Whether Cenvat credit be denied merely because parts and components of machinery after fabrication and installation become fixed to earth?

PJ/Case Law/2013-14/1982

Case:- BAJAJ HINDUSTAN LTD. Vs COMMISSIONER OF CENTRAL EXCISE, LUCKNOW

Citation:- 2013 (294) E.L.T. 590 (Tri. - Del.)

Brief facts:- The appellant were manufacturers of sugar, molasses and alcohol from sugarcane. During the period from January, 2009 to May, 2009, they took Cenvat credit of Rs. 4,78,705/- in respect of 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. The department was of the view that the steel items, in question, were not eligible for Cenvat credit, issued a show cause notice dated 27-11-2009 for denying the above-mentioned Cenvat credit, its recovery along with interest and imposition of penalty on the appellant. The allegation in the show cause notice was that the items, in question, had been used for repair and maintenance of the existing plant and machinery.
The show cause notice was adjudicated by the Assistant Commissioner vide order-in-original dated 12-3-2010 by which he confirmed the above-mentioned Cenvat credit demand along with interest and imposed penalty of equal amount on the appellant under Rule 15 of the Cenvat Credit Rules. In course of proceedings before the Assistant Commissioner, the appellant pleaded that the steel items, in question, had been used for fabrication of a new multi effect evaporation plant which was part of the Pollution Control System and, hence, capital goods, and for this reason, the steel items, in question, used for fabrication of such capital goods would be eligible for Cenvat credit as inputs, but this plea was not accepted by the Assistant Commissioner on the ground that the plant and machinery .assembled and escaped at site cannot be treated as goods for the purpose of excise duty. On appeal to Commissioner (Appeals), the above order of the Assistant Commissioner was upheld vide order-in-appeal dated 15-11-2010. In this order also the Commissioner (Appeals) while accepting that the steel items, in question - MS Angles, Channels, Joists, GP Sheets etc. were used in fabrication of evaporation plant, which was part of pollution control system, held that the Cenvat credit would not be admissible, as the evaporation plant was immovable and embedded in the earth and hence not goods. Against this order of the Commissioner (Appeals), this appeal had been filed.

Appellant’s contentions:- The learned Counsel for the appellant, pleaded that the department accepted that the steel items, in question, had been used in fabrication of evaporation plant meant to reduce the quantity of the affluents and that the evaporation plant was part of the pollution control equipment, which was specifically covered by the definition of ‘capital goods’ as given in Rule 2(a), that just because after fabrication, the pollution control equipment was installed and after installation becomes fixed to the earth, the Cenvat credit in respect of the inputs used in the fabrication of such pollution control equipment cannot be denied, that the Apex Court in the case of CCE, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd. reported in 2010 (255)E.L.T.481 (S.C.) had held that the steel plates and MS Channels used in fabrication of chimney for the diesel generating set was an integral part of the pollution control equipment, that same view had been taken by the Hon’ble Karnataka High Court in the case of CCE, Bangalore-II v. SLR Steels Ltd. reported in 2012 (280)E.L.T.176 (Kar.) wherein Hon’ble High Court held that various items of steel used in fabrication of pollution control equipment in the factory would be eligible for Cenvat credit and the Cenvat credit could not be denied on the ground that the pollution control equipment, being embedded in the earth was an immovable property. She, therefore, pleaded the impugned order was not sustainable.

Respondent’s contentions:- The learned Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner (Appeals) in it and emphasised that in this case the pollution control equipment in whose fabrication the steel items, in question, were used was embedded in the earth and the same was not goods and, therefore, would not be covered by the definition of capital goods. He, therefore, pleaded in view of the facts of this case, 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) would become applicable and accordingly, there was no infirmity in the impugned order.

Reasons of judgment:- Hon’ble judge considered the submissions from both the sides and perused the records. On going through the order passed by the original Adjudicating Authority as well as the first Appellate Authority, he found that the user of the steel items, in question, in fabrication of evaporation plant to reduce the quantity of affluent was not disputed and thus use of the steel items, in question, for fabrication of pollution control equipment stood accepted by the department. He found that in identical circumstances Hon’ble Karnataka High Court in the case of CCE, Bangalore-II v.SLR Steels Ltd. (supra) and the Apex Court judgment in the case of CCE, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd. (supra) had held that the steel items used in fabrication of pollution control equipment would be eligible for Cenvat credit and the Cenvat credit could not be denied just on the ground that the pollution control equipment was embedded in the earth. In any case, any item of machinery or equipment which had either been fabricated in the factory or had been brought to the factory, would after installation, become fixed to the earth and, therefore, in his view on this ground, the Cenvat credit could not be denied. For considering the eligibility of capital goods Cenvat credit what was to be seen was as to whether the item of machinery or its component as brought into the factory or as fabricated in the factory, was movable and hence ‘goods’ covered by the definition of ‘capital goods’ given in Rule 2(a) and it was not material that after installation it becomes fixed to the earth.

Decision:-Impugned order was set aside and the appeal was allowed.

Comment:- The analogy drawn from the case is that for considering the eligibility of capital goods Cenvat credit what is to be seen is that whether the item of machinery or its component as brought into the factory or as fabricated in the factory, is movable and hence ‘goods’ covered by the definition of ‘capital goods’ given in Rule 2(a) and it is not material that after installation it becomes fixed to the earth. Thus, any item of machinery or equipment which is either been fabricated in the factory or is brought to the factory and is covered under definition of ‘capital goods’ given in Rule 2(a) then the same becomes eligible for Cenvat credit despite the fact that it becomes fixed to earth.

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PJ/Case Law/2013-14/1982

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