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:
- 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.)
- 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.
- 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.)
- 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.
- 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.
- 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.”
- 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)].
- 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.
- 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?”
- 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.”
- 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.”
- 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.
- 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.
- 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)
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