Whether Cenvat credit is allowed on inputs that are used for fabrication of cooling bed, ultimately fixed to the earth?

PJ/Case Study/2013-14/49

CASE STUDY

Prepared by:-CA Neetu Sukhwani &
Kavita Thanvi

Introduction:-

The present matter relates to disallowance of Cenvat Credit amounting to Rs. 1,45,699/- on ‘Old & Used Plate, Joist, Channel etc. used in making the cooling bed and furnace. While disallowing the credit it is alleged that since the cooling bed and furnace are immovable property, the credit of inputs used in its manufacture is not allowed. On the other hand, hon’ble Supreme Court has held in the case of CCE, Jaipur Vs M/s Rajasthan Spinning & Weaving Mills Ltd that the Cenvat Credit of goods which are used for fabrication of chimney or are used as accessory of such goods is allowed. In this case, the impugned goods are used for fabrication of furnace and for making the cooling bed. Thus, the facts of that case are similar to this case. Therefore, being an identical case, the ratio of hon’ble Apex Court judgment is squarely applicable in this case. Hence the merits of the case tilt in favour of the assessee.

M/s Jodhpur Alloys Pvt. Ltd. v/s Central Excise Commissionerate IJP-II), Jaipur
[Order-In-Appeal no. 07(CB) CE/JPR-II/2011 dated: 10.01.2011]

Relevant Legal Provisions:-

(1)Rule 57Q of Central Excise Rules, 1944:

Explanation: - “Capital goods” means—
(a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products;
(b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and
(c) moulds and dies, generating sets and weighbridges used in the factory of the manufacturer.”

(2)Rule 2(a) of Cenvat Credit Rules, 2004:-

a) "capital goods" means:-
(A) the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
used-
(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or
(2) for providing output service;
(B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act;

Issue: - Following issue was made before the CESTAT:-

Whether Cenvat credit is allowed on inputs that are used for fabrication of cooling bed, ultimately fixed to the earth?

Brief Facts:-

The appellants are manufacturers of rolled steel products. Their raw materials are M.S. Ingots. The appellant during the period from March, 2007 to April, 2008 took Cenvat credit of Rs. 1,45,699/- in respect of plates and joists which according to them were used for fabricating cooling beds for the rolling mills. Some of the plates had been purchased from the ship breakers on which the additional customs duty had been paid and the remaining quantity had been purchased from other manufacturers. The department being of the view that since the plates, joists and channels have been used for fabrication of cooling bed which are ultimately fixed to the earth and hence are not goods, these items cannot be treated as inputs used in the fabrication of the capital goods and would not be eligible for cenvat credit. Accordingly, a show cause notice dated 14.5.2000 was issued for recovery of the allegedly wrongly availed cenvat credit along with interest and imposition of penalty on the appellant. The SCN was adjudicated by the Dy. Commissioner vide OIO dated 20.1.2010 by which the above mentioned cenvat credit demand was confirmed along with interest and equal amount of penalty was imposed. On appeal the Commissioner (Appeals), the Dy. Commissioner’s order was upheld vide OIA dated 10.01.2011 against which the appellant filed the present appeal.

Appellant’s Contentions:-

The appellant made following submissions before the CESTAT:-

1.    The appellant submit that the impugned order is denying the benefit of cenvat credit on Plates, big channels and joists used in the heating furnace by relying upon the judgment of the Supreme Court in the case of Quality Steel Tubes (P) Ltd [1995 (75) ELT 17 (SC)] wherein it was held that“ Dutiability – Goods – ‘Excisable goods’ – Marketability – Plant and machinery embedded to earth, structures, erections and installations are not ‘excisable goods’ since they do not pass the twin test of a being capable of being brought to the market – Sections 2 (d) and 3 of Central Excise and Salt Act, 1944”. In this regard, they submit that the afore-cited judgment given in Quality Steel Tubes (P) Ltd is not applicable in their case as in that case the issue involved was that “whether the tube mill and welding head erected and installed by the appellant for manufacture of tubes and pipes out of duty paid raw material was assessable to duty under residuary Tariff Item No. 68 of the Schedule being excisable goods within the meaning of Central Excises & Salt Act, 1944”. In this context it was held that Plant and machinery embedded to earth, structures and installation are not excisable goods. Thus, the issue involved was excisability of the said goods. In other words, it was to be decided whether the duty is payable on the impugned goods so produced. However, in the present case the issue is regarding the availability of cenvat credit of duty paid on Plates, big channels and joists used in the heating furnace and cooling bed. Here this fact is not required to be decided whether the heating furnace or the cooling bed is excisable or not. They had cited a no. of decisions wherein the credit was allowed in the like cases irrespective of the fact whether the furnace/cooling bed/railway tracks (wherein the impugned inputs were used) are excisable or not. Even the decision given by the hon’ble Supreme Court in the case of CCE, Jaipur Vs M/s Rajasthan Spinning & Weaving Mills Ltd [2010-TIOL-51-SC-CX] was also submitted which was squarely applicable in their case. But the decisions cited by them were not considered and on the contrary, learned Commissioner (Appeals) has relied upon a judgment which is not applicable in their case. Such an order is not sustainable and is liable to be quashed.

2.    They reiterate that they had submitted in their written submissions that Hon’ble Supreme Court has allowed credit of steel plates & M.S. Channels that were used for fabrication of chimney for DG set. This decision has been given in the case of CCE, Jaipur Vs M/s Rajasthan Spinning & Weaving Mills Ltd [2010-TIOL-51-SC-CX]. The analysis of this decision makes it clear that the Cenvat Credit of goods which are used for fabrication of capital goods or any accessory of the capital goods is allowed. In the present case, the impugned goods are used for making the cooling bed for the capital goods. As such, the facts and circumstances of this case are similar to that cited here above. Though, this decision pertains to year 1999 when Central Excise Rules, 1944 were in force, yet its ratio is extendable to them. During the year 1999, Credit of capital goods was allowed under Rule 57Q of these rules. The capital goods were defined in explanation to this rule. As such, credit was allowed on the components, spare parts and accessories of machines, plant & equipments, etc. under this rule. In the current definition of capital goods under rule 2(a), credit is allowed on components, spare parts and accessories of machines, equipments (falling under chapter heads specified therein) under clause (iii) of this rule. If we compare this decision with new rules, the facts and circumstances are the same, the interpretation of relevant portion of both the rules, the old one and the new one, is the same. So, the ratio of this judgment is squarely applicable in their case. All this discussion was duly made in the written submissions submitted during personal hearing. But while passing the impugned order in appeal the learned Commissioner Appeals has not even named this decision. Thus, the impugned order in appeal has been passed without discussing and distinguishing the decision of hon’ble Supreme Court. Such an order is not sustainable as it is a non-speaking order. It has been held by hon’ble Supreme Court in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law. The analysis of this decision makes it clear that the order passed without considering the case laws cited by them is not justified and it should be set aside. The appeal should therefore be allowed.

3.    Without prejudice to above it is submitted that even if the contention of the impugned order is accepted for the sake of argument only that the decision of Quality Steel Tubes is applicable in their case then too the credit cannot be denied to them. Since the decision of Rajasthan Spinning Mills is also squarely applicable in their case and if they say that the decision of Quality Steel Tubes is also applicable; then it is clear that there are contradictory decisions on the issue. It has been held in a no. of cases that where there are contradictory decisions on a particular issue, the one favouring the assessee will prevail. It has been held in the following cases:-

a)    CCE, Jamshedpur v/s Tata Iron & Steel Co. Ltd. [1999 (114) ELT 160 (Tri-Kolkata)]

b)    CCE, Trichy v/s Dalmia Cements (P) Ltd. [1999 (114) ELT 836 (Tri-Madras)]

c)    Crompton Greaves Ltd. v/s CCE, Mumbai-II [1997 (94) ELT 629 (Tri.-Mumbai)]

d)    Hoolidevi v/s Asst. Collector of Customs (P), Madras [1995 (78) ELT 669 (Mad.)]

As such, where there are contradictory decisions, one favouring the assessees will be considered. In their case also, there are contradictory decisions given by various appellate authorities, the decisions given in their favour will prevail. Thus, even if it is said that the decision of Quality Steel Tubes is applicable in their case, then too it is not sustainable in the light of decision of Rajasthan Spinning Mills given by hon’ble Supreme Court. Therefore, extending the ratio of these decisions to them, the impugned order should be quashed and the appeal should be allowed. Further, the aforesaid decisions stating that the decision in favour of assessee will prevail in case of contradictory decisions were cited in the written submissions but these have not been considered while passing the impugned order. Neither these decisions have been discussed nor have any reasons been assigned, as to why the benefit of these decisions has not been extended to them. Such a decision is not justified in the light of decision given by hon’ble Apex Court in the case of State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]. The analysis of this decision makes it clear that the order passed without giving reasons of decision is not justified in the eyes of law. In the present case also, no reasons has not also been assigned why the case laws cited by them are not applicable. As such, the impugned order passed without assigning the reasons is not justified and is liable to be quashed. The appeal should therefore be allowed.

4.    The appellant further submit that the learned Commissioner (Appeals) has not used the Plates, big channels and joists in the cooling bed which is a part of the rolling mill. It was also submitted that these goods were used in the heating Furnace which are capital goods. It was further submitted that the items used in the construction of these capital goods were also capital goods. They were used as an accessory /component of the capital goods and therefore cenvat credit could not be denied to them. However, these contentions have been rejected by the learned Commissioner (Appeal) on the basis of judgment which is not applicable to the present case as it was delivered in the context of an altogether different issue. Therefore, the impugned order is required to be set aside.

5.    The appellant further submits that Old & Used Plate, Joist, Channel etc used for construction of cooling bed which is apart of rolling mill and the heating furnace, can be considered as inputs used in the factory for construction of capital goods by virtue of Explanation 2 to the Rule 2 (k) of the Cenvat Credit Rules, 2004. The said explanation reads as under:

“Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer”

Thus, the angles, channels used in manufacture of capital goods clearly fall under the above definition. Hence the credit is admissible to them. Furthermore, the definition of “inputs” has excluded these items w.e.f 07.07.2009. Since, this exclusion has taken place on 07.07.2009, it means that the credit was available earlier. The appellant submit that their case is relating to period from March, 2007 to April, 2008. As such, the credit should have been allowed to them. However, these contentions have not been discussed in the impugned order- in- appeal and therefore, the same is liable to be set aside. The appellant further submit that the order not discussing the contentions raised by them is not sustainable as the learned Commissioner (Appeal) was required to give reasons for rejecting their contentions. The appellant submit that in their appeal before the Commissioner (Appeal) they had submitted that even though the impugned goods were falling under Chapter 72 but they were capital goods as accessories of capital goods which are well covered under the definition of capital goods given in Rule 2 (a) of the Cenvat Credit Rules, 2004 which was applicable as that time. As such, for being capital goods the impugned goods should fall in the tariff headings specified in the definition or should be part of capital goods as referred in clause (iii) of this definition. Clause (iii) includes the word ‘accessory’ which means “a part, sub-assembly or that can contribute to the effectiveness of a piece of equipment without changing its basic sanction, may be used for testing, adjusting, calibrating, recording or other purposes.” This definition is given in S.B. Sarkar’s Words and Phrases of Central Excise & Customs and is being reproduced by the learned Assistant Commissioner while passing the impugned order. According to this definition, the goods will be accessories if:-

Ø     they can contribute to the effectiveness of the machinery;
Ø     There should be no change in basic sanction of the machinery; and
Ø     they can be used for any purpose.

The goods in appeal are the Old & Used plates, joist, channels etc falling in chapter 72 of the Central Excise Tariff. These goods are used for making cooling bed which is a part of rolling mill. Formation of cooling bed is essential for effective working of the mill to roll on. Without fix formation, it is not possible to move. As such, they have rightfully taken the credit of the goods in appeal as capital goods. However, these contentions were not considered by the learned Commissioner (Appeal) and the impugned order, therefore, is liable to be set aside.

6.    The appellant further submit that in the impugned order the learned Commissioner (Appeal) has denied to set aside the penalty imposed on them on the ground that if the Audit team had not pointed out the said wrong availment then Revenue would have been lost and thus suppression is established. In this regard the appellant submit that merely because a point has been found in the Audit itself does not mean that they must have suppressed the facts from the Department. It is submitted that there was no suppression on their part as they had produced all the records before the Audit team for inspection and had not deliberately withheld any records. Therefore the charge of suppression cannot be said to be established against them and therefore the penalty imposed is liable to be set aside.

7.    In continuation to above it is submitted that mere inaction or failure to furnish the information does not amounts to suppression as held in the case of CCE Vs. Chemphar Drug & Limits reported in (2002-TIOL-266-SC-CX) and Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in (2002-TIOL-235-SC-CX ). In these cases, it was held that something positive, rather than mere inaction or failure on the part of an assessee has to be proved before invoking extended limitation period under proviso to Section 11A (1) of the Central Excise Act, 1944 and that since the expression - 'Suppression of facts' has been used in the company of strong words such as fraud, collusion in wilful default, it cannot be interpreted as mere omission - the act constituting 'suppression' must be deliberate. Thus, the contention of the impugned order that suppression was involved is not sustainable and is liable to be set aside.

8.    It is further submitted that they had cited a no. of decisions wherein it was held that the penalty is not imposable as their act was based upon bonafide belief caused by various decisions. They have cited the decision of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] wherein it was held that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. Further a no. of other decisions were also cited wherein it was held that where the issue pertains to interpretation of legal provisions penalty is not imposable. But none of these decisions have been discussed and distinguished and no reason has been assigned as to why these decisions have not been considered. They rely upon the judgment given in WIPRO COMPUTERS LTD. Versus COMMISSIONER OF CUSTOMS, CHENNAI [2001 (135) E.L.T. 450 (Tri. - Chennai)]wherein the Tribunal held “An order not discussing evidence submitted by assessee nor technical literature or trade opinion a non-speaking order and not a legal order - Section 35A of Central Excise Act, 1944”and therefore, the order is passed in violation of principles of natural justice and is required to be set aside.

9.    Further in the case of ARBINDO LIQUORS LIMITED Versus COMMISSIONER OF CENTRAL EXCISE, NAGPUR [2001 (133) E.L.T. 631 (Tri. - Mumbai)] it was held that an order narrates only what the Assistant Commissioner said and not what the assessee said. Such an order does not give any insight to the further appellate authority as to the correctness of the findings. It is for this reason that the principles of natural justice require that any order made in adjudication or in appeal, should be a “speaking” order. So the above order passed against the assessee is not tenable in law. Thus, the impugned order should be set aside and the appeal should be allowed.

Reasoning of the Commissioner (Appeals):-

The Hon’ble CESTAT held that the steel items, in question, as per the facts in the show cause notice and the order passed by the original adjudicating authority, have been used in fabrication of steel bed of the rolling mill on which the rolling takes place. There is also no dispute that the steel bed has to be permanently fixed to the earth. However, the rolling mill is covered by the Chapter heading 84.55 therefore, would be covered by the definition of 'capital goods' as given in the Rule 2 (k) of the Cenvat Credit Rules. Since it is the cooling bed on which the rolling takes place, the same has to be treated as a component of the rolling mill, even though for installation of the rolling mill, the cooling bed has to be permanently fixed to the earth. Looked at from this angle, the steel items in question, which admittedly have been used in fabrication of the cooling bed, have to be treated as having been used in fabrication of the components of rolling mills, which are covered by the definition of capital goods and, therefore, the same would be eligible for cenvat credit as the definition of input in Rule 2 (k) also covers the inputs used for fabrication of capital goods for use in the factory.
They find that the Hon'ble Chhattisgarh High Court in the case of Union of India Vs. Associated Cement Company Ltd. has allowed the cenvat credit in respect of the wear plate, HRSS plate, M.S. Plate, angles and channels, which were used for fabrication of cooling and ducting of the kilns, which is used for manufacture of clinker in the cement plant. In view of these discussions, the impugned order is not sustainable and the same is set aside.

Decision:- The appeal is allowed

Conclusion:- The essence of this case is that old and used Plate, Joist, Channel etc. used in making the cooling bed on which rolling takes place, is eligible for availment of cenvat credit even when the cooling bed is permanently attached to the earth as the bed is facilitating the efficient working of rolling mills, that are capital goods as specified in the definition.

******

Comments

PJ/CASE STUDY/2012-13/49
06 April 2013

Post a Comment

Query

Comments

PJ/CASE STUDY/2012-13/49 06 April 2013

Post a Comment

Query

PJ/CASE STUDY/2012-13/49
06 April 2013