Can credit of 50% of capital goods in subsequent year be taken on a date prior to the date of installation of machinery?

Case:- INDIAN OIL CORPORATION LTD. Versus COMMISSIONER OF CENTRAL EXCISE, PATNA

Citation:- 2015 (316) E.L.T. 666 (Pat.)

Brief facts:- This Appeal under Section 35-G of the Central Excise Act, 1944 is preferred by the manufacturer M/s Indian Oil Corporation Limited (hereinafter referred to as “The Corporation”) against the order dated 30th March 2010 made by the Customs, Excise & Service Tax Appellate Tribunal, Eastern Zonal Bench, Kolkata (hereinafter referred to as “the Tribunal”) in Appeal No. EDM-819/2004 [2010 (255)E.L.T.557 (Tri. - Kol.)].

The matter at issue was the Cenvat credit availed of by the Corporation on the capital goods imported by it in the financial year 2000-2001 for its refinery at Barauni in the State of Bihar. It was not in dispute that on receipt of the capital goods, the Corporation availed of the Cenvat credit in the same year to the extent of 50% Excise Duly paid by it. The remaining 50% of the Cenvat credit, the Corporation availed of on 1st April 2002. The said Cenvat credit was not allowed by the Commissioner of Central Excise, Patna under his order dated 24th September 2004. The said order had been upheld by the Tribunal under the impugned order dated 30th March 2010.

The Corporation had preferred this Appeal on the following questions of law :

What is the true meaning (a) & scope of the expression “in the possession and use of the manufacturer of final products “in such subsequent years” in Rule 4(2)(b) of the Cenvat Rules ?

When Rule 4(2)(b) allowed credit provided the capital goods (b) in question were in possession and use of the manufacturer “in such subsequent year”, whether the Tribunal erred in law in imposing a new condition that in such subsequent year the credit could not be taken prior to the date of installation of the capital goods ?

In connection with the above, it would be relevant to mention that as recorded in the Tribunal’s order itself the capital goods in question were in possession and use of the Appellant in the subsequent years in which the credits were taken by it. In spite of this, interest was demanded from the Appellant on the ground that in such subsequent years it took the credit on a date prior to the date of installation.

When the Rule itself did not impose any condition requiring (c) that the capital goods in question must be installed & used prior to the date of taking credit, whether the Learned Tribunal was correct in law in reading such a condition in the said Rule?

Whether the Learned Tribunal erred in law in ignoring the (d) change in the phraseology, language & scheme of Rule 4(2)(b) of Cenvat Rules as compared to the erstwhile provisions of Rule 57Q of the Central Excise Rules, 1944 ?

In connection with the above, it would be relevant to mention that the provisions of Rule 57Q(7) of the erstwhile Central Excise Rules, 1944 imposed a condition and restriction that the credit “shall not be taken on a date prior to the date on which such capital goods are installed or, as the case may be, used for manufacture of excisable goods”. However, the said scheme itself was modified in the Cenvat Credit Rules, 2001 and the Cenvat Credit Rules, 2002 and the Rule 4(2)(b) of both these provisions merely required possession and use of the capital goods by the manufacturer “in such subsequent year”. In the present case, admittedly, the capital goods in question were in possession and use of the Appellant in the subsequent years in which the credit was taken.

Whether the Learned Tribunal’s interpretation of Rule 4(2)(b) (e) of the Cenvat Rules is contrary to the plain and clear language of the said Rule itself?

Appellant’s contention:- Learned Additional Advocate General Mr. S.D. Sanjay appeared for the Corporation. He had relied upon the Cenvat Credit Rules, 2002. He had submitted that the Cenvat Credit Rules, 2002, particularly Rule 4(2)(b) thereof allows a manufacturer to avail of 50% of the Cenvat credit in the year in which the capital goods are received. The remaining 50% of the Cenvat credit can be availed of in any subsequent year provided the manufacturer is still in possession of the capital goods. He has submitted that the Corporation had imported the capital goods in the year 2000-01 and had availed of the Cenvat credit to the extent of 50% of the duty paid. The remaining 50% of the Cenvat credit was availed of on 1st April 2002 for the subsequent financial year. He has submitted that the capital goods were installed and put to use in the line of manufacture in the months of September to December 2002 and the Corporation was wholly justified in availing of the remaining part of the Cenvat credit on 1st April 2002 in the financial year 2002-2003. Mr. S.D. Sanjay had submitted that the Tribunal and the authority below have manifestly erred in holding that unless and until the capital goods in question are put to use, the remaining 50% of the Cenvat credit cannot be availed of. He had submitted that the decision of the Tribunal and the authority below are neither supported by the language of the relevant Rule nor by the judgments of the Tribunal or the High Courts. The relevant Rule 4(2) of the Cenvat Credit Rules, 2002 reads as under :

The Cenvat credit in respect of capital goods received in “2(a) a factory at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year :

Provided that the Cenvat credit in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial years if the said capital goods are cleared as such in the same financial year.

The balance of Cenvat credit may be taken in any financial (b) year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, if the capital goods, other than components, spares and accessories, refractories and refractory materials and goods falling under heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Tariff Act, are in the possession and use of the manufacturer of final products in such subsequent years”.

Mr. S.D. Sanjayhad also relied upon the order of the Tribunal. In support of his submission he had relied upon the order of the Mumbai Bench of the Tribunal in the matter of Ispat Industries Ltd. v. Commissioner of Central Excise, Raigad, 2006 (199)E.L.T.509 (Tri.-Mumbai). Under order dated 4th April 2006, the said Tribunal held, “for taking credit of balance of 50% of amount of duty on capital goods in subsequent financial years, in case the capital goods are lying in the factory for installation and the process of erection was being carried out has to be considered as the capital goods were in possession and use for manufacture”.

The appeal to the Bombay High Court preferred by the Commissioner of Central Excise was rejected by the Bombay High Court citing that the appeal did not involve substantial question of law [2012 (275)E.L.T.79 (Bom.)].

The said proposition has been followed by the Larger Bench of the Tribunal in the matter of Bharat Petroleum Corporation Ltd. v. Commissioner of Central Excise, Mumbai-II - 2012 (277)E.L.T.353 (Tri.-LB).

However, the very orders of the Tribunal, the interpretation placed by the Tribunal, Mumbai Bench had been doubted by the said Bench in the matter of Commissioner of Central Excise, Mumbai-II v. Fiat India Pvt. Ltd., 2009 (240)E.L.T.620 (Tri.-Mumbai).

The New Delhi Bench of the Tribunal has, in the matter of Goyal M.S. Gases Pvt. Ltd. v. Commissioner of Central Excise, Ghaziabad, 2004 (168)E.L.T.369 (Tri.-Del.), taken a contrary view. The said Tribunal held that for availing the remaining 50% of the Cenvat credit not only the capital goods should be in possession of the manufacturer but it should be in the use also. Similar view had been expressed by the Rajasthan High Court in the matter of Hindustan Zinc Ltd. v. Dy. Commissioner of Central Excise & Customs, Bhilwara, 2007 (220)E.L.T.50 (Raj.).

In support of his submissions Mr. S.D. Sanjay has relied upon Rule 57Q(7) of the Central Excise Rules, 1944. He had also relied upon the judgments of the Hon’ble Supreme Court in the matters of K.P. Varghese v. Income-tax Officer, Display Devices Ltd. v. Commissioner of Central Excise, Ghaziabad, 2004 (174)E.L.T.5 (S.C.); and of Commissioner of Central Excise, Bhavnagar v. Saurashtra Chemicals Ltd., (2007) 10 SCC 352 = 2007 (212)E.L.T.7 (S.C.)

The contention of Mr. S.D. Sanjay that the Corporation had in fact put the capital goods in use in the same financial year in which it claimed the Cenvat credit of the remaining 50% of the duty paid by it with a view to justifying the Cenvat credit availed of by the Corporation requires to be rejected outright. Nothing in the aforesaid Rule 4(2)(b) of the Cenvat credit Rules, 2002 suggests that the Cenvat credit for the remaining 50% of the duty can be availed of in any subsequent financial year in anticipation of the capital goods being used on some future date in the same financial year.

Mr. S.D. Sanjay had relied upon the departmental Circular and had submitted that it was binding to the authorities below. In support thereof, he had relied upon the judgment in the matter of R.P. Varghese (supra). The proposition of law was well settled and cannot be disputed. However, no Circular of the Department supports the interpretation canvassed by Mr. S.D. Sanjay.

Respondent’s contention:- The Commissioner of Central Excise, Patna did not allow the Cenvat credit for the remaining 50% of the duty on the premise that on the date the remaining Cenvat credit was availed of, the capital goods were not in use as the project itself was not complete and the commercial production had not started. Consequently, the Corporation had been called upon to pay interest under Section 11AB of the Central Excise Act, 1944 read with Rule 12 of the Cenvat Credit Rules, 2001 and 2002.

Reasoning of judgement:- In view of theundisputed facts, the matter boiled down to a narrow compass i.e. the interpretation of the phrase, “are in the possession and use of the manufacturer of final products in such subsequent years” occurring in the aforesaid Rule 4(2)(b) of the Cenvat Credit Rules, 2002. In our opinion, the Mumbai Bench of the Tribunal was not right in reading the said phrase as, “are in the possession for use”. The law in respect of interpretation of taxing statutes is well defined and well settled. The Hon’ble Supreme Court has, in the matter of Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd., [(1961) 2 SCR 189] in interpreting the taxing statutes, held, “in interpreting a taxing statue, equitable considerations were entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import, provisions in the statutes so as to supply any assumed deficiency”.

In their opinion, the phrase, “in possession and use of the manufacturer of final products” was clear and unambiguous. The said phrase called for one and only one interpretation and did not call for any external aid to cull the meaning of the said phrase. In their opinion, the said phrase provided for two conditions (1) the manufacturer should be in possession of the capital goods in the year in which it claims remaining 50% of the Cenvat credit; and (2) such capital goods shall be in use for manufacture of final products. Unless, the manufacturer satisfies both the aforesaid conditions, it cannot take Cenvat credit of remaining 50% of the duty paid by it.

The judgments in the matters of BPL Display Devices Ltd. (supra) and of Saurashtra Chemicals Ltd. (supra) had no relevance to the present case.

The Appeal was devoid of any merit. The Appeal does not involve a question of law much less a substantial question of law. Appeal is dismissed in limine.

Interlocutory Application stands disposed of.

Decision:-Appeal dismissed.

Comment:-The analogy of the case is that in interpretation of taxing statue, the words should be read as is clearly mentioned. There is no scope of implying anything which is not expressly worded. It cannot import anything also.

Following the same, High Court clearly held that there is no condition of installation of machine as held by tribunal.

Prepared by:- Monika Tak

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