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PJ/CASE STUDY/2015-16/110
23 January 2016

Whether extended period invocable for contrary decisions on issue?


 

CASE STUDY

 

Prepared by:-CA Neetu Sukhwani &
Neelam Jain

 
Introduction:- M/s UMAX PACKAGING LTD., hereinafter referred to as the appellant is engaged in the manufacture of the Flexible Rolls and Plastic Pouches falling under sub heading no. 39219096 and 39239090 of the Schedule to Central Excise Act, 1985.A show cause notice C. No. V (39) 30/50/200/6134 dated 16.4.2010 was issued to the appellant for disallowing the credit taken on M.S Angles/channels and steel sheets falling under Chapter 72. They had taken cenvat credit on the goods that were used to make thermic system pipeline support and bridging. It was alleged in the show cause notice that the Cenvat credit of Central excise duty had been wrongly taken / utilized by the assessee for the period from April 2008 to Feb 2009 and remaining 50% in 2009-10 on M.S. Angles/Channels and steel sheets used by them in their factory on the premise that these are not goods and so they cannot be classified as goods. The appellant is in the second round of litigation and the decision given by the Tribunal second time is the subject matter of consideration for the present case study.
 

 M/S UMAX PACKAGING LTD. VS C.C.E. & S.T., JAIPUR
 
[FINAL ORDER NO. 53014/2015 dated 26.05.2015]
 

 
Relevant legal provisions:-
 

The term capital goods is defined in Rule 2 (a) the 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 90,4[heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] Old[heading No. 68.02 and sub-heading No. 6801.10] 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;
 
 
Rule 2 (k) of the Cenvat Credit Rules, 2004, providing defination of input:-

(k) "input" means-
 
(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
 
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
 
Explanation 1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
 
Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;
 
 
Issue:-Whether extended period invocable for contrary decisions on issue?


Brief Facts:-
 
1.            M/s Umax Packaging Limited hereinafter referred as the appellant is engaged in the manufacture of the Flexible Rolls and Plastic Pouches falling under sub heading no. 39219096 and 39239090 of the Schedule to Central Excise Act, 1985.
 
2.            The show cause notice C. No. V (39) 30/50/200/6134 dated 16.4.2010 was issued to the appellant for disallowing the credit taken M.S Angles/channels and steel sheets falling under Chapter 72. It was alleged in the show cause notice that the Cenvat credit of Central excise duty had been wrongly taken / utilized by the assessee for the period from April 2008 to Feb 2009.
 
3.            The aforesaid show cause notice was replied by an interim reply filed on 14.5.2010 vide PJ/SCN/U-24/10-11/655 and final reply to the show cause notice was submitted vide letter no. PJ/SCN/U- /10-11/1265 DT. 12.7.2010.
 
4.            Personal hearing was given on 11.08.2010 which was attended authorised representative of the appellant - Mr. Pradeep Jain, CA. Written submissions were given and the submissions made in the reply to the show cause notice were reiterated.
 
5.            The learned Adjudicating Officer did not accept the submissions of the appellant and passed the impugned Order-in-original no. 187-2010-CE-DEMAND, dated 17.9.2010 confirming demand of excise duty of Rs. 232980/-  with interest and penalty under section 11 AC of the Central Excise Act, 1944.
 
6.            Aggrieved by the impugned order in original, the appellant filed appeal before the Commissioner (Appeals). But, the grounds taken by the appellant were not considered and Order in Appeal No. 133 (CB) CE/JPR-II/2011 DATED 28.06.2011 being passed rejecting the appeal filed by the appellant.
 
7.            Aggrieved by above referred order in appeal, appeal was filed to the Delhi Tribunal, wherein final order no. final order no. 922/2011 SM (Br) & S-864/2011 SM (Br) dated 2.12.2011 was passed remanding the matter to the original authority on condition of considering and thoroughly analyzing the submissions made by the appellant in light of specified decisions.
 
8.             As a consequence of above order passed by the hon’ble Tribunal, the appellant filed the application dated 23.01.2012 and requested the adjudicating authority to give personal hearing to represent the case. The written submissions were also given in that application stating the merits of the case.
 
9.            Personal hearing was granted by the adjudicating authority on 26.10.2012 which was attended by Shri Pradeep Jain, FCA. The authorized representative of the appellant who reiterated the submissions already made in their application cum written submissions referred hereabove.
 
10.          However, the submissions given by the appellant were not considered and once again the demand was confirmed against them alongwith interest and penalty vide order in original no. 37/2012-CE-(DENOVO) dated 9.11.2012.
 
11.          Aggrieved by the impugned order in original dated 9.11.2012, the appellant filed the appeal to hon’ble Commissioner (Appeals) alongwith stay application. The hearing for stay application was held on 13.03.2013. While disposing off the stay application, the Stay Order no. 84(VC)/CE/JPR-II/2013 dated 15.3.2013 was passed in which pre-deposit of Rs. 3,00,000/- was ordered.
 
12.          The appellant made the pre-deposit of Rs. 232980/- by debiting the same at entry no. 2651 dated 30.03.2013 and balance amount of Rs. 67020/- was deposited vide GAR-7 challan no. 00233 dated 30.03.2013. The compliance report was filed vide their letter dated 02.04.2013.
 
13.          The final hearing for this appeal took place on the 30.07.2013 which was attended by CA. Pradeep Jain on behalf of the appellant. The written submissions were also filed at the time of personal hearing.
 
14.          After personal hearing, the adjoiner to written submissions was also filed in which the copy of final order no. A/56926/2013-Sm [BR] dated 05.07.2013 passed by hon’ble Delhi CESTAT in the case of M/s Somi Conveyor Belting Limited was enclosed. In this case, hon’ble Delhi CESTAT has decided the same issue as involved in the present case, in favour of the assessees. However, none of the submissions, neither those contained in the appeal memorandum, nor in the written submissions or adjoiner thereof, were considered and the impugned order in appeal no. 99(OPD)CE/JPR-II/2013 dated 26.08.2013, issued on 27.08.2013 was passed for rejecting the appeal filed by them.
 
15.          Aggrieved by the impugned order in appeal, the appellant prefer to file this appeal before hon’ble CESTAT.
 
Appellant’s Contention:- The appellant made following submissions before the Hon’ble Delhi Tribunal:-
 
1)            The appellant submit that the impugned order in appeal passed by the learned Commissioner (Appeals) is wholly and totally erroneous and is liable to be set aside.

2)            The impugned order in appeal has discussed the issue and has held that the appellant has availed cenvat credit on M.S. Angles/Channels/Steel Sheets etc. falling under chapter 72 treating them as capital goods as they were used in the support structure and bridging  Thermic Pipeline System. The adjudicating authority denied the cenvat credit on the ground that the impugned goods were used in civil construction/support structure which is attached to earth and was not excisable goods marketable as such whereas the appellant contended that the impugned goods were components, parts and accessories to the capital goods and covered under the definition of capital goods under Rule 2(a) of the Cenvat Credit Rules, 2004. Thereafter, the Supreme Court decision in the case of M/s Rajasthan Spinning & Weaving Mills was referred wherein it was 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, 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. However, in the present case angles, channels and steel sheets were used in errection of support structure & bridging for Thermic Pipeline System used for maintain cooling in the plant. Before, their embedding into the earth, no goods is fabricated which comes into existence in the category of the goods. The support structures and bridges erected are not by itself identifiable excisable goods which are bought and sold in the market as goods. Whereas the fabrication of chimney is a part of plant and is an excisable goods. As such, the case law of RSWM is not relevant in the present case. Further, in the Vandana Global case, the larger bench of Tribunal has arrived at the conclusion that for availing credit, capital goods have to be goods first and foundation and supporting structures being immovable property are not goods or excisable goods. As such the decision of Larger Bench was held to be applicable in this case.

In this regard, it is submitted that the reliance placed by the appellant on the decision of RSWM has been misplaced by the learned Commissioner Appeals and has been equated with the decision given by the larger bench in the case of Vandana Global. The appellant submit that the contention that support structures and bridges by itself are not excisable goods which are bought and sold is totally erroneous as there is no condition in the Cenvat Credit Rules, 2004 that the credit of capital goods is admissible only if the capital goods are excisable and are capable of being bought and sold as the definition of capital goods itself includes items like storage tanks that are generally attached to the earth. Moreover, the appellant has availed credit on the support structures and bridges as accessory of the thermal pipeline support system that is very well covered under the definition of the capital goods. It has been explained by the appellant that their total plant runs in Air conditioned atmosphere. The imported machines cannot work without the same. They are having an Air conditioner plant and for that air conditioning pipeline is a necessity. The angles, channels and the steel sheets mentioned are used as a provider of support to these pipelines so they are also a part of the capital asset and are therefore eligible for the Cenvat credit on them as a capital good. Further they also have their plant made in such a way that there is a requirement of a proper bridging system, the angles and channels are used for the same. For making water tanks for chilling system of machines and for making support with walls and roller supports also the angles and channels are used. They are also used for making base of VAM & TSG (Chilling machines). Further they submit that the angles channels and steel sheets are also used for the cable trays that are used to carry the goods from here to there. The panels and the EOT cranes are also used for the purpose of carrying the goods from here to there so these are also a part of their plant that is used for the manufacturing process. These goods are used for making travel beam of EOT crane across the complete hall and also used for making support to walls for base rail of EOT crane. The angles, channels and steel sheets are also used for cable trays. They are also used for making stands near the machine rolls loading and unloading area and for making four pole structure of 33 KVA station. So these angels and channels are also a part of their plant who supports the panels, channels and the EOT cranes and so a capital asset.

It is further submitted that the above stated use of the bridges and support structures clearly reveal that the plant cannot function without such supporting structures and so the credit with respect to the angles, channels etc. used in such structures are admissible for cenvat credit and the impugned order in appeal denying the credit of the same is not sustainable and should be set aside.
 
3)            In continuation to above it is submitted that the contention of the impugned order that the case of RSWM is not applicable in the instant case is misconceived. In the case of RSWM, hon’ble Supreme Court has allowed the credit on the HR plates, sheets, beams, etc. by holding the view that these items are used for fabrication of chimney which is essential for effective functioning of the machinery. This is the gist of decision rendered by the Apex Court which is equally applicable in their case. In the instant case, the goods are the same as were there in the Apex Court decision. These goods are used in making the water tanks for chilling system of machines and for making supporting structures with walls and roller supports also and are also used for making the base of VAM and TSG (Chilling machines) which clearly fall in the definition of capital goods. The contention of the impugned order that these goods are immovable and hence do not fall in the definition of capital goods and thus decision of Supreme court is not applicable; is not justified as the definition of capital goods includes certain items which are embedded to earth. For eg. definition of capital goods includes storage tanks, pipelines, etc. which are always embedded to earth. When the definition of capital goods specifically include such items, it is not justified to allege that these goods cannot be capital goods, therefore, credit is not allowed on items used for increasing the effectiveness of these capital goods. In view of this, the impugned order in appeal is incorrect in holding that the credit will not be allowed on the goods used for fabrication of goods like storage tanks, thermal pipeline system, etc. Since the goods in issue have been used for increasing the effectiveness of the capital goods; the ratio of Apex Court judgment is equally applicable in their case and the impugned order in appeal is liable to be set aside.
 
4)            In continuation to the above it is 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. Also, it is undisputed fact that both of these decisions have been rendered on the common issue. Therefore, it is the judgment of Apex Court which will be binding on all the lower forums.This view has also been upheld 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.Therefore, the judgment of the Larger bench of the Tribunal is not applicable in their case.

It is reiterated that the Hon’ble Supreme Court in the case of CCE, Jaipur Vs M/s Rajasthan Spinning & Weaving Mills Ltd [2010-TIOL-51-SC-CX]has allowed credit of steel plates & M.S. Channels that were used for fabrication of chimney for DG set. 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 the instant case also, the impugned goods are used as an input for the Thermic system pipeline support and bridging. As such, the facts and circumstances of the present case are similar to that cited hereinabove, the benefit of this decision is required to be extended to them and the order in appeal should be quashed.

5)             It is further submitted that it is stated in the impugned order that the appellants have contended that MS angles, channels and steel sheets have been used as an input for the Thermic system pipeline support and bridging. The angles and channels are providing support to it and its bridging system. From the use as contended by the appellants, it is very clear that MS Angles, channel, Steel Sheets had been used in making Support Structures and Bridges to hold and clamp the Thermic Pipeline above the road. These items are used in errection of said supports and bridges by putting piece to piece attached to earth. As such the items Supports and Bridges which come into existence is not an identifiable excisable goods being attached to earth. Moreover, these are in the category of immovable property which cannot be bought and sold as such in the market. The angles, channels and steel sheets by itself are also not covered under the definition of component parts and accessories specified under Rule 2(a)(A)(iii) of Cenvat Credit Rules, 2004 being not parts of the capital goods falling under Chapter 82, 84, 85, 90 and heading no. 68.02 and sub heading no. 6801.10 as specified under Rule 2(a)(A)(i) ibid without which the machinery cannot function. The above view finds support from the Hon’ble Supreme Court judgement in the case of M/s Saraswati Sugar Mills Vs CCE, Delhi [2011-TIOL-73-SC-CX] in which it was held that Iron & Steel Structures manufactured and used in the factory for installation of the sugar plant are not essential requirement in the manufacturing unit and do not satisfy the description of components.

In this respect, it is submitted that 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 angles, steel sheets, channels etc falling in chapter 72 of the Central Excise Tariff. These goods are used for the Thermic system pipeline support and bridging. The Thermic system pipeline is a capital asset and the department has no doubt to it. The angles and channels are providing support to it and its bridging system. Without fix formation, it is not possible to move. As such, they have rightfully taken the credit of the said as capital goods.

They further submit that the impugned order in appeal has relied on the decision of Saraswati Sugar Mills v/s Commissioner of Central Excise, Delhi-III [2011-TIOL-73-SC-CX].In this case, the assessee was engaged in the manufacture of Sugar and Molasses and was availing MODVAT credit facility. In April, 1999 they installed new machineries by replacing the old one. They manufactured within the factory iron and steel structures on which the new machineries were installed. They claimed exemption under Notification No. 67/95-CE dated 16.03.1995 on the steel and iron structures claiming that these structures were components of the machineries installed. In this context the Tribunal held that these structures cannot be said to be components of new machineries as the various machines purchased by the assessee were complete and the said structure only supported them on which the new machineries were installed. Hence, the exemption benefit was denied. In further appeal, though, the appeal filed by the appellant was rejected, however, the Supreme Court had clarified the meaning of the expression ‘component parts’. It was clarified that anything required to make the goods a finished item can be described as component parts. Thus, even though the appeal of the assessee was denied, yet this decision made it clear that if the items are used for making the gods a finished item ready to use, will be termed as components/parts of the goods. In the instant case, the M.S. Angles/Channels and steel sheets are used as an input for the Thermic system pipeline support and bridging. The angles/ channels and steel sheets are used for making the tanks and its base in the thermic system pipeline. They are also used as supports in wall & roller supports and for making bridges for piping above the roads. Also the angles/ channels and steel sheets are used in making tanks to wash printing trolleys with solvents. For making racks/stands to keep the rolls near machines and in hot rooms also there is a requirement of the angles/ channels and steel sheets. Thus, these items are essentially a significant part of the capital goods without which these capital goods may not even work. As such, these items are not merely supporting structure but they are part and parcel of the Thermic Piping System installed in their factory. Therefore, the test laid down by the hon’ble Apex Court in the case of M/s Saraswati Sugar Mills is satisfied and the credit cannot be denied on the goods in issue. 
 
6)            It is further submitted that though the clarification given by the Apex Court in the case of M/s Saraswati Sugar Mills in respect of the meaning of “components” is favouring the appellants, therefore, the impugned order is not justified in denying the credit by literally interpreting this decision. Even if it is accepted for the sake of argument also that this decision is against the appellant, then too, the credit cannot be denied to the appellant as there are contradictory decisions of Supreme Court on the same issue. The decision of M/s Saraswati Sugar Mills have been rendered by literally interpreting the legal provisions and judicial pronouncements while the decision of M/s RSWM has been delivered by liberal interpretation of legal provisions and looking to the genuineness of the case. In the cases where the contradictory views are possible under same facts and circumstances, the view benefitting the assessees will have precedence. This has been held in the case of M/s SNEH ENTERPRISES V/S COMMISSIONER OF CUSTOMS, NEW DELHI [2006 (202) ELT 7 (SC)]. The relevant para from this judgment is produced as follows:-
 
“25.While dealing with a taxing provision, the principle of ‘Strict Interpretation’ should be applied. The Court shall not interpret the statutory provision in such a manner which would create an additional fiscal burden on a person. It would never be done by invoking the provisions of another Act, which are not attracted. It is also trite that while two interpretations are possible, the Court ordinarily would interpret the provisions in favour of a tax-payer and against the Revenue.”
 
In view of above decision, since the decision of M/s RSWM has been rendered by liberally interpreting the legal provisions and on the basis of the genuineness of the case, it will have precedence on the decision of M/s Saraswati Sugar Mills. Reliance is also placed on 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.)]
 
In view of above decisions, where there are contradictory decisions, one favouring the assessees will be considered. In their case also, two decisions of Supreme Court are available on the same issue. Therefore, the decision given in the favour of assessees, i.e. the decision of M/s RSWM will prevail. Therefore, extending the ratio of this decision to the appellant, the impugned order should be quashed and the appeal should be allowed.
 
7)            It is further submitted that the contention of the appellant that the angles/channels and steel sheets were used for making the tanks and its base in the thermic system pipeline and also were used in making tanks to wash printing trolleys with solvents is being contradicted by stating that it is not the case of the appellant that they have purchased a storage tank and credit has been denied on the premise that it is not covered under the definition of capital goods as defined under Rule 2(a) of the Cenvat Credit Rules, 2004. But this is a case where credit has been sought on the inputs namely angles/channels and steel sheets used in the fabrication of tanks. Therefore, it is essential that the capital goods in which such inputs were used should be goods in nature. In this regard, the CESTAT in the case Vandana Global (supra) has rightly held that for availing credit, such capital goods have to be excisable goods. In the present case the tanks constructed in the factory is permanently attached to earth and not capable of being bought and sold in the market, is an immovable property and cannot be considered as goods in any stretch of imagination. This issue has also been clarified by the Board vide circular no. 58/2002-CX dated 15.01.2002 that if items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods. It was thus held that any inputs used in the fabrication of these tanks in the factory premises cannot be considered as input to capital goods and credit is not admissible to them as these tanks manufactured by the appellants cannot be termed as manufactured excisable goods which are chargeable to excise duty. Once these tanks do not fall in the category of goods even, any inputs used in its construction are not eligible for availing credit as inputs to capital goods. It was further held that the Board vide its departmental instruction F.No. 267/11/2010-CX dated 08.07.2010 has clarified from the judgements of Vandana Global (supra) that credit on capital goods is available only on items which are excisable goods covered under the definition of capital goods under the 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 the excisable goods for admissibility of Cenvat Credit.

In this respect, the appellant submits that denial of credit on tanks is admissible irrespective of the fact whether they are attached to earth or not as they are specifically mentioned in the definition of the capital goods as given under Rule 2(a) of the Cenvat Credit Rules, 2004. It is better to look at the relevant portion of the Rule 2(a) so as to appreciate the eligibility of tanks as capital goods.

(a)   “Capital goods” means:-
(A)  The following goods, namely:-
(i)………
(ii)……….
(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;

On analysing the above Rule it is very much clear that storage tanks are eligible as capital goods as they are specifically included in the definition given in the Cenvat Credit Rules, 2004 and credit cannot be denied on them by contending that they are permanently attached to earth. Storage tanks are definitely attached to earth and they are not generally movable and so when they are specifically included in the definition of capital goods, credit cannot be denied by stating that they are immovable and so not excisable goods.

The appellant further submits that erroneous reliance has been placed on the Board’s Circular No.  58/2002-CX dated 15.01.2002. This circular was issued to clarify the excisability of plant and machinery assembled at site and further clarified that duty would be leviable on such plant and machinery that on being installation at site get permanently attached to earth but can be dismantled and installed at another place also. However, the issue under consideration is not excisability of the storage tanks (which are one of the capital goods in the issue) but the eligibility of the storage tanks as excisable goods and as they are covered by the definition of “capital goods”, credit is admissible on the parts and accessories of the tank and that the credit availed by the appellant is correct and is in order and the impugned order in appeal denying the credit is not tenable and is liable to be quashed.
 
8)            In continuation to above it is submitted that the above referred circular is not applicable otherwise also as this circular was issued after the judgment of Vandana Global and was solely relying on this decision rendered by larger bench of Tribunal. However, the judgment of M/s Vandana Global has lost its relevance after the judgment of M/s Rajasthan Spinning and Weaving Mills which is the Apex Court judgment and is binding precedent on the tribunal cases. Also, the circulars are not binding on the assessees and they have liberty to challenge the same. This has been held in the case of BIRLA JUTE AND INDUSTRIES LTD. versus ASSISTANT COLLECTOR OF C. EX. [1992 (57) E.L.T. 674 (Cal.)]which was further approved by Hon’ble Supreme Court on 2005 (179)ELT 272(Supreme Court). In this case it was held that Board Circulars are not binding on the assessees and they may opt not to follow these Circulars. The verdicts of hon’ble Calcutta High Court are produced as follows:-

“Departmental circulars and trade notices - Binding on departmental officers but not binding on quasi-judicial authorities and assessees - Court can compel Central Excise officers to comply with such instructions as are for benefit of assessee - Section 37B of Central Excises and Salt Act, 1944 - Rule 233 of Central Excise Rules, 1944.”

As such, the circulars are not binding on the assessees. Therefore, though the circular is not applicable on the appellant, yet even if it is accepted for the sake of argument also that the same is applicable, then too, they have liberty to challenge the same. In view of this, the impugned order is not correct in placing the reliance on the same and deserves to be quashed.
 
9)            It was further held by the impugned order in appeal that the cost of the impugned items was charged to Building Construction Account and not to Plant & Machinery Account and so it was contended that the same denoted that the appellants themselves were in agreement that angles, channels, steel sheets were not the part of Plant & Machinery and were used in Building construction being permanently attached to earth. In this regard, it is submitted that the methodology adopted in accounts has no nexus with the eligibility of cenvat credit on the inputs/capital goods and rather the eligibility of credit is decided by the provisions of Cenvat Credit Rules, 2004. The accounting treatment of goods does not matter and does not disturbs the availment of credit on a particular item as far as the said item is governed by the provisions of the Central Excise Laws and is eligible for availment of credit. As such, merely because the impugned items were charged to Building Construction account would not alter the admissibility of credit on the said items and so the impugned order in appeal confirming the denial of cenvat credit is not tenable and should be quashed and the appeal should be allowed.
 
10)         The impugned order in appeal has also placed reliance on the decision of Apex Court in the case of Quality Steel Tubes (P) Ltd. [1995 (75) E.L.T. 17 (S.C.)] wherein it has been held that “Dutiability-Goods-‘Excisable Goods’-Marketability-Plant and machinery embedded to earth, structures, errections and installations are not ‘excisable goods’ since they do not pass the twin test of being capable of being brought to the market-Sections 2(d) and 3 of the Central Excise and Salt Act, 1944”. In view of the Apex Court’s judgement, the case cited to the appellant were considered as not helpful to them as the impugned goods were used in structures, bridges, and tanks which are attached to earth and are not excisable, therefore cannot be treated as capital goods in terms of Rule 2(a) of the Cenvat Credit Rules, 2004. Therefore, it was held that the adjudicating authority has rightly disallowed the credit of the impugned goods.

In this regard, it is submitted that the definition of capital goods as given in rule 2(a) of the Cenvat Credit Rules, 2004 very specifically lists certain tariff headings and the spares, components and accessories of the goods of specified tariff headings. The only condition attached to it is that the goods should fall in the specified tariff heading or it should be part/component or accessory of that goods and it should be used in the factory of the manufacturer. Further, most of the machineries cannot be used as such. For bringing them to be in working condition, these are to be supported by some structure consisting of various components and accessories. But these supporting does not change its name, character and use. The machine remains the same – neither its name, nor its use is changed. Thus, for effective functioning, certain other goods are used for affixing that machinery. Thus, the items like M.S. Angles, channels, SS sheets are used as components of that machinery that bring them to the working conditions. So, these goods are definitely the capital goods in terms of definition given in rule 2(a) of the Cenvat Credit Rules, 2004 and without prejudice to the fact that the few amongst these goods are attached to earth, for eg. the storage tanks.The impugned order in appeal is therefore wrong in placing reliance on the above cited decision as the issue under consideration is not excisability of goods but is eligibility of credit and so the impugned order in appeal is not sustainable and is liable to be quashed.

11)         It is further submitted that for chargeability of interest on wrong availment of credit under Rule 14 of the Cenvat Credit Rules, 2004, reliance has been placed on the decision given in the case of Ind-Swift Labs. V/s UOI reported in 2011 (265) E.L.T. 3 (SC) wherein it has been held that interest is payable from the date of taking erroneous credit. Therefore, it has been held that they are rightly liable to pay interest under Rule 14 of the Central Excise Rules, 2004 in respect of wrong credit availed. In this regard, the appellant submit that no interest can be imposed on them. It is submitted that when the demand of the Cenvat credit wrongly availed is not sustainable then how can the interest on that demand be sustained. Further the assessee has not utilised the Cenvat credit that the department is contending to have been wrongly availed, so how interest on that amount could be charged that has not yet been utilised. The ER-1 returns of the assessee are an evidence to the above that the Cenvat credit that has been availed has not been utilised and so demand of interest on the same can be done. Therefore, until the Cenvat credit taken is not utilised, there is no harm done to the interests of the Revenue. Therefore, on mere taking of credit without utilisation, interest cannot be demanded.

They further submit that the Hon’ble Supreme Court in the case of Union of India v/s Ind-Swift Laboratories Ltd [2011-TIOL-21-SC-CX] has held that interest is payable once the credit is wrongly “taken or utilized” and the word “OR” in Rule 14 cannot be construed to mean “AND”. Thus, the judgment of the  Hon’ble Punjab and Haryana High Court in the case of  Ind-Swift Laboratories Ltd Vs UoI [2009-TIOL-440-HC-P&H-CX]was overruled. However, the Hon’ble Karnataka High Court in the case of Commissioner of Central Excise & Service Tax, Large Taxpayer Unit, Bangalore v/s M/s Bill Forge Pvt Ltd, Bangalore [2011-TIOL-799-HC-KAR-CX] has interpreted the “Taking of credit” to happen when the excisable product is manufactured and the stage for payment of excise duty is reached. Before that stage mere book entry of credit on Excise records will not amount to taking of credit.
 
The judgment reads as under:

Taking of Credit - In view of the authoritative pronouncement of the Apex Court, the word 'OR' found in Rule 14 cannot be read as 'AND'. Further, once the credit is taken or utilized wrongly or has been erroneously refunded, such credit becomes recoverable along with interest. The credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilised later for payment of excise duty on the excisable product. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. It matures when the excisable product is received from the factory and the stage for payment of excise duty is reached. Actually, the credit is taken, at the time of the removal of the excisable product. It is in the nature of a set off or an adjustment. The assessee uses the credit to make payment of excise duty on excisable product. Instead of paying excise duty, the cenvat credit is utilized, thereby it is adjusted or set off against the duty payable and a debit entry is made in the register. Therefore, this is a procedure whereby the manufacturers can utilize the credit to make payment of duty to discharge his liability. Before utilization of such credit, the entry has been reversed, it amounts to not taking credit. Reversal of cenvat credit amounts to non- taking of credit on the inputs.

Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. The levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date. Interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is taken or utilized wrongly.

When once the wrong entry was pointed out, being convinced, the assessee has promptly reversed the entry. In other words, he did not take the advantage of wrong entry. He did not take the Cenvat credit or utilized the Cenvat Credit. It is in those circumstances the Tribunal was justified in holding that when the assessee has not taken the benefit of the Cenvat credit, there is no liability to pay interest. Before it can be taken, it had been reversed. In other words, once the entry was reversed, it is as if that the Cenvat credit was not available. Therefore, the judgment of the Apex Court in Ind-Swift has no application to the facts of this case. It is only when the assessee had taken the credit, in other words by taking such credit, if he had not paid the duty which is legally due to the Government, the Government would have sustained loss to that extent. Then the liability to pay interest from the date the amount became due arises under Section 11 AB in order to compensate the Government, which was deprived of the duty on the date it became due.

It is submitted that in their case also, the interest liability cannot be affixed from the date of making book entry in the Excise records but at the stage of clearing the excise goods when the liability to pay the excise duty arises. Therefore, the interest liability confirmed vide the impugned order in appeal is not tenable and is liable to be quashed. It is also worth mentioning here that the decision of the Hon’ble Karnataka High Court has been passed after considering the decision given by the Hon’ble Supreme Court in the case of Ind-Swift Laboratories Ltd. and has been passed afterwards considering the reasoning adopted by the Hon’ble Supreme Court and so its relevance cannot be ignored at the outset. Therefore, the demand of interest by placing reliance on the judgment given in the case of Ind-Swift Laboratories Ltd. should be quashed and the appeal should be allowed.

12)         It is further submitted that to appreciate and analyse the provisions with respect to interest liability as regards cenvat credit erroneously taken, it is better to look at the provisions before and after the amendment made in the Rule 14 of the Cenvat Credit Rules, 2004.
The provisions for the interest on irregular cenvat credit as contained in Rule 14 of the Cenvat Credit Rules, 2004, prior to amendment read as follows:-
Rule 14 Recovery of Cenvat Credit wrongly taken or erroneously refunded.- Where the Cenvat Credit has been taken or utilised wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer of the provider of the output service and the provisions of section 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.
It is submitted that the Supreme Court in the case of Ind Swift Laboratories, opined that the interest is payable from the date of taking of cenvat credit itself as the language uses “taken or utilised” and it denied interpreting the words “taken or utilised” to be read as “taken AND utilised” as was held by the Punjab & Haryana High Court in the same case.

Thereafter, as there were different views expressed by various Tribunals and High Courts on the issue of interest liability to arise from the date of taking cenvat credit or from the date of utilising the cenvat credit, the provisions of Rule 14 have been amended to end the litigation. The provisions of Rule 14, after amendment, i.e., w.e.f., 17.03.2012, reads as follows:-

Rule 14 Recovery of Cenvat Credit wrongly taken or erroneously refunded.- Where the Cenvat Credit has been taken and utilised wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer of the provider of the output service and the provisions of section 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.

Therefore, it is very clear that the amendment was done in Rule 14 to end the litigation that arose from the judgment of the Supreme Court in the case of Ind-Swift Laboratories Ltd. and so there is no doubt in considering the fact that the said amendment is clarificatory in nature. Moreover, the High Court of Karnataka in the case of Bill Forge Pvt. Ltd. has also distinguished the opinion taken by the Hon’ble Supreme Court in the case of Ind-Swift Laboratories Ltd. Therefore, interest demand confirmed by the impugned order in appeal is not tenable at the outset and deserves to be quashed and the appeal should be allowed.
 
13)         The impugned order has also rejected the contention of the appellant that there was no intention to evade payment of duty by holding that the appellant has taken wrong cenvat credit by contravening the provisions of law and this point has been come into notice of the department at the time of audit. If audit team had not pointed out the said wrong availment then Revenue would have been lost and so the allegation of suppression is established. Therefore, it was held that the adjudicating authority has rightly imposed the penalty. In this regard, it is submitted that merely because the issue regarding admissibility of cenvat credit on such items arose during the course of audit it cannot be considered that there was any suppression of facts as the credit availed was reflected in the excise records and the returns filed. Moreover, there is no requirement in the excise returns to show the details of credit taken and as such, non-furnishing of information that is not statutorily prescribed does not amounts to suppression of facts with intent to evade payment of duty. As such, the allegation of suppression is not at all tenable.

It is further submitted that mere inaction or failure to furnish the information does not amounts to suppression as held in the case of CCE Vs. ChempharDrug & 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. Therefore, the extended period of limitation is not invocable and the impugned order in appeal confirming the denial of credit by invoking extended period of limitation should be set aside.
 
 
14)         As regards imposition of penalty, they further submit that no penalty can be imposed on them as there was no suppression on their part. They have acted under bona fide belief that the MS Angles/Channels being part of the Thermic Pipeline System were capital goods on which cenvat credit was available to them. It is submitted that at the relevant time, there were several judgments in favour of the assessee allowing credit on the said goods. Therefore, it cannot be said that the appellant-assessee has availed and utilized cenvat credit with malafide intention. Therefore, no penalty should be imposed on the appellant. In this regard, reliance is placed on the following judgments:
 
-M/s Rosavar Steels Ltd v/s CCE, Coimbatore [2011-TIOL-774-CESTAT-MAD]
The issue raised therein 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.
 
- CCE, Tirupati v/s M/s India Cements Ltd [2010-TIOL-1115-CESTAT-BANG]
In this case, penalty was set aside on the reasoning that “Since issue involved was contentious with orders for and against assesses, imposition of penalty set aside: BANGALORE CESTAT;”     

In view of these decisions, the impugned order in appeal is not justified in rejecting the contentions of the appellant.
 
15)         It is further submitted that in a number of decisions wherein it was held that the penalty is not imposable as the act of assessee was based upon bonafide belief caused by various decisions. Reliance is placed on 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 the where the issue pertains to interpretation of legal provisions penalty is not imposable.

16)         It is further submitted that the penalty under section 11AC is not warranted unless there is deliberate suppression of facts or willful misstatement or fraud or collusion. This view has been taken by hon’ble 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. But in the instant case, there was bonafide belief based upon decisions of various appellate authorities. And where there is bonafide belief, it cannot be said that there was suppression of facts with an intent to evade payment of duty. Therefore, in the light of above decision, penalty is not attracted in the instant case.
 
Reasoning of the Tribunal:-They have heard the Ld. Counsel for both sides and perused the records. The dispute regarding the eligibility of cenvat credit on the steel items has so far not been attained finality, and as such, there was scope for an assessee to entertain the reasonable belief that credit is permissible on the disputed goods. In case of conflicting decisions on the issue regarding entitlement to cenvat credit, the SCN should be confined to one year period for raising the demand. The extended period of limitation of five years cannot be invoked in absence of any proof that the assessee is indulged in any fraudulent activities with intention to defraud the Government Revenue.

In the present case, no iota of evidence has been brought on record by the Department to prove that taking of Cenvat Credit by the appellant is attributable to suppression, misstatement, collusion etc., with intent to evade payment of duty. Thus in such an eventuality, the SCN was required to be issued within one year from the relevant date. In so far as the SCN dated 16.04.2010 for the period 2008-2009 is concerned, in their view, the same is barred by limitation of time, have been issued beyond the period of one year. However, in so far as the credit taken for the period 2009-2010, the SCN has been issued within limitation period prescribed under Section 11AC of the Central Excise Act. Thus as per the decision of Larger Bench of the tribunal in case of Vandana Global Ltd. vs CCE Raipur, the appellant is liable to reverse cenvat credit attributable to such ineligible credit along with interest.

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 justified in the facts and circumstances of the present case, especially in view of the fact that there was no element of suppression, misstatement, collusion, fraud etc., on the part of the appellant to defraud the payment of revenue to the Government exchequer.

To sum up , SCN initiated for the period April 2008 to February 2009 is barred by limitation of time as per the proviso to section 11A of the Central Excise Act, 1944 and to the extent that the appeal succeeds. With regard to the period 2009-2010, they are of the view that wrongly availed cenvat credit can be recovered from the appellant along with interest. Thus the appeal for the period 2009-2010 is dismissed.

The appeal is disposed of in above terms.
           
Decision:-The appeal was partly allowed.
 
Conclusion:- The crux of the case is that the larger period of limitation cannot be invoked in cases where assessee could have reasonable belief due to contrary decisions on the matter. As in the given case, cenvat credit admissibility on the angles, channels and the steel sheets were matter of dispute and there were contrary decisions on the same, it was held that no suppression or misstatement could be attributable to the assessee. The litigation finally came to rest by the decision of larger bench of tribunal in the case of Vandana Global Ltd. vs CCE Raipur wherein it was concluded that the cenvat credit of angles, channels etc used in supporting structures of capital goods is not admissible. However, as there was no element of suppression, misstatement, collusion, fraud etc. on the part of the assessee to defraud the payment of revenue, the appeal was partly allowed on the point of limitation and the imposition of penalty was also waived.
 

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