PJ/Case Laws/2010-11/09
Case Laws
Prepared By: -
CA Pradeep Jain,
Parag Ghate, B.Com,
Megha Jain, and
Sukhvinder Kaur LLB [FYIC]
Case: Commissioner of C.Ex.,
Citation: 2010 (253) E.L.T. 657 (Tri.
Issue: Whether the duty payable on used capital goods should be equal to cenvat credit availed?
Brief Facts: Respondent received a DG set in the year 2002 and took credit of the duty paid on the same. They used the generator for some period and in the year 2006 they removed the DG set on sale and paid duty adopting the sale value at time of removal. The Original Authority held that DG set has been cleared as such and the respondent ought to have paid the duty equal to the credit availed by them at the time of purchase of the same. Accordingly, demand of differential duty along with interest was confirmed and equal amount of penalty was imposed. On appeal, the Commissioner (Appeals) relying on the decision in the case of Madura Coats Pvt. Ltd vs. CCE [2005 (190) E.LT. 450] set aside the order of the original authority. Hence, Revenue is in appeal before the Tribunal. Cross Objections were filed by the respondent.
Appellant’s Contention: Revenue submitted that the respondent have cleared the DG set received as the capital goods only as DG set and not as waste or scrap. Therefore, they are required to pay the entire credit taken by them. Revenue relies upon the decision of the Larger Bench in the case of Modernova Plastyles Pvt. Ltd vs CCE, Raigad [2008 (232) E.L.T 29 (Tri. LB)] in which the term clearance “as such” appearing in Rule 3(4)(c) of Cenvat Credit Rules, 2002 and Rule 4(5)(a) of Cenvat Credit Rules, 2004 was interpreted.
Respondent’s Contention: Respondent submitted that they have used the DG set for more than 2 years for the intended purpose and sold them obviously at much lower price than the purchase price. The question of treating such used DG set as clearance of DG set as procured in 2002 does not arise. When the DG set was received in 2002, the Cenvat Credit Rules, 2002 were in force which specifically envisaged that when the capital goods are cleared ‘as such’ the rate of duty and valuation should be adopted as was in force at the time of removal of the goods. Therefore, appellant submits that either clearance of DG set in 2006 should be treated as not ‘as such’ or alternatively, the obligations to pay duty should be determined in terms of Cenvat Credit Rules, 2002 by adopting the sale price at the time of removal.
Appellant also submitted that the decision of the Larger Bench did not specifically consider the aspect of the goods received during currency of Cenvat Credit Rules, 2002 having been removed during currency of Cenvat Credit Rules, 2004. They also submitted that the decision in the case of Madura coats Pvt. Ltd which was relied upon by the Commissioner (Appeals) was upheld by the High Court of Bombay in the case of Cummins India Pvt. Ltd vs CCE, Pune-III [2007 (219) E.L.T. 911 (Tri. Mumbai)] as reported in 2009 (234) E.L.T. A120 (Bom.)
Reasoning of the Judgment: The Tribunal considered the Cenvat Credit Rules, 2002 and held that the said Rules has provisions relating to rate of duty and valuation applicable to case of removal of inputs and capital goods as such which are different from the provisions relating to rate of duty and valuation in the Cenvat Credit Rules, 2004. In the present case, undisputedly, the capital goods have been received during the currency of Cenvat Credit Rules, 2002 and used by the respondent for more than 2 years and cleared during the currency of Cenvat Credit Rules, 2004. The plea of the respondent that for the purpose of valuation, the Cenvat Credit Rules, 2002 should be applied even though the goods have been cleared in 2006 deserves to be accepted. The Tribunal noticed that the Department’s appeal against said decision has been dismissed by the Bombay High Court. In view of the above and in the peculiar facts and circumstances of the case, there is no basis for demand of differential duty and imposition of penalty as held by the original authority. Therefore, there is no valid ground for interfering with the order of Commissioner (Appeals).
Decision: Appeal Rejected.
Comments: - The Board has prescribed that the depreciation @ 2.5% per quarter will be allowed on used capital goods.
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Case: Hico Enterprises Vs Commissioner of Customs, Mumbai
Citation: 2010 (253) E.L.T. 678 (Tri. Mumbai)
Issue: Whether the transferee of DEEC certificate can be held liable for breach of condition of availment of cenvat credit at input stage?
Brief Facts: Appellant imported polypropylene and filed a Bill of Entry on 30.3.1994 for its duty-free clearance under Notification No. 203/92-Cus, dated 19-5-92 on the strength of an Advance Licence, which has earlier been transferred to them by M/s Amar Taran Exports. After investigation, the Department found that, in respect of the finished goods exported by the original licensee in discharge of their export obligation under DEEC Scheme, input stage credit had been availed. It was further found that condition no. V of the Notification No. 203/92-Cus had not been complied with. Therefore, the benefit of duty-free clearance of the goods imported by appellant was alleged to be not available to them. On this and allied grounds, show-cause notices were issued to both the parties. Against M/s Amar Taran Exports, proposal for confiscation of the export goods under Section 113 of the Customs Act was raised and an allied proposal for imposition of penalty was also made. Against the appellant, the goods imported by them were proposed to be penalized under Section 112. The appellant was also asked to pay the duty on the imported raw materials on the ground of violation of Condition V of said Notification. The Adjudicating Authority demanded duty with interest thereon @ 24 % p.a. from M/s Amar Taran Exports and from appellant, who were jointly and severally liable to pay the said amount of duty with interest. The imported goods were held to liable to be confiscated under Section 111 (o) of the Act on the ground of non-compliance with Condition V of the notification. Penalties were imposed on both the parties under Section 112(a) of the Act, the penalty on the appellant amounting to Rs 100000/-. Appellant has challenged the impugned order. No appeal is filed by M/s Amar Taran Exports.
Reasoning of the Judgment: The Tribunal observed that the following questions were referred to the Larger Bench which were answered in affirmative in favour of the appellant:
- Whether the benefit of legal maxim LEX NON COGIT AD IMPOSSIBILIA would be available to a valid recognized transferee to avail the benefit of the DEEC exemption Notification? or
- Whether the original license is to satisfy the condition of the Notification or the transferee of the licence?
Consequently the Tribunal held that the benefit of the legal maxim LEX NON COGIT AD IMPOSSIBILIA is available to the appellant as he is the transferee of the advance licence and they cannot be called upon to fulfill the condition no. V (a) of Notification No. 203/92-Cus. The Larger Bench had clearly held that the said condition was required to be fulfilled by the original licencee M/s Amar Taran Exports.
The Tribunal held that it appears from the impugned order that the exportation of finished goods was done by M/s Amar Taran Exports, who claimed to be a merchant-exporter. M/s Amar Taran Exports had contended that as it was a merchant exporter then there was no question of their availing any input stage credit. The impugned order did not indicate that any evidence was found of input stage credit having been availed by M/s Amar Taran Exports. At any rate, the appellant contended that it was impossible for them to have availed input stage credit and, therefore, they should not be held to have committed breach of the aforesaid condition of the notification. In other words, they claimed the benefit of the aforementioned legal maxim. This benefit stands allowed to the appellant vide the judgement of the Larger Bench and the judgment of the
The Tribunal found that the penalty was imposed on the appellant on the ground that, by committing breach of the above condition of the notification, they rendered the goods liable to confiscation under Section 111(o) of the Customs Act. This order cannot be sustained in as much as the benefit of the aforesaid legal maxim is available to them and consequently it was impossible for them to violate the condition by availing any input stage credit. The liabilities referable to the above condition would only be fixed on the exporter of finished goods as per the decision of the larger Bench, as affirmed by the
Decision: Appeal allowed accordingly.
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Case: Commissioner of Central Excise, Salem Vs M/s Salem Dist Co-operative Sugar Mills Ltd
Citation: 2010-TIOL-795-Cestat-Mad
Issue: Whether credit on welding electrodes used repair and maintenance will be available?
Brief Facts: Respondent assessee is engaged in respect of welding electrodes used for repair and maintenance. The lower Appellate Authority has allowed credit. Revenue has come in appeal against the said order.
Reasoning of the Judgment: The Tribunal held that the issue stands settled against the respondents by the Apex Court in the case of Steel Authority of India Ltd. Vs Commissioner reported in 2008 (229) ELT A.127 (SC) and by Vikram Cement Vs. CCE, Indore [2009 (242) ELT 545 (Tri.
Decision: Appeal partly allowed.
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Case: Modern Petrofils Vs Commr. Of C. Ex., Vadodara
Citation: 2010 (18) S.T.R. 625 (Tri. Ahmd.)
Issue: Whether port of shipment can be considered as place of removal? Whether Cenvat Credit of Service tax paid on GTA services for outward freight from factory to port of export will be admissible?
Brief Facts: The appellant have taken Cenvat Credit of Service tax paid on GTA services for outward freight from factory to port of export. The Department has raised objection to the same.
Appellant’s Contention: Appellant submits that the matter does not involve an issue of outward freight for domestic clearances at all. It was submitted that in all the cases, exports were made on FOB/CIF basis. Further, appellant submitted that the decision in the case of ABB Ltd. [2009 (15) S.T.R. 23 (Tri. LB)] which has been stayed would not affect the legal position taken by the Tribunal in the above decisions.
Respondent’s Contention: Respondent submits that the place of removal can only be a factory or a warehouse or a depot and therefore the appellant’s contention that port of shipment would be place of removal is not correct.
Reasoning of the Judgment: The Tribunal held that under the circumstances of the case the issue stands squarely covered in favour of the appellants in views of decisions in the cases of CCE, Surat v/s Colour Synth Industries Pvt Ltd [2009 (14) STR 309 (Tri-Ahmd)], CCE, Rajkot v/s Rolex Rings P. Ltd [2008 (230) ELT 569 (Tri-Ahmd)], CCE, Rajkot v/s Adani Pharmachem Ltd [2008 (12) STR 593 (Tri-Ahmd)] and CCE, Ahemedabad v/s Finecare Bio-systems [2009 (16) STR 701 (Tribunal)]. The Tribunal agreed that the stay granted in ABB Ltd will not affect the legal position taken by the Tribunal.
Decision: Appeal allowed with the consequential relief.
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Case: Balkrishna Industries Ltd. Vs Commissioner of C.Ex.,
Citation: 2010 (18) S.T.R. 600 (Tri. Mumbai)
Issue: Whether credit of service tax paid on services of garden maintenance, plant housekeeping, insurance service for company vehicle’s insurance and tours and travel service will be admissible?
Brief Facts: Appellant have taken credit on the services of factory garden maintenance and plant housekeeping, insurance service and tours & travels service. The lower Authority had denied Cenvat Credit to the appellants on factory garden maintenance and plant housekeeping services observing that they are not related to in or in relation to manufacture of final product and not falling under the definition of “input Services” and with regard to the insurance service and tours & travels they found that the appellant has failed to provide any records in respect of these service. Accordingly, credit was denied. Appellant is thus in appeal.
Appellant’s Contention: Appellant submitted that with regard to plant housekeeping service and garden maintenance service, their case is squarely covered by the decision in ISMT Ltd. Vs CCE & Cus., Aurangabad [2010 TIOL 27 (Cestat-Mum)]. Further reliance is placed on the case of Larsen & Toubro Ltd. wherein vide order No. A/772/2009/SMB/C-IV dated 18-12-09, this Tribunal again held that garden maintenance service is eligible for availment of Cenvat Credit.
With regard to plant maintenance, appellant relied on Sanghi Industries Ltd. V. CCE,
Respondent’s Contention: Respondent submitted that the appellant is not entitled for Cenvat Credit on the garden maintenance service. They further submitted that in the case of I.S.M.T Ltd. (supra) this Tribunal has held that garden maintenance service is related to the business activity and holding that this Tribunal had allowed the Cenvat credit but in the case of Chemplast Sanmar Ltd. v. CCE, Salem [2010 (250) E.L.T. 46 (Tri. Chennai)] this Tribunal has held that definition of input service as including activities relating to business, cannot be interpreted to include post-manufacturing activity and Section 37 (2) of Central Excise Act, 1944 as enabling provision empowers government to make rules for providing credit of Service tax paid or payable on taxable services used in relation to manufacture of excisable goods. Hence, the appellants are not entitled to take credit on the garden maintenance service.
With regard to the plant house keeping service, the respondent submits that the reliance placed by the appellant is not applicable in this case as in that case there was services of maintenance of plant but in this case the issue is regarding housekeeping of the plant. Hence the Cenvat Credit has rightly been denied to the appellants.
Reasoning of the Judgment: The Tribunal held that with regard to Insurance service and tour & travel service no documents were provided to the lower Authorities. Therefore, the Tribunal remanded the matter back to the original adjudicating authority to examine the documents and if it is found that these documents confirm that the service tax paid is in relation to the vehicle used by the Company or its employees, then Service Tax credit is allowed.
With regard to the garden maintenance service, Tribunal found that in the case of I.S.M.T Ltd it was held that a garden creates a better atmosphere and environment which increase the working efficiency of the factory. In that event, credit is entitled to the appellant. Further in the case of Chemplast Sanmar Ltd., the order passed by the Hon’ble Bombay High Court in the case of Coca Cola was not considered in order passed by the Hon’ble Bombay High Court in the case of Coca Cola but in the case of decision of I.S.M.T. Ltd the decision of the Hon’ble High Court of Bombay was discussed in detail. Thus, the Tribunal held that the appellants are entitled to garden maintenance service.
With regard to plant housekeeping service, the Tribunal held that the argument of respondent that the plant can run without housekeeping of the plant has no force, as providing the facilities of toilet and water are the basic requirement to run the factory and non-providing these facilities may affect the production, hence maintenance of house keeping service is essential and are related to the manufacturing activity.
Decision: Appeal allowed accordingly.
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Case: KSH International Pvt Ltd v/s Commissioner of Central Excise, Belapur
Citation: 2010-TIOL-805-CESTAT-MUM
Issue: Whether the business auxiliary service provided by the appellant was delivered outside
Brief Facts: The appellant had procured purchase orders in
Appellant’s Contention: The appellant relied upon the judgments given in the cases of Blue Star Ltd. vs. CCE,
Reasoning of Judgment: The Tribunal held that denial of refund of service tax to the appellant under Rule 5 was contrary to the express provisions of law as clarified in CBEC Circular No. 111/5/2009-ST dated 24.2.2009. The Board, in respect of business auxiliary services falling under Rule 3(1)(iii) of the Export of Services Rules, 2005, had clarified that "The phrase 'used outside
The service rendered by the appellant was admittedly one of the business auxiliary services classified under Section 65(105)(zzb) of the Act. As a commission agent, the appellant canvassed purchase orders from prospective Indian buyers for the goods supplied by the foreign companies. These purchase orders were transmitted to the foreign companies either by courier or by electronic means. The foreign companies acted upon these purchase orders and accordingly supplied the goods directly to the Indian buyers, who made the payments directly to the foreign suppliers. Upon receipt of these payments, commission was paid to the appellant by the foreign companies, in convertible foreign exchange. It is not in dispute that the requirement of the commission having to be paid in convertible foreign exchange was fulfilled by the appellant. These purchase orders were, admittedly, received abroad. They were also, admittedly, acted upon by the foreign companies abroad. In other words, the benefit of the service provided by the appellant accrued to the foreign companies outside
Judgment: Appeal allowed.
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Case: ICI India Limited v/s Commissioner of Customs (Port),
Citation: 2005 (184) ELT 339 (
Issue: Whether in the absence of any proof of collusion or fraud or absence of bona fide on the part of the appellant, the appellant could be deprived of the credit of the DEPB licences/scrips purchased by him bona fide for valuable consideration since found to be forged?
Brief Facts: Appellant purchased the DEPB licence from the open market, Later on the same was found to be forged. Accordingly, department contended that the appellant would not be able to avail the benefit arising out of such forged licence. The Tribunal in appeal, found that the appellant was not liable for any collusion or fraud in the issue of the DEPB scrips. Thus, it was held that he would not be liable to customs duty and the interest for alleged non-payment of the said duty though the DEPB licences have been held to be forged ones.
particularly when the learned CEGAT had failed to note and consider the relevant circular under which strict guidelines have been laid down for examining various factors and the tests before issuing DEPB when DEPB scrips are freely transferable and available in the market for purchase, by reason of its being verified, endorsed and signed by the Customs Authority.
Applicant’s Contention: Relying on the judgment of the Tribunal as reported at 2003 (151) ELT 0336 (T) the applicant contends that there is a finding that there was no collusion on the part of the appellant. Therefore, according to him, if no fraud or collusion is found on the part of the appellant, in that event, the appellant would be entitled to the benefit of the DEPB licences/scrips. Reliance was placed on the decision in United India Insurance Company v. Lehru [(2003) 3 SCC 338] and it was contended that it is just not possible for the appellant to verify the DEPB licences/scrips which is otherwise saleable, negotiable and available in the market and which the appellant had purchased bona fide for valuable consideration and utilized it for availing of the credit against its own import, stands in the same footing as a driving licence of the driver of the vehicle as it stood in the said case.
Reasoning of Judgment: The High Court held that if the document itself, on the strength whereof credit is claimed is forged, then the same cannot be equated with merely an irregularity in the licence of the driver driving the vehicle in relation to the liability of the insurer in relation to a valid insurance policy under the Motor Vehicles Act providing for compulsory insurance to secure third party interest. In this case, the document itself having been found to be forged whether there was collusion or fraud on the part of the appellant in the issue of the DEPB licences/scrips becomes absolutely immaterial and irrelevant since no credit can be derived from a forged DEPB. The credit is made available on the strength of a valid DEPB. If the DEPB is forged, then the same is non est and therefore, there is no valid DEPB. As such no credit can be derived thereunder. In such circumstances, one may defend his case that one may not be liable for collusion or fraud and exposed to other penalties therefore, but still then one would be liable to pay the duty and interest and for other statutory consequences which one cannot avoid.
Judgment: No question of law involved in the present case. Appeal dismissed.
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Case: M/s U P State Sugar Corporation Ltd Vs CCE,
Citation: 2009-TIOL-452-CESTAT-DEL
Issue: Cenvat credit on welding electrodes used for repair and maintenance of sugar machinery is admissible.
- When the assessment of duty at the supplier's end has not been challenged then Cenvat credit on the basis of the invoice issued by the supplier cannot be denied.
Brief Facts: The appellant had taken credit on welding electrodes which were used for repair and maintenance of the sugar machinery. The Department has objected to the same. Secondly, the appellant had taken credit on the basis of dealer’s invoice in which excess amount of duty has been passed on to the appellant which was not originally levied in the manufacturer’s invoice. The credit taken was denied by the Assistant Commissioner and penalty was also imposed. In appeal, the order of the Assistant Commissioner was upheld by the Commissioner (A) but penalty was reduced. Hence, the appellant is before the Tribunal.
Appellant’s Contention: The appellant contended that cenvat credit on welding electrodes was admissible to them in view of Rajasthan High Court judgment in Hindustan Zinc Ltd. Vs. Union of India [2008 (228) ELT 517 (Raj.)] wherein the High Court has over-ruled the Larger Bench decision in the case of Jaypee Rewa Plant Vs. CCE, Raipur [2003 (159) ELT 553 (Tri.-LB)] and it was held that the Cenvat credit in respect of Welding electrodes used for repairs and maintenance of plant and machinery would be available.
Further it was contended that though Larger Bench of the Tribunal in the case of Steel Authority of India Ltd. Vs. Commissioner of Central Excise, Ranchi [2008 (222) ELT 233 (Tri.-Kolkata)] had taken a contrary view on the said issue and the SLP filed by M/s SAIL before the Hon'ble Supreme Court was dismissed, the Hon'ble Supreme Court dismissal of the SLP against the Tribunal's order is only a summary dismissal and did not lay down any law in view of the judgment in Assistant Engineer (Civil) Vs. CCE, Raipur [2008 (232) ELT 628 (Tri.-LB)], wherein it was observed that "it is well settled that summary dismissal of SLP/Civil Appeal by the Supreme Court does not amount to affirmation of the judgment/order of the Court/Tribunal appealed against, on merit. It merely means that the Supreme Court declined to interfere in the matter". In view of this, it is the Hon'ble Rajasthan High Court's judgment in the case of Hindustan Zinc Ltd. vs. Union of India, which would be applicable.
With regard to denial of Cenvat credit taken on the basis of the invoices issued by M/s Tide Water Oil Company,
Respondent’s Contention: Revenue contended that the Supreme Court's judgment in the case of Steel Authority of India Limited Vs. Commissioner [2008 (229) ELT A127 (SC)] is applicable in this case as in the Hon'ble Supreme Court had dismissed the SLP on the basis of the facts of the case, which is clear from the wordings of the order which indicate that the Hon'ble Supreme Court had approved and confirmed the order of the Tribunal in the case of SAIL Vs. CCE, Ranchi.
With regard to penalty, it was contended that the penalty is imposable on the Appellant as in addition to the eligibility of Cenvat credit on various items, one of the allegation against the Appellant was that they have cleared inputs in respect of which Cenvat credit had been taken without payment of duty amounting to Rs.55, 797/- out of which an amount of Rs.41,717/- had been paid even prior to the issue of show cause notice and this allegation has been upheld. In view of the removal of Cenvated inputs without payment of duty, some penalty has to be imposed. Therefore, there is no case for setting aside of penalty.
Reasoning of Judgment: The Tribunal held that on the issue of eligibility of credit on welding electrodes, the issue stands decided by the Rajasthan High Court in the appellant's favour in the case of Hindustan Zinc Ltd. vs. Union of India. It was further held that the dismissal order of the Supreme Court in SAIL Vs. CCE,
As regards, the denial of Cenvat credit on the basis of invoice issued by registered dealer in the case of Tide Water Oil Company, Ghaziabad, the Tribunal held that the Supreme Court in the case of CCE vs. MDS Switchgear Ltd. has held that the quantum of duty already determined by the Jurisdictional Officer of the supplier unit cannot be contested by the officer incharge of recipient unit. When the Department has not challenged the assessment of duty at the supplier's end, it would not be correct to deny Cenvat credit on the basis of the invoice issued by the supplier on the ground that the duty paid under that invoice was not payable. In view of this, the Tribunal held that Cenvat credit is admissible to the Appellant.
As regards, the question of penalty, it was observed that the demand is in respect of removal of cenvated input without payment of duty, therefore, this is not a case for setting aside the penalty. However, on the basis of circumstances of the case, penalty of Rs.10,000/- is imposed.
Decision: Appeal disposed of.
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Case: - Ambuja Cements Eastern Ltd, Now Ambuja Cements Ltd v/s Commissioner of Central Excise,
Citation: - 2010-TIOL-309-HC-CHHATTISGARH-CX
Issue: Whether welding electrodes used in repairs/maintenance of plant and machinery can be considered as 'input' as defined under Rule 2(g) of Cenvat Credit Rules, 2002?
Brief Facts: Appellant is engaged in manufacture of clinker and cement falling under Chapter-25 of the Central Excise Tariff Act, 1985. During the period under consideration, the appellant took Modvat credit welding electrodes used in manufacture of parts and components of the capital goods and also in repairs and maintenance of the capital goods within the factory of production. Show cause notices were issued to them proposing to deny Cenvat credit on welding electrodes under Rule 12 (g) of the Cenvat Credit Rules, 2002 r/w Section 11A of the Central Excise Act, 1944 alongwith Penalty and interest. Adjudicating Authority disallowed the credit and imposed penalty of Rs. 50, 000/- in both the cases. In appeal before the Commissioner (Appeals), it was held that welding electrodes used for repair and maintenance were not eligible for Cenvat credit. But credit availed on welding electrodes used in manufacture of capital goods was allowed and penalty was also reduced. On further appeal before the Tribunal, the appeals where dismissed partly by setting aside the penalty imposed. The Tribunal had dismissed the appeals by following the decision of the Larger Bench in case of Jaypee Rewa Plant [2003 (159) ELT 553 (Tri.LB)]. Thus, the appellant is before the High Court.
Appellant’s Contention: Appellant contended that welding electrodes used in repairs/maintenance of the plant and machinery can be considered as input as defined under Rule 2(g) of the Cenvat Credit Rules, 2002, as the welding electrodes were being used for repair/maintenance of the capital goods, which were, in turn, used in the manufacture of final products i.e. clinker and cement. The appellant had availed Cenvat credit on the welding electrodes used in relation to manufacture of final products. Apart from being used in the manufacture of parts and components of the plant and machinery, welding electrodes have also been used in repairs/maintenance works of the plant in filling up metal cracks of the machines, cutting and removing damaged part, fixing new parts in machine, removing worn out parts, liner etc. of the machinery.
Appellants relied on the decisions given CCE, Coimbatore Vs. Jawahar Mills Ltd. [2001 (132) ELT 3 (SC)], Jawahar Mills Ltd. Vs. CCE,
Further, the appellant relying upon the judgment of the Supreme Court in Kunha Yammed [2001 (129) ELT 11 (SC)], argued that refusing of special leave by a non-speaking or speaking order does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed. Whereas, where an appeal or revision is provided against an order passed by a Court, Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law.
Respondent’s Contention: Respondent contended that only those items falling under the specified chapters/headings, their spare parts/components/accessory or otherwise specified and used in the factory of manufacture of final product, are entitled to be treated as 'capital goods' and no item can be treated as capital goods by adopting an interpretative process. It was further argued that Kolkata Bench of the Tribunal in the matter of Steel Authority of India Ltd. Vs CCE, Ranchi [2008 (222) ELT 233 (Tri.-Kolkata)], relying upon the decision of the Larger Bench in case of Jaypee Rewa Plant, observed that the decision of Jaypee Rewa Plant has not been appealed against or reversed, and held that the goods which are used in the process of such manufacture are eligible to Modvat credit, while denying the credit on gases and welding electrodes etc. which are used for welding, repairing and maintenance of the machineries.
It was further argues that in the matter of SAIL, the Tribunal at Kolkata relying upon the decision in Jaypee Rewa Plant has held that Modvat credit on goods and welding electrodes etc. which are used for welding, repairing and maintenance of machineries, is not available under Rule 57A of the erstwhile Central Excise Rules, 1944. SAIL's Special Leave Petition against the above order of Kolkata Tribunal has been further dismissed and therefore, the view taken in Jaypee Rewa Plant is impliedly affirmed by the Supreme Court.
Reasoning of the Judgment: The High Court considered the decision given in the case of Jaypee Rewa Plant. It was also observed that the decision in Jaypee Rewa Plant [2003 (159) ELT 553 (Tri. - LB)] was considered before the Rajasthan High Court in Hindustan Zinc Ltd., [2008 (228) ELT 517 (Raj.)]. The High Court relying upon the decision of the Supreme Court in case of Jawahar Mills Ltd. [2001 (132) ELT 3 (SC)] had held that in Jaypee Rewa Plant only part of the decision was considered and the very significant part was left out.
The judgment given by the Madras High Court in India Cements Ltd [2009 (238) ELT 411 (Mad.)] was also considered wherein the decision of the Supreme Court in Jawahar Mills Ltd [2001 (132) ELT 3 (SC)], and Commissioner Vs. Birla Jute & Industries Ltd. [2002 (139) ELT A 93 (SC)], were relied upon and it was decided that the Tribunal was correct in holding that the welding electrodes used for repairs and maintenance are covered under the definition of capital goods in terms of Rule 57Q of the Central Excise Rules, 1944.
The High Court observed that in Hindustan Zinc Ltd., on the question "whether the learned Tribunal is right in law in allowing the Modvat credit on the item MS/SS plates in the maintenance and repair work of the machinery"; it was held that such goods, which are necessary for running of plant and up-keeping of the machinery directly involved in the manufacturing and products are eligible to avail Modvat credit. An appeal against this judgment before the Supreme Court was dismissed.
High Court considered the New Delhi Tribunal decision in the matter of Birla Jute & Industries Ltd. [2001 (135) ELT 280 (Tri.-Del.)] wherein it was held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (Welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil Appeals by the revenue against the above order were again dismissed by the Supreme Court with an observation that the civil appeals have to be dismissed in view of the judgment of this Court in Jawahar Mills Ltd. [2001 (132) ELT 3 (SC)].
Further the decision of Kolkata Tribunal in the matter of SAIL [2008 (222) ELT 233 (Tri.-Kolkata)] was considered wherein it was held that Modvat Credit on goods and welding electrodes etc. which are used for welding, repair and maintenance of machineries, is not admissible. Reliance was placed upon the decision in Jaypee Rewa Plant and it was observed that the decision in this matter has not been appealed against or reversed. SAIL filed a petition for special leave to appeal against the above decision and resulted in dismissal of the SLP.
The High Court considered the definition of "input" occurring under Rule 2(g) of the Cenvat Credit Rules, 2002 and observed that the definition takes in its ambit all inputs, except the specifically excluded items under Rule 2(g), which have been employed in the manufacturing process, whether directly or indirectly and whether contained in the final product or not, and are entitled for Cenvat credit.
The High Court found that SLP against the decision of Kolkata Tribunal in SAIL has been summarily dismissed without any speaking order, whereas the Rajasthan High Court in Hindustan Zinc Ltd., after considering the larger Bench decision of the Tribunal in Jaypee Rewa Plant , has observed that the matter has been decided by selectively referring to the decision of the Supreme Court in JK Cotton's case, and decided the matter by omitting the very significant continuing next sentence.
In the end, the High Court held that the decision in the matter of Jaypee Rewa Plant is not a good law in view of above judgment of the Rajasthan High Court. Also, in view of Madras High Court decision in India Cements Ltd. and Delhi Tribunal decision in Birla Jute & Industries Ltd. And as civil appeals preferred by the Revenue against these judgments were further dismissed by the Supreme Court.
Further, the High Court held that it is settled law that refusing of special leave to file appeal by a non-speaking or speaking order does not attract the doctrine of merger, whereas where an award, appeal or revision is provided against the order passed by the Court, Tribunal or any other authority before a superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law, as held by the Supreme Court in Kunha Yammed.
Consequently, the High Court held that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rules, 2002, and thus, entitled for Cenvat credit. Impugned orders set aside.
Decision: Appeals allowed.
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SOY P ITTY on 21 Apr, 2016 wrote:
hitesh on 03 Apr, 2016 wrote:
hitesh on 20 Mar, 2016 wrote:
visuiyer on 09 Mar, 2016 wrote:
hitesh on 06 Mar, 2016 wrote:
hitesh on 29 Feb, 2016 wrote:
Abhimanyu Singh on 08 Feb, 2016 wrote:
CA R P Vijay on 04 Jan, 2016 wrote:
Rahul Singhvi on 04 Jan, 2016 wrote:
O V Srinivasan on 04 Jan, 2016 wrote: