Cenvat credit eligibility of duty paid on MS plates, Angles, Sheets, and Channels.

PJ/CASE LAW/2015-16/2639

Case:-COMMR. OF CUS., C. EX. & S.T., GUNTUR VERSUS ANDHRA SUGARS LTD.

Citation:-2014 (305) E.L.T. 150 (Tri. - Bang.)

Brief facts:-The issue involved in this case is whether the appellant is eligible for Cenvat credit of duty paid on MS plates, Angles, Sheets, and Channels, etc. There are two Orders-in-Appeal under challenge in respect of two units of the appellant one located in Saggonda and another located in Kovvur. The period involved is April, 2003 to April, 2005 in respect of the first unit and October, 2004 to April, 2007 in respect of the second unit. The whole amount of Cenvat credit wrongly availed as decided by the original authority is about Rs. 25 lakhs. Original authority confirmed the demand and imposed penalty against which the respondents filed appeal. The appeals have been allowed by the Commissioner and the Revenue is in appeal before this Tribunal.

Appellant’s contention:-The Commissioner (Appeals) has allowed the benefit of Cenvat credit on the ground that in the case of CCE, Coimbatorev. M/s. Jawahar Mills Ltd. [2001 (132)E.L.T.3 (S.C.)]wherein Hon’ble Supreme Court held that for availing Modvat credit goods need not be used in the manufacture of final product. Only requirement is that they should be used in the factory of production. Further he also relied upon the decision in the case of Rosa Sugar Worksv. CCE, Kanpur [2001 (131)E.L.T.89 (Tribunal)] wherein Modvat credit was held to be admissible on plates, bars and rods used for repairing damaged parts of machinery, storage tanks, boilers, etc. He also relied upon the decision of the Tribunal in the case of Hindustan Zinc Ltd.v. CCE, Jaipur-II [2002 (105) ECR. 648 (Tribunal) = 2002 (150)E.L.T.675 (Tribunal)]wherein Tribunal took the view that credit would be eligible on SS plates, Plain plates, iron and steel items used for repairing machinery installed in the factory.
The learned Counsel relies upon the decision of the Tribunal in the case of Kisan Sahkari Chini Mills Ltd.v. CCE [2013 (292)E.L.T.394 (Tri.-Del.)] andPanipat Cooperative Sugar Mills Ltd.v. CCE [2013 (293)E.L.T.66 (Tri.-Del.)]to submit that in that decision, the Tribunal had considered four decisions of various High Courts and found that there were three decisions against the Revenue and only one was in favour. Further he also relies upon the decision of the Hon’ble High Court of Rajasthan in the case of UOIv. Hindustan Zinc Ltd. [2007 (214)E.L.T.510 (Raj.)] wherein it was held the credit of central excise duty would be available in respect of MS bars/SS plates used in workshop meant for repairs and maintenance of machinery which are used for manufacture of final product. He submits that this decision was upheld by the Hon’ble Supreme Court and therefore has to be relied upon. The fact of affirmation by the Hon’ble Supreme Court was reported in 2007 (214) E.L.T. A115 (S.C.). Learned AR submits that in the case of Panipat Cooperative Sugar Mills Ltd., there was a submission that such MS plates, etc. were used in manufacture of components and therefore the case can be distinguished.

Respondent’s contention:-Revenue is in appeal on the ground that the appellant did not produce any evidence whatsoever with regard to the actual use of the materials found put into. Further the decision cited by the Commissioner (Appeals) related to the erstwhile rule and would not be applicable. Further the learned AR also submitted that the appellant did not produce any evidence whatsoever before the Commissioner (Appeals) or before the lower authority as to the actual materials found put into. He relies on the decision of the Hon’ble High Court of Andhra Pradesh in the case of Sree Rayalaseema Hi-strength Hypo Ltd. v. CCE, Tirupati [2012 (278)E.L.T.167 (A.P.)] to submit that unless the goods are used in the manufacture of capital goods which are thereafter used in the factory, they did not qualify as inputs. He submits that the decision of the jurisdictional High Court namely Andhra Pradesh High Court would be relevant and therefore the appeals filed by the Revenue are to be allowed.

Reasoning of judgement:-As regards the submission relating to Panipat Cooperative Sugar Mills Ltd., they take note of the fact that even in the absence of such submissions, in the case of Kisan Sahkari Chini Mills Ltd., the Tribunal came to the same conclusion. On going through the cases relied upon by the learned counsel, they find that paragraph 5 of the decision of the Tribunal in the case of Kisan Sahkari Chini Mills Ltd., would be relevant and accordingly the same is reproduced.
“I have considered submissions from both the sides and perused the records. I find that the issue as to whether the goods used for repair and maintenance of plant and machinery are eligible for Cenvat credit, stands decided in favour of the appellant by Hon’ble Rajasthan High Court in the case of Hindustan Zinc Ltd. (supra) wherein Hon’ble High Court has held that MS/SS plates used in the workshop meant for repair and maintenance of the plant and machinery’s would be liable for Cenvat credit and also by the judgments of Hon’ble Chhattisgarh High Court in the case of Ambuja Cements Eastern Ltd. v. Commissioner of Central Excise (supra) and Hon’ble Karnataka High Court in the case of Commissioner of Central Excise v. Alfred Herbert (India) Ltd. (supra) wherein Hon’ble High Court have held that the inputs used for repair and maintenance of plant and machinery would be eligible for Cenvat credit. The learned departmental representative has cited a contrary judgment of Hon’ble High Court of Andhra Pradesh, in the case of Sree Rayalaseema Hi-Strength Hypo Ltd. v. Commissioner of Customs & Central Excise, Tirupati reported in 2012 (278)E.L.T.167. Since three High Courts as mentioned above, have held that the inputs used for repair and maintenance of plant and machinery are eligible for Cenvat credit, I am of the view that it is these judgments which have to be followed.”
Further in the case of Panipat Cooperative Sugar Mills Ltd., also the observations of Tribunal in paragraph 5 would be relevant and same are reproduced.
“I have considered the submissions from both the sides and perused the records. The appellant in course of proceedings before the Deputy Commissioner as well as Commissioner (Appeals) pleaded that during the operation of sugar mill certain parts and components of the machinery get worn out and to replace the same, the new components have to be fabricated by using the steel items. On going through the impugned Order-in-Appeal, I find that the Commissioner (Appeals) has not disputed the usage of the M.S. Angles, Channels, Plates, H.R. Sheet, etc. The Commissioner (Appeals) has, however, simply relied upon the judgment of Larger Bench of the Tribunal in the case of Vandana Global Ltd. v. CCE, Raipur reported in 2010 (253)E.L.T.440 (Tri.-LB) and has upheld the Deputy Commissioner’s order. In my view when the fact that the items, in question, have been used for repair and maintenance of the plant and machinery, that is, for fabrication of the parts of machinery which had got worn out and have to be replaced, is not disputed, in view of the judgments of three High Courts Hon’ble Chhattisgarh High Court, Hon’ble Rajasthan High Court and Hon’ble Karnataka High Court, as mentioned above, the inputs used for repair and maintenance of machinery would be eligible for Cenvat credit. Though in a recent judgment in case of Sree Rayalaseema Hi-Strength Hypo Ltd. v. CC & CE, Tirupati (supra) Hon’ble A.P. High Court has taken a different view holding that welding electrodes used for repair and maintenance are not eligible for Cenvat credit as the activity of repair and maintenance is distinct from manufacture, in my view when three High Courts as mentioned above held that the items used for repair and maintenance of plant and machinery are eligible for Cenvat credit it is this view which has to be adopted. Moreover, for permitting Cenvat credit what is relevant is as to whether the use of the item has nexus with manufacture and whether without that item manufacture is commercially possible. Since repair and maintenance is an activity which is essential for smooth manufacturing operations and without regular repair and maintenance, manufacturing activity is not commercially feasible, the inputs used for repair and maintenance of the plant would be eligible for Cenvat credit. I, therefore, hold that the impugned order disallowing the Cenvat credit is not sustainable. The same is set aside. The appeal is allowed.”
Paragraphs reproduced above would clearly show that the Tribunal had considered all the decisions including the decision of the Andhra Pradesh High Court while coming to the conclusion. In their opinion they should follow these decisions. They find themselves in agreement with the view taken by the Tribunal in the above decisions and there is no reason for referring to the Larger Bench or to the Division Bench on the very same issue. Accordingly the appeal filed by the Revenue has no merit and appeals are rejected.

Decision:-Appeals rejected.

Comment:-The analogy of the case is that credit would be eligible on SS plates, Plain plates, iron and steel items used for repairing machinery installed in the factory on the basis of decisions given in various cases. In the given case, MS bars/SS plates were used in workshop meant for repairs and maintenance of machinery which are used for manufacture of final product. Hence, appellant is eligible for CENVAT credit of duty paid on MS plates, Angles, Sheets, and Channels, etc.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2639

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