Credit eligibility on steel items utilized in fabrication of Bio-Gas Plant.

PJ/Case Law /2016-17/3269

Case:- BAJAJ HINDUSTAN LTD. VERSUS COMMISSIONER OF C.EX.,

Citation:-2016 (337) E.L.T. 445 (Tri.-All.)

Brief Facts:-The brief facts of the case are that the appellants, M/s. Bajaj Hindustan Ltd. are in appeal against the Order-in-Appeal Nos. 386-CE/LKO/2010, dated 18-11-2010 & 269-CE/LKO/2011, dated 30-9-2011 both passed by Commr. (Appeals) of Customs, Central Excise & S. Tax, Lucknow. The issue involved in these appeals is whether the appellant is entitled to Cenvat credit on the items, like, Hot Strip Mill Plates, Flat, STRL, Plate, Mill Plates, M.S. Channel, Angles, Joists, Chequered Plates and Beam and Joist, etc., falling under Chapter 72 of Central Excise Tariff Act, 1985, which were utilized in fabrication of Bio-Gas Plant - a Pollution Control Equipment.

Vide the impugned order-in-appeal dated 18-11-2010, the ld. Commissioner (Appeals) has observed that the adjudicating authority have held that Bio-gas plant is not any excisable goods being immovable and unmarketable, hence it cannot be considered as capital goods. Further, he held that the impugned goods are not accessories in terms of Rule 2(a)(A)(iii) of Cenvat Credit Rules, 2004. It is further stated that it is an admitted fact that the goods in question were used in the fabrication of bio-gas plant. This bio-gas plant is immovable and embedded to earth as has been held by the adjudicating authority which remains uncontroverted. Relying on the ruling of the Larger Bench of this Tribunal in the case of Vandana Global Ltd.v. CC Ex., Raipur - 2010 (253) E.L.T. 440 (Tri.-LB), wherein the Larger Bench has held that foundation and supporting structures embedded to earth can be categorised as “capital assets” but shall not qualify as “capital goods” as per definition in Cenvat Credit Rules, 2004. The ld. Commissioner (Appeals) however, reduced the penalty to Rs. 2,50,000/- under Rule 15(1) of Cenvat Credit Rules, 2004, but confirmed the disallowance of Cenvat credit with interest. In the impugned order dated 30-9-2011 for the period May, 2008 to December, 2009, on similar observations, the denial of Cenvat credit has been upheld reducing the amount of penalty to Rs. 50,000/-. Being aggrieved, the appellant is before this Tribunal.

Appellant’s Contention:-The ld. counsel for the appellant have taken Tribunal through to the show cause notice dated 3-8-2009 for the period July, 2008 to April, 2009 wherein it is admitted case of the Revenue that the steel items in question falling under Chapter 72 have been used in fabrication of different machines namely, Digesters, Flair Stack, Bas Holder and Lamella, which are integral part of bio-gas plant. He further draws attention to the facts that in the show cause notice, it was proposed to disallow the Cenvat credit on the ground that the structural steel items have been used in fabrication of bio-gas plant, which is further used in generation of bio-gas to be captively consumed as a fuel for generation of electricity, an exempted product, hence, Cenvat credit is not available. Whereas going beyond the scope of show cause notice, in the impugned order, the Cenvat credit has been disallowed on the ground that the bio-gas plant is immovable equipment fabricated. The ld. counsel further points out that the ld. Commissioner (Appeals) has erred in disallowing the Cenvat credit as admittedly the goods in question have been used in fabrication of Pollution Control Equipment, which are specific capital goods as defined in Rule 2(a)(A)(ii) of Cenvat Credit Rules. The ld. counsel relies on final order dated 18-1-2013 of this Tribunal in their own case in Ex. Appeal Number 99 of 2011(SM) wherein under similar facts and circumstances, the credit was taken on MS angles, channels, joists, GP Sheets, etc., used in fabrication of a new multi-effect evaporating plant to substantially reduce the quantity of affluent in the distillery and the credit was disallowed, as the Revenue was of the view that the steel items in question are not eligible for Cenvat credit. This Tribunal relying on the ruling of Hon’ble Karnataka High Court in the case of CCE, Bangalore-IIv. SLR Steels Ltd. - 2012 (280) E.L.T. 176 (Kar.) and relying on the ruling of the Apex Court in the case of Commissioner of Central Excise, Jaipurv. Rajasthan Spinning and Weaving Mills Ltd. - 2010 (255) E.L.T. 481 (S.C.), held that the steel items used in the fabrication of pollution control equipment, would be eligible for Cenvat credit and Cenvat credit cannot be denied on the ground that the pollution control equipment is embedded to the earth. In any case, any item of machinery or equipment which has either been fabricated in the factory or has been brought to the factory, would after installation, become fixed to the earth and, therefore, under such circumstances, the Cenvat credit cannot be denied. It is further held that it is not material that after installation machinery becomes immovable by being fixed to earth. The ld. counsel further relies on the ruling of the Hon’ble Allahabad High Court in the case of Majhola Distillery and Chemical Works v. Commr. of Trade Tax, wherein the Hon’ble High Court observed that on perusal of the contract, it reveals that it was for establishment of affluent treatment plant on turnkey basis under which the contractor was to design, fabricate, commission and erect the effluent treatment plant at site. One of the item, which was to be commissioned was bio-gas plant. Thus, it was not the bio-gas plant, as an independent unit, to be supplied in the execution of the works contract, but by using the various items, bio-gas plant was to be fabricated, commissioned and erected at site. The ld. counsel further urges that the ruling of the Larger Bench of this Tribunal in the case of Vandana Global, have been distinguished and deferred in several rulings, subsequently by this Tribunal and also by Hon’ble High Courts. The ld. counsel also relied on judgment of this Tribunal in the case of Commissioner of Central Excise, Nagpurv. Lloyds Metals & Engg. Ltd. - 2014 (309) E.L.T. 533 (Tri.-Mumbai), therein the Commissioner (Appeals) allowed Cenvat credit on items like MS Bars, etc., which were used by the assessee for setting up the capital goods, i.e., kiln, cooler & chimney in the factory. It was held that there is no doubt that the explanation amended in 2009 of Rule 2(k) of Cenvat Credit Rules, is clarificatory. Despite that the Hon’ble Apex Court in Rajasthan Spinning and Weaving Mills Ltd. (supra) held that Cenvat credit on the above said items is available if same have been used for setting up capital goods. Accordingly, following the ruling of the Apex Court, as it overrides on the Larger Bench ruling of this Tribunal in Vandana Global’s case (supra), it was held that assessee is entitled for Cenvat credit on the items in question used for setting up capital goods like kiln, cooler and chimney. The ld. counsel also stated that a small part of the total inputs, have been utilized, say about 15 to 20% in repair and maintenance of capital goods which are also eligible for the input credit as the capital goods are further utilised in manufacture of dutiable final products.

Respondent Contention:-The ld. AR for the Revenue relies on the impugned order. He further states that admittedly, the bio-gas plant fabricated is immovable and further not marketable and accordingly no interference in the impugned order is required.

Reasoning of Judgment:-Having considered the rival contentions, it was held that under the admitted fact, the appellant have fabricated bio-gas plant with the inputs in question being capital goods. It was held that as bio-gas plant is a pollution control equipment defined in Rule 2(a)(A)(ii) of Cenvat Credit Rules, 2004, the appellant have rightly taken credit, being entitled to the same. Further, some portion of the capital goods about 15% used in the existing machinery, like repair and fabrication of sugarcane, cutter bagasse, courier, etc, so it was held that the appellant is entitled to Cenvat credit on the same as Rule 2(l) of Cenvat Credit Rules provides that an assessee is entitled to Cenvat credit, on equipments utilised directly or indirectly in or in relation to the manufacture of final products and the clearing of final products, up to the place of removal. Admittedly, in the case of the appellant, manufacture cannot take place of excisable goods being sugar, without repair and maintenance of capital equipment like sugarcane cutter. Tribunal held that the appellant is entitled the Cenvat credit on the same. With these observations, the appeals are allowed. The impugned orders are set aside. The appellant will be entitled to consequential benefit, if any, in accordance with law.

Decision:-Appeal allowed.

Comment:-The crux of the case is that since an assessee is entitled to Cenvat credit, on equipments utilised directly or indirectly in or in relation to the manufacture of final products and the clearing of final products, up to the place of removal, cenvat credit of various steel items used in pollution control equipment is available.

Prepared by:- Bharat Chouhan

Comments

PJ/Case Law /2016-17/3269

Post a Comment

Query