CASE STUDY
Prepared by: CA Neetu Sukhwani &
Aashish Bohra
Introduction:- M/s SOMI CONVEYOYR, are manufacturer of conveyor and beltings and are assessee registered under the Central Excise Laws. Upon the internal audit conducted by the department, it was found that they have wrongly taken and utilized the cenvat credit of central excise duty paid on the items like MS Plates/Sheets, HR/CR Coil, Profile, Angle, Channel, Joist Bars, Rounds etc. that were used in the construction of structure permanently embedded to Earth. The department proposed to recover the cenvat credit taken along with the interest and penalty under rule 15(2) of the Cenvat Credit Rules, 2004 read with section 11 AC of the Central Excise Act, 1944. The appellant was of view that such items were used in the manufacture of capital goods, i.e. cranes and so they have rightly availed the cenvat credit on such items. The adjudicating authority passed the order recovering the cenvat credit taken along with interest and penalty. The first appellate authority also upheld the order of the adjudicating authority. Therefore, the appellant preferred an appeal to the Tribunal.
M/S SOMI CONVEYOR BELTING LTD. V/S CCE, JAIPUR
[FINAL ORDER – A/56926/2013-SM[BR] DATED 05/07/2013]
Relevant Legal Provisions:
· Definition of Capital Goods under Rule 2(a) of the Cenvat Credit Rules, 2004.
· Rule 14 of the Cenvat Credit Rules regarding Recovery of Cenvat Credit wrongly taken or erroneously refunded.
· Rule 15 (2) of the Cenvat Credit Rules regarding Confiscation and Penalty.
Issue Involved:
The following issue was involved in this case:-
Whether credit of duty paid on MS Plates/Sheets, HR/CR Coil, Angle, Channel, Joist Bars, Rounds etc. used in the manufacture of cranes permanently embedded to Earth is admissible?Brief Facts:
· M/S SOMI CONVEYOR BELTING LTD.(hereinafter referred to as appellant) are engaged in the manufacture of Conveyor Belt/Sheet falling under Chapter heading 40101290 of the First Schedule to the Central Excise Tariff Act, 1985.
· Show Cause Notice No. V (25) Adj-II/ JP-II/439/09/5657 dated 25.02.2010 was issued to the appellant wherein it was alleged that they have wrongly taken and utilized CENVAT credit of Central Excise Duty amounting to Rs. 9,68,314/- on items like MS Plate/Sheet, HR/CR Coil, Profiles, Angle, Channel, Joist, Bars, Rounds etc., used in construction during the month of December, 2006 to November, 2007. It was proposed to recover the wrongly taken and utilized Cenvat Credit alongwith interest and penalty under Rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944 for contravention of Rule 2 & 3 of the Cenvat Credit Rules, 2004. The aforesaid SCN was replied but the submissions made by the appellant were not considered and the impugned order in original was passed confirming the recovery of Cenvat Credit along with interest and penalty.
· Thereafter, aggrieved by the impugned order in original, the appellant preferred the appeal to the Commissioner Appeals on some additional grounds and latest decisions in the favour of assessee on the even issue but the submissions made therein were also rejected by the first appellate authority.
· Consequently, aggrieved by the order in appeal passed by the Commissioner Appeals, the appellant further preferred an appeal to the Tribunal.
Appellant’s Contention:
The appellant submit that the impugned Order in Appeal passed by the learned Commissioner (Appeal) is wholly and totally erroneous and is liable to be quashed.
The appellant submit that the impugned order has held that since the Steel Items were used in building of support structure of the crane which are permanently embedded to Earth, they are not identifiable goods and therefore, are not inputs to the parts and accessory of capital goods. It was also held that steel items itself is not an accessory to the crane. In this respect, the appellant submit that items in issue are HR sheets, plates, angles, joists, bars, etc. which are mostly used factories in making the structures or laying foundations, etc. to the capital goods. In all the cases where these items are used, they are not identifiable as such despite fact that these are key ingredients to those supporting structures. Even in the case of M/s Rajasthan Spinning and Weaving Mills [2010-TIOL-51-SC-CX], the credit has been allowed by Hon’ble Supreme Court on the even items used in fabrication of chimney even though these were not identifiable as such therein. Thus, the learned Commissioner (Appeals) was not correct in holding that the credit cannot be allowed merely because the items in issue were not identifiable as such. A detailed discussion on this decision was done in the appeal memorandum which was quite sufficient to quash this interpretation taken by learned Commissioner Appeals; but despite citing this decision squarely applicable in their case, the credit has been denied by taking a view that is clearly contradicting the decision of Apex Court. Such an interpretation is not viable and is liable to be set aside.
The appellant also submit that the learned Commissioner (Appeals) has highly relied on the judgment of Vandana Global Ltd. vs CCE, Raipur reported at 2010 (253) E.L.T. 440 (Tri.-LB), just affirming the adjudicating authority, who had held that Cement and Steel items used in the foundation and supporting structures cannot be considered as capital goods, nor as parts or accessories of capital goods, nor the same have been specifically listed in the definition of capital goods. Further, para 43 and 44 of the said decision were also reproduced. In this regard, the appellant submit that the decision of M/s Vandana Global is no more a binding precedent in their case as hon’ble Supreme Court has decided the issue in favour of the assessees in the even case. This judgment was cited in the appeal memorandum and written submissions but it has not been considered while passing the impugned order. In fact a series of submissions given by the appellant against the judgment of M/s Vandana Global had not even been referred in the impugned order in appeal and a totally non-speaking order has been passed by solely relying on this judgment without considering the submissions of the appellant. Against the judgment of M/s Vandana Global, following submissions were made by the appellant in their appeal memorandum and written submissions:-
(i) It was submitted that the accessories or parts or components of the capital goods also fall in definition of the capital goods. Hon’ble Supreme Court has interpreted the aforesaid clause
(iii) of the definition of the capital goods and 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 verdicts of Apex Court read as follows:-
“Central Excise - Modvat - assessee was entitled to avail of MODVAT credit in respect of steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set, by treating these items as capital goods: steel plates and M.S. Channels, used in the fabrication of chimney would fall within the ambit of "capital goods" as contemplated in Rule 57Q. It is not the case of the Revenue that both these items are not required to be used in the fabrication of chimney, which is an integral part of the diesel generating set, particularly when the Pollution Control laws make it mandatory that all plants which emit effluents should be so equipped with apparatus which can reduce or get rid of the effluent gases. Therefore, any equipment used for the said purpose has to be treated as an accessory in terms of serial No.5 of the goods described in column (2) of the Table below Rule 57Q : SUPREME COURT”
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 their case, the impugned goods are used for making the supporting structure of the crane which is essential for effective functioning of the crane. Therefore, these goods clearly fall in the definition of the capital goods. As such, the credit is duly allowed on these goods under clause (iii) of the definition of the capital goods. This proves that the facts and circumstances of their 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. The relevant part of this rule read as follows:-
“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.”
As such, credit was allowed on the components, spare parts and accessories of machines, plant & equipments, etc. under this rule. If we recall 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.
(ii) It was also submitted that the decision in the case of Vandana Global Ltd v/s CCE, Raipurwas delivered on 30.04.2010 and the judgment of the Supreme Court in the case of CCE, Jaipur Vs M/s Rajasthan Spinning & Weaving Mills Ltd [2010-TIOL-51-SC-CX]was delivered on 09.07.2010 i.e. after the decision in Vandana Global’s casewas delivered. Therefore, the view given in Vandana Globalwas not valid as it was contrary to the view taken by the Supreme Court in M/s Rajasthan Spinning & Weaving Mills’scase. This view has also been held by the Tribunal in the case of THE COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VISAKHAPATNAM-II Vs M/s APP MILLS LTD[2011-TIOL-1378-CESTAT- BANG]wherein the ratio given in the case of M/s Rajasthan Spinning & Weaving Mills’scase by the Supreme Court was applied and it was held that MS Angles, plates and rounds used by respondent for fabricating structural support for machinery qualify to be capital goods for cenvat credit. The Tribunal further held that the view taken by the Larger Bench of the Tribunal in the case of Vandana Global Ltd was taken much before the Supreme Court decided the case of Rajasthan Spinning & weaving Mills Ltd. Therefore, the view of the Larger Bench is no longer valid as it runs contrary to the later judgment of the Supreme Court. Further, the Tribunal compared the provisions of Rule 57Q with the provisions of Rule 2 (a) of CCR, 2004 and held that clause (i) of Rule 2 (a) (A) is pari materia with clause (3) of the table annexed to Rule 57Q. Similarly, clause (iii) of Rule 2 (a) (A) is pari materia with clause (5) of the table annexed to Rule 57Q.
Thus, as per submissions made in the appeal memorandum and written submissions given during personal hearing, it is ample clear that the decision of M/s Vandana Global is not applicable now by virtue of decision of hon’ble Supreme Court on the even issue in the case of M/s Rajasthan Spinning and Weaving mills. Since the decision of hon’ble Supreme Court has been decided afterwards, it is on the same issue and is of highest Court in India, it is a binding precedent as per article 141 of the constitution of India. This article from Indian Constitution says that the law set by the hon’ble Supreme Court will be binding on all the lower authorities. A comparision of judgment of M/s Vandana Global and M/s Rajasthan Spinning and Weaving Mills was done in the case of COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VISAKHAPATNAM-II Vs M/s APP MILLS LTD[2011-TIOL-1378-CESTAT- BANG] and it was held that the judgment of hon’ble Apex Court will be a binding precedent on the even issues and decision of M/s Vandana Global is no more applicable. This decision was duly cited in the written submissions, but it has not even been referred in the impugned order. Thus, the order in appeal becomes a non speaking order which is not justified in the light of decision of Supreme Court in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]. In this case, it is held 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 and is liable to be set aside. In the instant case also, the decision of M/s App Mills Ltd. has discussed and compared the decisions of M/s Vandana Global and M/s Rajasthan Spinning Mills, therefore it was supposed to be discussed while passing the impugned order. But this has not been done and a non speaking order has been passed which is not sustainable in the light of above decision of M/s Srikumar Agencies. Thus, the impugned order should be quashed and the appeal should be allowed.
It is further submitted that the impugned order has stated that the appellant has wrongly relied upon the judgment of the Hon’ble Supreme Court, in the case of “ CCE, Jaipur vs Rajasthan Spinning & Weaving Mills Ltd reported in 2010-ITS-1893-SC wherein the Hon’ble Court has held that Steel Plates and M.S. Channels, used in the fabrication of chimney would fall within the ambit of “capital goods” as contemplated in Rule 57Q. It has been held that the contention of the appellant is not in consonance with the facts of the case as they had not established at any stage that identifiable capital goods has been manufactured before its embedding into the Earth. It is also alleged that support structure to crane are immovable property and use of steel items for building structure cannot be held as excisable goods and thus not covered under Rule 2(k) as input to the capital goods as held in the case of M/s Vandana Global.
In this regard, the appellant submit that merely because the items in issue becomes part of an immovable property cannot be a sole ground to deny the credit when the fact that their use increases the effectiveness of the capital goods, is not disputed. Even in the case of M/s Rajasthan Spinning & Weaving Mills, the goods in issue were forming the part of chimney which is an immovable property, however, its use was essence for the effective working of the DG set. In the same way, though the use of the HR sheets and plates for making the supporting structure of crane is very essential for the effective functioning of the crane. Thus, the ratio of decision of M/s Rajasthan Spinning Mills is squarely applicable here and the impugned order is liable to be set aside.
It is further submitted that the impugned order is contending that Board vide its departmental instruction F. No. 267/11/2010-CX8 dated 08.07.2010 has clarified from the above judgements that credit on capital goods is available only on items, which are excisable goods covered under the definition of ‘capital goods’ under Cenvat Credit Rules, 2004 and used in the factory of the manufacturer. As regards ‘inputs’, they have to be covered under the definition of ‘input’ under the Cenvat Credit Rules, 2004 and used in or integrally connected with the process of actual manufacture of final product for admissibility of cenvat credit. It is also alleged that the credit of inputs used in the manufacture of capital goods, which are further used in the factory of the manufacturer is also available, except for the items like cement, angles, channels, CTD or TMT bars and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. The contention of the appellant that the instructions issued by the Board are not binding on them is justifiable but when these clarifications are based on certain judgements of higher judicial forum then such instructions should be followed.
In this respect, the appellant submit that the above referred circular was issued as a consequence of decision of larger bench in the case of M/s Vandana Global. When this circular was issued, the Supreme Court decision in the case of M/s Rajasthan Spinning and Weaving Mills was not available. Further, on the basis of submissions already made in the forgoing paras, it has been made clear that the above Supreme Court decision is a binding decision on the even issue having precedence over the decision of larger bench. It is also worth mentioning that when the circumstances under which a circular is issued gets overridden by decision of higher authority, their relevance is lost. This is the case here and the circular is in contradiction to the existing judicial pronouncement by hon’ble Supreme Court on the even issue. Therefore, the impugned order justified in holding that the above stated circular is binding on the appellants. It is further alleged in the impugned order that the contention of the appellant that the circulars are not binding on the assessees, is not sustainable. While holding this view, it is alleged in the impugned order that these clarifications are based upon certain judgments of higher judicial forum then such instruction should be followed. In this regard, it is reiterated that the above stated circular is not sustainable in the present context when the decision of hon’ble Apex Court on the even issue is available but this circular has been issued by relying on the decision of Tribunal. It is matter of fact that the decision of Apex Court has precedence over the decision of Tribunal; and since the circular has not considered the Apex Court judgment, it is no more applicable in the present context. Even if it is accepted for the sake of argument also that the said circular is applicable, then too, the appellant has liberty to disagree and challenge the same. In support of this contention, the appellant had relied upon the judgments of hon’ble Supreme Court in the following cases:-
· Birla Jute and Industries Ltd. v/s Assistant Collector of C. Ex. [1992 (57) E.L.T. 674 (Cal.)]
· Commissioner of Central Excise v/s Eswaran & Sons Engineers Ltd. [2005 (179) E.L.T. 272 (S.C.)]
· Commissioner of Central Excise, Bhopal v/s Minwool Rock Fibres Ltd [2012-TIOL-18-SC-CX]
In the above referred decisions, it has been held that the circulars are not binding on the assessees and they have liberty to challenge the same. Thus, these decisions are squarely applicable in the instant case and were supposed to be discussed before passing the order and relying upon the above referred circular. But this has not been done and the impugned order has been passed without considering the above referred judgments cited in this regard. Therefore, the impugned order has turned out to be a non speaking order which is not justified and is liable to be quashed in the light of following decision:-
· M/s Ashbee Systems Pvt Ltd v/s CCE, Delhi [2011-TIOL-181-HC-DEL-CX]-
Central Excise – procurement, erection and commissioning of pit and pitless type of Electronic Weigh Bridge – whether manufacture – CESTAT has not considered the grounds and case law relied upon by the petitioner – Matter remanded: It is noticed that the impugned order passed by the CESTAT does not notice and take into consideration the contentions raised by the petitioner including case law relied upon by them have not been referred to in the impugned order. Keeping in view the afore-said facts, the impugned order is quashed and CESTAT asked o decide the application for stay afresh. The Tribunal will keep in mind the contentions and reasons including the case law relied upon by the petitioner. It is clarified that this Court has not expressed any opinion on merits of the controversy and issue. CESTAT will independently apply its mind.: DELHI HIGH COURT;
Thus, in the light of above High court decision, the impugned order in appeal passed without considering the case law cited by the appellant is not tenable and is liable to be set aside.
The impugned order has further held that out of all the inputs the appellant manufactured non-excisable goods which are embedded to Earth and hence no credit can be given. In this regard, the appellant submit that the various appellate authorities including the hon’ble Apex Court has allowed the Cenvat Credit on the items used for making the supporting structures which are embedded to earth/immovable. The appellant had discussed in detail the decision of Apex Court in the case of M/s Rajasthan Spinning and Weaving Mills Ltd. wherein credit was allowed on the similar items used for making the supporting structure of chimney which is also immovable, and despite this fact the credit was allowed. Besides this decision of Apex Court, following other decisions are available in their favour:-
· Bhushan Steel & Strips Ltd. v/s Commissioner of C. Ex., Raigad [2008 (223) E.L.T. 517 (Tri. - Mumbai)]
· Commissioner of Central Excise, Jalandhar v/s Pioneer Agro Extracts Ltd [2008 (087) RLT 0468 (P&H)]
· Bellary Steel & Alloys Ltd v/s Commissioner of C. Ex., Belguam [2005 (180) ELT 92 (Tri-Bang)]
· Ispat Industries Ltd. versus Commissioner of Central Excise, Mumbai [2006 (195) E.L.T. 164 (Tri. - Mumbai)]
· Divi’s Laboratories Ltd. vs Commissioner of Central Excise, Vishakhapatnam [2006 (196) ELT 0285 (Tri.-Bang.)]
· LLOYDS STEEL INDUSTRIES LTD. vs COMMISSIONER OF C. EX., NAGPUR [2007 (211) E.L.T. 275 (Tri.- Mumbai)]
In the above decisions, the credit was allowed on the goods in issue that were used for making the supporting structure which was immovable in nature. Thus, the ratio of these decisions is equally applicable in the instant case and the impugned order holding that credit is not allowed on the items used in making the supporting structure is not sustainable and is liable to be set aside.
It is further stated in the impugned order that the contention of the appellant that imposition of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944 is not called for as credit was taken under bonafide belief that it was admissible to them as held by the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Trichy, vs Grasim Industries Ltd. [2005 (183) E.L.T. 123 (SC)] is not tenable. Further, the Hon’ble Supreme Court in the case of UOI vs Dharmendra Textile Processors [2008 (231) ELT 3 (SC)] has held that if a statue prescribes penalty for breach of civil obligation, penalty is imposable irrespective of mens rea.
In this respect, the appellant submit that as per language of the section, penalty can be imposed only if the short-payment is due to any of the ingredients referred in the section. As such, the judgment of the hon’ble Supreme Court has been delivered by ignoring the provisions of the section mentioned in the law. It has been held in the case of A-One Granites v State of U.P. (2001)3SCC537; AIR2001 SC 1203; Salmond on Jurisprudence, 12th Edn. Pg 167 that the decision given by the hon’ble Apex Court which has been rendered per incuriam, i.e. by ignoring the provisions of the Act, is not binding under article 141 of the Constitution. The doctrine of per incuriam is an exception of the rule of precedents and it says that any expression resulting from ignorance is not a binding authority and it may be ignored. In the instant case, the mens rea/willful suppression has been mentioned as essential ingredients for the purpose of imposing the penalty as contemplated by the provisions of the Central Excise Act, 1944. But the hon’ble Supreme Court has rendered decision of Dharmendra Textiles by ignoring this vital fact. As such, it is not binding precedent as per doctrine of per incuriam. In the instant case, there was no willful suppression by the appellant but this is a simple case of taking cenvat credit on MS Plate/sheet, HR/CR Coils, Profiles, Angels, Channels, Joist, Bars, Rounds etc. used in the manufacture of crane which is part and accessory of the crane which is capital goods. Their genuine belief is also supported by a series of judicial pronouncements in their favour including the judgment of hon’ble Supreme Court. As such, the penalty cannot be imposed upon them by relying on the case of Dharmendra Textiles. As such, the impugned order is not tenable and it should be set aside.
In continuation to above, it is submitted that the decision of hon’ble Supreme Court in the case of M/s Dharmendra Textiles has been referred by hon’ble Punjab and Haryana High Court in the following case:-
· CCE, Chandigarh-II Vs M/s Sarvpriya Industries Ltd [2010-TIOL-523-HC-P&H-CX.]-
Central Excise - Supreme Court decisions in Dharmendra Textile as well as in RajasthanSpinning& Weaving Mills do not lay down that for every short payment of duty, penalty is automatic: Dharmendra Textile as well as in RajasthanSpinning& Weaving Mills is that mandatory penalty under Section 11AC of the Act was not applicable to every case of non-payment or short-payment of duty. Thus, even though the authorities may have no discretion once conditions stipulated under Section 11AC of the Act exist, in absence of fulfilment of such conditions, penalty could not be levied. In this view of the matter and the finding of the Tribunal that there was no allegation of suppression of facts with intent to evade the payment of duty, the penalty under Section 11AC of the Act was not warranted. No substantial question of law arises: PUNJAB AND HARYANA HIGH COURT
Thus, hon’ble High Court has ruled that penalty is not warranted in each and every case of non-payment of duty or short payment of duty. This should happen only due to suppression of facts with an intent to evade the payment of duty. In the light of this decision, since the impugned order has not been able to prove the ulterior motive, the penalty is not sustainable. This decision was discussed in the written submissions submitted during the personal hearing but it has not even been referred in the impugned order. Such a non reasoned and non speaking order is not tenable in the light of the decision of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]. In this decision it was held that the order which is passed ignoring the submissions of the appellant is not justified. In the instant case also, the impugned order has been passed without considering the judgment of high court as cited by the appellant in their written submissions. Therefore, extending the benefit of this decision, the impugned order in appeal being a non speaking order is not sustainable and is liable to be set aside.
It is further submitted that the impugned order in appeal has turned out as a non speaking and non-reasoned order as it has been passed by ignoring most of the submissions made by the appellant in their appeal memorandum and written submissions. Some of the submissions which are not discussed have already been referred in the forgoing paras. Remaining submissions as forming the part of appeal memorandum and written submissions filed to learned Commissioner (Appeals) which have not been discussed are reproduced as follows:-
(i) In their appeal memorandum, they had discussed that the amendment to Explanation of Rule 2 (k) of the Cenvat Credit Rules, 2004 vide Notification No. 16/2009-CE (NT) dated 07.07.2009 was prospective as this notification did not mentioned that it was retrospective in nature. It was submitted that the amendment to the Explanation has narrowed down the scope of inputs to be covered under “inputs used for making capital goods” therefore, the said explanation cannot be said to be clarificatory in nature. It was submitted that prior to amendment in the Explanation, an impression was given by the earlier Explanation that MS Angels, channels, joists etc which were used in the manufacture of inputs further used in the manufacture of capital goods will be inputs and therefore eligible for cenvat credit. However, after the amendment of the Explanation to Rule 2 (k) the said items are clearly excluded from the scope of definition of inputs. Therefore, the said amendment has narrowed or limited the scope of the definition of Inputs given in Rule 2 (k) therefore, it could not be said to be clarificatory in nature. In support of its contention, reliance was placed on the judgment of the Apex Court in the case of Sedco Forex International Drill Inc. v. Commissioner of Income Tax – [(2005) 12 Supreme Court Cases 717] and B.A. Research India Ltd v/s Commissioner of Service Tax, Ahmedabad [2010 (18) STR 604 (Tri-Ahmd)]. These decisions were discussed in detail in the appeal memorandum which clarified that unless it is specifically mentioned, an explanation which narrows down or enhances the scope of a definition cannot be held as retrospective in nature.
(ii) In their appeal memorandum, the appellant had discussed the definition of capital goods in depth and had clarified that the impugned goods in appeal are part of crane and since the crane very well falls in the definition of the capital goods; thus, the impugned goods being part/component of the said crane will also be covered in the definition of the capital goods. The said discussion is reproduced as follows:-
(a)” capital goods” means :-
(A) the following goods, namely :-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, 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;
As such, for being capital goods the impugned goods should fall in the tariff headings specified in the above definition or it should be part/component/accessory of capital goods as referred in clause (iii) of this definition. There is no doubt that the crane clearly falls under the definition of the capital goods. The goods in appeal, though fall in tariff heading 72 are included in aforesaid clause (iii) of this definition which 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 hereunder. 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 falling in chapter 72 of the Central Excise Tariff. These goods are used for making supporting structure of the crane which is must for effective functioning of the crane. Thus, the said goods are used as accessory which though do not change the basic structure of the crane, yet increase the effectiveness of the machinery. Therefore, the goods in appeal clearly fall in the definition of the capital goods and the appellant have rightfully taken the credit of the goods in appeal as capital goods.
(iii) In their written submissions they submitted that the Hon’ble Karnataka High Court in the case of COMMISSIONER OF C. EX., MYSORE Versus ICL SUGARS LTD [2011 (271) E.L.T. 360 (Kar.)] had held that -
Cenvat credit - Capital goods - Tank in factory premises for storing by-product (syrup and molasses), subsequently sold as finished product - Raw materials used in manufacture of tank viz. plates/bottom of plates/roof plates - HELD: Credit on these items could not be denied on ground that storage tank was immovable property embedded to earth and capital goods - Rule 57Q of erstwhile Central Excise Rules, 1944 - Rule 3 of Central Excise Rules, 2002. [para 5]Thus, it is clear from the said judgment that even if the capital goods were embedded to earth and were immovable property they will remain capital goods and the inputs/raw materials used in the manufacture of capital goods will be inputs on which cenvat credit cannot be denied.
(iv) Further, regarding non imposition of penalty on the even issue, they had cited the decision of M/s Rosavar Steels Ltd v/s CCE, Coimbatore [2011-TIOL-774-CESTAT-MAD]. In this judgment, the issue raised was regarding cenvat credit on MS Plates, Sheets, Channels and HR Sheets falling under Chapter Heading 7208 and 7216. The penalty was set aside considering the nature of the dispute.
(v) Further, to support their contention that no penalty is imposable in case of interpretational nature of issue; they had cited the decisions of CCE, Tirupati v/s M/s India Cements Ltd [2010-TIOL-1115-CESTAT-BANG] and Uniflex Cables Ltd v/s Commissioner of Central Excise, Surat-II [2011-TIOL-85-SC-CX]. Thus, the decision of hon’ble Apex Court was citedwherein it was held that the penalty is not imposable if the issue is of interpretational nature.
(vi) Regarding non invocation of extended period, it was 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)andPushpam 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.
The above referred submissions of the appellant as given in the appeal memorandum and written submissions were not at all discussed and a non speaking order was passed. Such a non speaking and non reasoned decision is not sustainable in the light of following decisions:-
· CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]:-
“CESTAT is required to pass reasoned speaking orders - while setting aside the order of the Commissioner the Tribunal has not recorded any finding as to in what manner the findings recorded by Commissioner are erroneous or as to why it was required to take a different view.
It is a matter of regret that the Tribunal still continues to ignore the same: Despite there a being plethora of precedents holding that an appellate authority is required to record facts, contentions as well as reasons for arriving at its conclusions, it is a matter of regret that the Tribunal still continues to ignore the same and pass orders like the present one without recording facts or reasons.· State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]:-
Even High Courts are required to pass speaking reasoned orders - The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance. The manner in which appeal against acquittal has been dealt with by the High Court leaves much to be desired. Reasons introduce clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons, howsoever brief, in its order indicative of an application of its mind, all the more when its order is amenable to further avenue of challenge. The absence of reasons has rendered the High Court order not sustainable. The requirement of indicating reasons in such cases has been judicially recognized as imperative. Judicial discipline to abide by declaration of law by this Court, cannot be forsaken, under any pretext by any authority or Court, be it even the Highest Court in a State, oblivious to Article 141 of the Constitution of India. Reasons are live links between the mind of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the Courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out. The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance: SUPREME COURT;
The analysis of these decisions makes it clear that the order passed without giving reasons for the same is not justified in the eyes of law. In the case of appellant also, no reasons has not also been assigned why the above referred submissions and case laws cited by them are not applicable and why their benefit has not been extended to them. 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.
In the light of aforesaid submissions, the impugned order in appeal is not justified in confirming the demand of duty, interest and penalty. Thus, it is liable to be set aside.Reasoning of Judgment:- The Tribunal observed that the demand of duty stands raised against the appellant vide show cause notice dated 27.02.2010, by proposing to deny the Cenvat Credit of duty paid on the various iron and steel items used as structural during the period December, 2006 to November, 2007. It further stated that admittedly the issue stands decided against the appellant by the larger bench decision of the Tribunal in the case of Vandana Global Ltd. Vs. CCE, Raipur reported in 2010 (253) E.L.T. 440 (Tri.-LB) and is settled. The only issue required to be considered in the present appeal is as to whether the extended period of limitation was available to the Revenue or not.
The Tribunal further observed that admittedly, during the relevant period, there were decisions in favour of the assessee laying down that such use of various iron and steel items was admissible cenvatable inputs. The matter was subsequently declared against the assessee by the larger bench of the Tribunal. The Hon’ble Supreme Court in number of cases has held that where there are decisions in favour of the assessee during the relevant period or there are contrary decisions or the matters are referred subsequently to the Larger Bench, no allegation of suppression can be attributed to the assessee. One such reference can be made to the Hon’ble Supreme Court decision in the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh-I reported in 2007 (216) E.L.T. 177 (S.C.), Jaiprakash Industries Ltd. Vs CCE, Chandigarh reported in 2002 (146) E.L.T. 481 (S.C.) and Mentha & Allied Products Ltd. Vs. CCE, Meerut reported in 2004 (167) E.L.T. 494 (S.C.).
The tribunal by following the said decisions, in other appeals similarly has held that longer period is not available to the Revenue for raising and confirming the demands. In as much as in the present case, the show cause notice stand raised on 27.02.2010 for the period December, 2006 to November, 2007, the same is factually barred by limitation. The impugned order is set aside accordingly and the appeal is allowed with consequential relief to the appellant.
Decision:The appeal was allowed.
Conclusion:It is analysed from this case that although the Tribunal did not allow the appeal on merits but the appeal has been allowed on the ground of limitation as the appellant took credit on MS Plates/Sheets, HR/CR Coil, Profile, Angle, Channel, Joist Bars, Rounds etc. that were used in the construction of structure permanently embedded to Earth as they were under bonafide belief that such credit was admissible to them in view of various decisions in favour of the assessee. Therefore, it can be concluded that when the act of the assessee is backed by case laws in their favour, the charge malafide intention to evade payment of duty cannot be levelled against the assessee.
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