MS bars, plates used for repair and maintenance of plant are eligible for credit.

PJ/Case Laws/2012-13/1457

Case:-M/s DALMIA BHARAT SUGAR & INDUSTRIES LTD V/S COMMISSIONER OF CENTRAL EXCISE, NEW DELHI

Citation:- 2013-TIOL-126-CESTAT-DEL

Brief Facts: - The appellant are engaged in the manufacture of sugar and molasses chargeable to Central Excise duty. The period of dispute in this case is from March 2006 to March 2010. The appellant during this period took capital goods Cenvat credit in respect of chapter 72 and 73 items namely MS bars, MS plates and Sections, HR Plates etc. and other items of Chapter 383976 namely jointing sheets etc. These items were used either for repair and maintenance of the plant and machinery or for modification of the existing plant and machinery. The total credit taken in respect of these items is Rs.2,79,80,207/-. The department was of the view that these items are neither covered by the definition of capital goods as given in Rule 2 (a) of Cenvat Credit Rules, 2004 nor are covered by the definition of inputs as given in Rule 2 (k) of Cenvat Credit Rules 2004 and hence the Cenvat credit in respect of these items is not admissible. On this basis, three show cause notices were issued to the appellant. The first show cause notice dated 06/09/2010 was issued by invoking extended period under proviso to Section 11A (1) of Central Excise Act, 1944. These show cause notices, besides seeking recovery of allegedly wrongly taken Cenvat credit, also sought recovery of interest on it under Section 11AB and also imposition of penalty on them under Section 11AC. The show cause notices were adjudicated by the Commissioner vide order-in-original No.50/Commr/2011 dated 31/3/11 by which the Cenvat credit demands as mentioned in these show cause notices were confirmed along with interest and beside this, penalty of equal amount was also imposed under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act. The Commissioner by this order also ordered appropriation of an amount of Rs. 10,60,242/- already paid by the appellant prior to adjudication. Against this order of the Commissioner, this appeal along with stay application has been filed by the assessee.

Appellant’s Contention: - The appellant contended that all the disputed items have been used either for repair and maintenance of the various capital goods or for modification of the same, that these items have to be treated as used in or in relation to the manufacture of the final product. Hon'ble Chhattisgarh High Court in the case of Ambuja Cements Eastern Ltd. vs. CCE, Raipur reported in 2010 (256) E.L.T. 690 (Chhattisgarh) = (2010-TIOL-309-HC-CHHATTISGARH-CX) has held that welding electrodes used for repair and maintenance of the plant and machinery of the cement plant are eligible for Cenvat credit, that the ratio of this judgment of Hon'ble Chhattisgarh High Court is squarely applicable to the facts of this case, that Hon'ble Rajasthan High Court in the case of Union of India vs. Hindustan Zinc Ltd. reported in 2007 (214) E.L.T. 510 (Raj.) = (2006-TIOL-440-HC-RAJ-CX) has held that MS/SS plates used in the workshop for repair and maintenance of the machinery which is used in the manufacture of final product are eligible for Cenvat credit, and the SLP filed against this judgment of Hon'ble Rajasthan High Court has been dismissed by the Apex Court vide judgment reported in 2007 (214) E.L.T.A115 (S.C.), that same view has been taken by Hon'ble Andhra Pradesh High Court in the case of CCE & CUS, Visakhapatnam - I vs. Rashtriya Ispat Nigam Ltd. reported in 2011 (271) E.L.T. 338 (A.P.) and by the Tribunal in the case of Bhushan Steel & Strips Ltd. vs. CCE, Raigad reported in 2008 (223) E.L.T. 517 (Tri. - Mumbai) = (2007-TIOL-2306-CESTAT-MUM), that they, thus, have a strong prima facie case in their favour and, hence, the amount of Rs. 10,60,242/- already paid by them prior to adjudication may be considered sufficient for hearing of the appeal and the requirement of pre-deposit of balance amount of Cenvat credit demand, interest and penalty may be waived for hearing of the appeal and recovery thereof stayed till the disposal of the appeal.

Respondent’s Contention: - The respondent opposed the stay application by reiterating the findings of the Commissioner (Appeals) in the impugned order and emphasized that activity of repair and maintenance has no nexus with the manufacture of the final product. In this regard he relies upon judgment of the Apex Court in the case of Grasim Industries Ltd. vs. Union of India reported in 2011 (273) E.L.T. 10 (S.C.) = (2011-TIOL-100-SC-CX), wherein while deciding the question as to whether waste and scrap arising from repair and maintenance of plant and machinery installed in the cement factory would attract central excise duty, the Apex Court held that the process of repair and maintenance of the machinery of cement manufacturing plant in which the MS scrap and iron scrap arise, has no contribution or effect on the process of manufacturing of cement, that the welding electrodes, mild steel, cutting tools, MS angles, MS channels etc. used in the process of repair and maintenance of plant and machinery cannot be considered as raw material used in the process of manufacturing of cement, which is the end product and, therefore, the scrap of iron and steel arising in course of repair and maintenance of plant and machinery are not excisable to the excise duty, that in view of this judgment of the Apex Court, the items, in question, cannot be treated as inputs used in the manufacture of final product and, hence, would not be eligible for Cenvat credit, that extended period has been correctly invoked for confirming the demand of duty raised by show cause notice dated 6/9/10, as the appellant had suppressed the relevant facts from the department. The appellant do not have prima facie case and, hence, this is not the case for waiver from the requirement of pre-deposit.

Reasoning of Judgment: - The Hon’ble Tribunal held that while the items, in question, i.e. MS angles, channels, sections, bars, joists, sheets etc. are, prima facie not covered by the definition of capital goods, under Rule 2 (a) of Cenvat Credit Rules, 2004, the definition of input, as given in Rule 2 (k), covers all goods except light diesel oil, high speed diesel oil and motor spirit commonly known as petrol used "in or in relation to manufacture of final product whether directly or indirectly and whether contained in final product or not". Thus, the term input covers not only the goods which are used in the manufacture of final product but also the goods which are used in relation to the manufacture of final product whether directly or indirectly and whether contained in the final product or not. Hon'ble Supreme Court in the case of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. vs. Sales Tax Officer, Kanpur reported in 1997 (91) E.L.T. 34 (S.C.) = (2002-TIOL-116-SC-CT), while, interpreting the scope of the expression "in the manufacture of goods" in Section 8 (3)(b) of Sales Tax Act, 1956 held that the expression "used in the manufacture of goods" not only covers the goods which are directly used in the process of manufacture but also covers the goods used in any process, which is so integrally connected with the ultimate production of goods but for that process manufacturing of goods would be commercially inexpedient. Thus in their view, the repair and maintenance of the plant and machinery is an activity integrally connected with the manufacture, as without regular repair and maintenance of the plant and machinery, smooth manufacturing process is not possible. In any case, scope of the term - "used in or in relation to manufacture of goods, whether directly or indirectly" is much wider than the scope of the term "used in the manufacture". Hon'ble Calcutta High Court in case of Singh Alloys & Steel Ltd. vs. Assistant Collector reported in 1993 (66) E.L.T. 594 (Cal.) has held that the "expression - in relation to" in the definition of 'input' has a wide connotation and the definition of input is not dependent in what ought to be used but what is commercially expedient to use and on this basis held that the ramming mass and dolomite mix used for preventing Corrosion of refractory lining of the furnace and sealing the crevices in the refractory walls so as to prevent leakage of molten metal are eligible for Modvat credit. Same view was taken by Hon'ble Patna High Court in case of Collector vs. Tata Engg. & Locomotion Co. Ltd. reported in 1991 (111) E.L.T. 9 (PAT). Therefore, the items used for repair and maintenance of the plant and machinery would be eligible for Cenvat credit. While the items used for repair and maintenance of the plant and machinery cannot be considered as raw material, as held by the Apex Court in the case of Grasim Industries Ltd. vs. Union of India (supra) cited by the respondent, these items are certainly the "items used in or in relation to the manufacture of final products". Hon'ble Chhattisgarh High Court in the case of Ambuja Cements Eastern Ltd. vs. CCE, Raipur (supra) has held that welding electrodes used for repair and maintenance of cement plant are eligible for Cenvat credit. Similarly, Hon'ble Rajasthan High Court in the case of Union of India vs. Hindustan Zinc Ltd. (supra) has held that MS/SS plates used in the workshop for repair and maintenance of the plant and machinery are eligible for Cenvat credit. Same view has been taken by Hon'ble Andhra Pradesh High Court in its judgment in the case of CCE & CUS, Visakhapatnam - I vs. Rashtriya Ispat Nigam Ltd. (supra). Thus, in view of the above discussion, they are of prima facie view that the appellant have a strong prima facie case in their favour and as such the amount of Rs. 10,60,242/- already paid by them prior to adjudication is sufficient for hearing of the appeal. The requirement of pre-deposit of balance amount of Cenvat credit demand, interest and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal.

Decision: - Stay granted.

Comment:-The substance of this case is that MS angles, channels, sections, bars, joists, sheets etc. are, prima facie not covered by the definition of capital goods, under Rule 2 (a) of Cenvat Credit Rules, 2004,but in view of the definition of inputs, the expression “used in or in relation to manufacture of final product whether directly or indirectly and whether contained in final product or not" has wide amplitude and so the credit on MS angles, channels, etc., used in repair and maintenance of plant and machinery would be admissible.

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PJ/Case Laws/2012-13/1457

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