Modvat Scheme cannot apply in such contingency.”

2.1. We find-

(a)

On a reading of the definition of „Capital Goods‟ under Cenvat

Credit Rules, 2002 it appears to prescribes :

”Capital Goods” means, –

(i)

all goods falling under Chapter 82, Chapter 84, Chapter 85,

Chapter 90, Heading No. 68.02 and sub-heading No. 6801.10 of the

First Schedule to the Tariff Act;

(ii

pollution control equipment;

(iii)

components, spares and accessories of the goods specified at (i)

and (ii) above;

(iv) moulds and dies;

(v)

refractories and refractory materials;

(vi) tubes and pipes and fittings thereof; and

(vii) storage tank,

used in the factory of the manufacturer of the final products but does

not include any equipment or appliance used in the office”.

Thus “Coal Briquette Plant” could not be excluded from the definition.

(b)

The term “used in the factory of the manufacture of the final

products”….. could not mean an exclusive or only use, for the

manufacture of final products of the availer of the credit. So long as

the entity is required to be used in the factory of the final product

manufacturer, the machinery/plant would be eligible. When read with

Rule 6(4) of the Cenvat Rules, the credit could not be denied even if

the use is for manufacture of non-excisable entity eg. Electricity

generated in the Power House Plant in case of Power House Capital

Goods. Therefore, even if the process of conversion of Iron ore „fines‟

to „Briquettes‟ does not amount to manufacture of excisable goods

under the Central Excise law, the credit cannot be denied.

(c)

After determining as above, we find the word „used‟ in the

definition of Capital Goods will not and cannot be interpreted to mean

that it should be actually in use. The potential use by the

manufacturer, at a later date would also entitle the credit. The

exclusive use as already held, is not contemplated. The plant in this

case is capable for use for converting the Iron or fines to be used by

the appellants at a future date. The word “used” can denote be

intermittent and/or use sometime in future; we find that both sides

agree that the appellants are a manufacturer of declared final products

Iron and Steel and have the capacity or potential to use iron ore fines

also. Therefore credit as over led cannot be denied.

(d)

In this view of the findings, we find no reason and deny the

credit on grounds of ineligibility as determined by the lower authority.

3. The appeal consequent to the findings is allowed after setting aside

order.”

Indira Sahakari Soot Girni Maryadit vs. CCE, Aurangabad- 2017 (2) TMI 667-

CESTAT- Mumbai

In both the judgments viz., judgment of the Division

Bench of the Delhi high Court Modi Carperts Limited vs. Union

of India – 1997 (91) ELT 285 and the judgment of the learned

Single Judge of the Bombay High Court – 1992 (61) ELT 566 (

Gokalchand Rattanchand Woollen Mills Pvt. Ltd v. UOI), we

find a graphic description of the nature of Silver and we think

it might be useful to extract this –

“………This sliver is very brittle in nature and is liable to

fall apart by handling. It also got entangled if it is not

handled gently, thus becoming unsuitable for spinning.

If the Sliver falls apart or gets entangled, it becomes

unfit for spinning and cannot be fed into ring frames for

spinning. Moreover, it is important to maintain humidity

condition in the spinning Section and the Sliver is not

allowed to dry. If the moisture content is lost, Sliver

dries and the fibre strands fall apart and collapse and

become unfit for spinning. Sliver cannot be packed and 

transported in view of its non-cohesive and brittle

nature. Any form of packing entailing even the slightest

pressure would entangle the fibre and render it unfit for

spinning. Upon such entanglement, it would cease to be

Sliver. Because of the very nature of the Sliver, it s

non-cohesive and brittle property as described above,

Sliver obtained in the Petitioner s factory as described

above cannot be brought and sold in the market and is

not a commodity which is known in the trade.”

7. In view of the aforesaid reasons, the substantial

question of law are answered against the revenue and

the civil miscellaneous appeal is dismissed.”

The similar issue was further considered by the this Tribunal in

case of Commissioner of Vs. Narasus Spinning Mills[2005(128)

ECR 187(Tri. Chennai)] and in case of Thuran Spining Mills Vs.

Commissioner(2004(61) RLT 915(Cestat Che)] The Tribunal held

that the Cenvat credit on capital goods used for producing silver

cotton carded falling under chapter 52.02 is admissible under

Rule 570. Both the above decisions of the Tribunal were upheld

by the Hon’ble Madras High Court reported as [2016(334) ELT

A163(Mad.)] and 2016(335) ELT A76(Mad)].

7. As per above consistent decisions on the very same issue, the

appellant is entitle for the credit on the capital goods used for

manufacture of intermediate goods i.e. silver, cotton carded

which was further used in the manufacture of dutiable cotton

yam. As per the above settled legal position, impugned order is

set aside. Appeal is allowed.”

CCE vs. United Phosphorous Ltd –2015 (315) ELT 360 (Guj.)

“Draft amendment dated 24-11-2014 is allowed.

2. In the amended form, the question of law presented for our

consideration by the Revenue in this appeal is as under :

“2(a) Whether in the facts and circumstances of the case, the Tribunal

has committed substantial error of law in holding that Modvat Credit is

available to the respondent on capital goods viz. Pipes, cables, valve,

cooling tower, etc. used in the erection of power plant for generation

of electricity by relying upon decision rendered by Chennai Bench of

Tribunal in the case of Kothari Sugar & Chemicals Ltd. reported in

2006 (196) E.L.T. 35 (T) which has not attained finality and CMA No.

2671/2007 filed against the said decision is admitted and pending for

final decision before the Hon‟ble High Court of Madras at Chennai?”

3. Having heard the learned counsel for the Revenue and having

perused the impugned decision of the Customs, Excise & Service Tax

Appellate Tribunal, it emerges that the sole issue involved in this Tax

Appeal relates to the assessee‟s claim for Modvat Credit on the capital

goods used in generation of electricity, which was captively consumed.

According to the Revenue, the assessee would not qualify for such

credit in view of Rule 57Q of the Central Excise Rules, 1944. The

Tribunal, however, relied on the decision of Chennai Bench in case of

Kothari Sugars & Chemicals Ltd. v. Commissioner of Central Excise,

Trichy reported in 2006 (196) E.L.T. 35, held in favour of the

assessee. In such decision, the Tribunal had come to the following

conclusion :

“2. Yet another decision of the Tribunal (Division Bench) which is in

favour of the assessee on similar set of facts is in the case of

Commissioner of Central Excise, Raipur v. Jindal Steel and Power Ltd.

[2003 (158) E.L.T. 178 (Tri.-Del.)], wherein capital goods credit was

allowed in respect of capital goods used in power plant for

manufacture of steel, to generate electricity, which was mainly used

captively and partly sold out to MPEB. The submission of the assessee

in that case that Rule 57R did not stand in the way of availment of

such credit was not rejected by the Tribunal. Ld. Counsel has also cited

two final orders of this Bench, one of which was passed in their own

case. I am, however, unable to find support to the assessee‟s

argument on the aforesaid issue from any of these orders which did

not consider Rule 57R at all. Nevertheless, the Division Bench decision

cited by ld. Counsel are squarely in their favour and consequently the

impugned order gets set aside and this appeal is allowed.”

4. The Tribunal in case of Kothari Sugars & Chemicals Ltd. (supra),

had proceeded on the basis that the capital goods were used for

generation of electricity which was mainly used captively. In the

present case also the Tribunal has recorded that, “It is undisputed in

the case in hand that appellants have been consuming the electricity

mostly in their factory premises and little surplus electricity was sold

and put into electricity board.”

5. We have proceeded on the basis of such admitted facts. Quite

apart from the decision of the Chennai Bench in case of Kothari Sugars

& Chemicals Ltd. (supra), we are informed, is carried in appeal before

the Madras High Court and is pending, we notice that the Supreme

Court in case of Collector of Central Excise v. Solaris Chemtech Limited

reported in 2007 (214) E.L.T. 481 (S.C.) has occasion to deal with a

substantially similar issue. It was held that when inputs are used to

generate electricity which are captively consumed for manufacture of

final product, the assessee would be entitled to Modvat Credit in view

of the expression “used in relation to the manufacture” used in the

statute.

6. The situation might have been different had the Revenue

succeeded in establishing that the electricity generated by the

assessee was not used captively but sold outside.

7. In the result, tax appeal is dismissed.”

4.1 In view of the above judgment as well as the judgment cited by the

learned counsel an identical issue has been considered that only because

the capital goods is used for exempted intermediate goods, the cenvat

credit cannot be denied when the final product is cleared on payment

of duty.

Considering the above judgments, I am of clear view that the

appellant is entitled for cenvat credit on capital goods in the given facts of

the present case. Accordingly, the impugned order is set aside. Appeals are

allowed.

(Pronounced in the open court on 09.02.2023 )

RAMESH NAIR

MEMBER (JUDICIAL)