P.K. Das
The relevant facts of the case as revealed from the record, in brief, are that the appellant is engaged in the manufacture of Cement. They were availing CENVAT credit under the CENVAT Credit Rules, 2004. By a show-cause notice dated 19.2.2009, it has been alleged that during the period from April 2006 to May 2008, the appellant availed irregular credit on capital goods, namely MS Angles, MS Beams, MS Channels and TMT bars classifiable under heading 72, 73 and 74 of the Schedule to the Central Excise Tariff Act, 1985. It has further been alleged that the Chapter heading of these items were not covered under the definition of âcapital goods under Rule 2(a) of the said Rules, 2004. Further, these items were not used in the manufacture of finished products. The learned Commissioner confirmed the demand of CENVAT of Rs.53,23,756/- under proviso to Section 11A(1) of the Central Excise Act, 1944 read with Rule 14 of the said Rules, 2004 along with interest under Section 11AB of the Act, 1944 read with Rule 14 of the said Rules 2004 and imposed penalty of equal amount of tax under Rule 15 of the said Rules, 2004.
2. The learned counsel for the appellant submits that these items were used as spares, components and accessories for erection of various capital goods, viz. new additional electrostatic precipitator for raw mill project, additional fly ash handling system, MMD crusher etc. which are integral part of âDry Process Cement Manufacturing Plant and covered under Rule 2(a)(A)(iii) of the said Rules, 2004. He further submits that the adjudicating authority denied the credit on the ground that these are structures fixed to the earth with concrete foundations and immovable, which agreement is beyond the scope of show-cause notice. He also submits that in the appellants own case, on these items, for an earlier period, this Tribunal allowed the credit, which was upheld by the Hon'ble Madras High Court as under:-
(a) CCE Vs. India Cements Ltd. - 2012 (285) ELT 341 (Mad.) decided on 4.8.2011
(b) CCE Vs. India Cements Ltd. - judgment dated 13.12.2012 in Civil Misc. Appeal No. 3101/2005 and CMP No. 16107/2005.
He also submits that Honble High Court, while passing the judgment dated 13.12.2013 had followed the decision of the Honble Supreme Court in the case of CCE, Jaipur Vs. Rajasthan Spinning and Weaving Mills Ltd. - 2010 (255) ELT 481 (SC) and considered the decision of the Honble Supreme Court in the case of Saraswati Sugar Mills Vs. CCE, New Delhi - 2011 (270) ELT 465 (SC). He further submits that demand of duty is barred by limitation for major part of the period involved. In this context, he drew the attention of the Bench to the relevant page in the reply to the show-cause notice.
3. The learned AR reiterates the findings of the Commissioner. He submits that these items were used for construction of supporting structures, which is not covered under the definition of âcapital goods of CENVAT Credit Rules, 2004. He further submits that the Larger Bench of the Tribunal in the case of Vandana Global Ltd. Vs. CCE, Raipur - 2010 (253) ELT 440 (Tri. LB) decided this issue against the appellant. He also relied upon the case of Triveni Engineering and Industries Ltd. - 2000 (120) ELT 273 (SC) ruling that erection of different parts and components of a machine at site does not result in manufacture of âexcisable goods because the plant emerges as an immovable property and not as goods. It is contended that the decision of the Honble Supreme Court and Larger Bench of the Tribunal were not placed before the Honble Madras High Court in the appellants own case. Regarding the issue of time bar, the learned AR drew the attention of the Bench to the relevant portion of the findings of the Commissioner.
4. After hearing both the sides and on perusal of the records, we find that the issue involved in this case is whether CENVAT credit availed on MS Angles, MS Beams, MS Channels, TMT bars, Tor rods etc. would be covered within the definition of âcapital goods under Rule 2(a)(A) of CENVAT Credit Rules, 2004. For the purpose of proper appreciation, Rule 2(a)(A) Rules, 2004 is reproduced below:-
â2. Definitions - In these rules, unless the context otherwise requires -
(a) âCapital goods means:-
(A) the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, Heading No. 68.05 grinding wheels and the like, and parts thereof falling under Heading 6804 of the First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii)
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
Used â
(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.â
4.1 It is well settled that to decide the eligibility of CENVAT credit on capital goods it would be appropriate to examine the use of the goods in question in the manufacture of the final product, which is known as 'user test'. The use of the items in question has been stated in the show-cause notice as under:-
âThe assessees are availing CENVAT credit on capital goods used in the erection of various capital goods, viz. new additional ESP (Electrostatic Precipitator) for raw mill project, additional fly ash handling system, MMD Crusher etc. and utilizing the credit for payment of duty on clearance of excisable goods from their unit. On verification of the assessees CENVAT credit account, it was noticed that the assessee have also taken CENVAT credit of the duty paid on MS angles, MS beams, MS channels and TMT bars as capital goods. On further enquiry by the Department, the assessee vide their letter dated 3.5.2008, 25.7.2008 and 4.11.2008 declared that the above said goods were used by them in the erection of the above mentioned new plant and machineries in their factoryâ.
5. In reply to show-cause notice, it was contended that these items were used for the erection of various capital goods viz. new Additional Electrostatic Precipitator (ESP) for raw mill project, Additional Fly Ash Handling System, MMD Crusher etc. for âDry Process Cement Manufacturing Plant. The plant comprises of vital machineries, equipments, amongst others and is classifiable under Chapter No. 84 of CETA, 1985. Some of the vital machineries of the plant are Stacker and Reclaimer, Raw Mill, Blending Silo, Coal Mill, Clinker Silo, Electrostatic Precipitator (ESP) etc. The function of the Raw Mill is that the limestone is reclaimed from the stacker and reclaimed and fed to the Raw Mill Hopper. Hot gases from pre-heater is utilized to dry the material in the raw mill and also to convey them after grinding to blending silo. The function of the Electrostatic Precipitator is that the vent air from cooler is de-dusted in the electrostatic precipitator and clean air is put into the atmosphere. Ash handling System is a Pollution Controlling Equipment. It is contended by the appellant that the items in question were admittedly used for erection of new additional Electrostatic Precipitator (ESP) for Raw Mill Project, Additional Fly Ash Handling System, MMD Crusher etc. for the Dry Process Cement Manufacturing Plant and therefore the items in question are component or spares or accessories of the same. Under Rule 2(a)(A)(ii) such goods are capital goods irrespective of its classification.
6. It is seen from the decision of the Honble Madras High Court vide judgment dated 13.12.2012 in CMA No. 3101 of 2005 in the appellants own case, for the different period, CENVAT credit was allowed as these items were used for fabrication of structurals to support machines like crusher, kiln, hoppers, pre-heaters conveyor system etc. and that without these structurals, the machinery could not be erected and could not function. The relevant portion of judgment dated 13.12.2012 (supra) is reproduced below:-
â8. Even though learned standing counsel appearing for the Revenue submitted that the judgment in the assessees own case reported in AIT-2011-358-HC (the Commissioner of Central Excise V. M/s. India Cements Limited) had been appealed against, as of today, there are no details, in any event, the fact herein is that the Revenue does not controvert the facts found by the Assistant Commissioner that the impugned goods were used for fabrication of structurals to support various machines like crusher, kiln, hoppers, pre-heaters, conveyor system etc. and that without these structurals, the machinery could not be erected and would not function.
9. In the decision reported in AIT-2011-358-HC (The Commissioner of Central Excise V. M/s. The India Cements Limited), pointing out to Rule 57Q and the interpretation placed by the Apex Court in the decision reported in 2010 (255) ELT 481 (Commissioner of Central Excise, Jaipur V. Rajasthan Spinning and Weaving Mills Ltd.) and in particular paragraph Nos. 12 and 13, wherein the Apex Court had applied the user test by following the Jawahar Mills case, this court held that steel plates and MS channels used in the fabrication of chimney would fall within the ambit of âcapital goods. In the face of this decision in the assessees own case there being no new circumstance or decision in favour of the Revenue, we do not find any good ground to take a different view herein too.
10. As far as the reliance placed by the Revenue on the decision reported in 2011 (270) ELT 465 (SC) (Saraswati Sugar Mills V. Commissioner of Central Excise, Delhi) is concerned, we do not think that the said decision would be of any assistance to the Revenue, considering the factual finding by the Tribunal there in the decided case that the machineries purchased by the assessee were machineries themselves. Thus, after referring to the decision reported in 2010 (255) ELT 481 (Commissioner of Central Excise, Jaipur V. Rajasthan Spinning and Weaving Mills Ltd.), the Apex Court held that in view of the findings rendered by the Tribunal that the machineries were complete and having regard to the meaning of the expression âcomponents / parts, with reference to the particular industry in question, the Apex Court rejected the appeal filed by the assessee.
11. Thus going by the factual finding, which are distinguishable from the facts found by the authorities below in the case on hand, we have no hesitation in rejecting the Revenues appeal, thereby confirming the order of the Tribunal.â
7. In the present case, it is seen that the items in question were used in the erection of various machineries such as, - new additional Electrostatic Precipitator for raw mill project, additional fly ash handling system, MMD crusher etc. for the Dry Process Cement Manufacturing Plant. It is evident that MS Angles, MS Beams, MS Channels etc. were used in the erection of machineries it become component of the same, which are integral part of Dry Process Cement Manufacturing Plant. It is noted that Fly Ash handling system is a pollution control equipment and particularly mentioned in 2(a)(A)(ii) of Rules, 2004. The allegation in the above show-cause notice that the Chapter Heading of these items were not covered under Rule 2(a) of the Rules, 2004, is not sustainable, in respect of pollution control equipments because the rule does not specify the tariff headings under which pollution control equipment should be falling. The appellant established that these items were used for erection of capital goods namely Dry Process Cement Manufacturing Plant, which falls under Chapter 84, as mentioned in Serial No. (i) of Rules 2(a)(A). Thus, the items in question are covered in serial No. (iii) of Rules 2(a)(A) of the Rules, CBEC has clarified that all parts, components, accessories which are to be used with capital goods in serial (i) and (ii) of Rules 2(a)(A) and classifiable under any chapter heading are eligible for availment of CENVAT credit. A plain reading of serial (iii) cannot lead to a different conclusion either.
8. After considering the use of the goods in question, in our considered view, the present case is covered by the decision of the Honble Madras High Court in appellants own case as referred above. We have also noticed that the Honble Supreme Court in the case of Rajasthan Spinning and Weaving Mills Ltd. (supra) as relied upon the Honble High Court in the appellants own case, allowed MODVAT credit on MS channels, steel plants etc. as capital goods used for erection of chimney for diesel generating set. Â The findings of the Commissioner that these are structures fixed to earth with concrete foundations and are immovable appears to be beyond the scope of the show-cause notice. So, the case of M/s. Triveni Engineering and Industries Ltd. (supra) as relied upon by the learned AR is not applicable in the present case.
9. The other case laws relied upon by the learned AR are also not applicable in the facts and circumstances of the present case. In the Larger Bench decision of Vandana Global Ltd. (supra), it has been held that goods like cement and steel items used for laying âfoundation and for building âsupporting structures cannot be treated either as inputs or capital goods or as inputs in relation to the final products and no CENVAT credit would be allowed. This case did not decide the issue of CENVAT credit on inputs used in fabrication of machineries or plant which are attached to earth as may be seen from para 49(a) of the order. This issue is to be looked on the basis of other decisions of the Apex Court. No dispute on this issue is seen raised in the show-cause notice. In the present case, it is seen from the show-cause notice that these items were used for erection of machineries, which are part of Dry Process Cement Manufacturing Plant. As the appellant satisfied the âuser test of the goods in the present case, the judgment of the Honble Supreme Court in the case of Madras Cements Ltd. Vs. CCE - 2010 (254) ELT 3 (SC) as relied upon by the learned AR would not apply in the present case. In that case, the assessee was not able to identify the machineries for which the goods in question had been used as components and spares and accessories for the manufacture of the finished goods.
10. In view of the above discussion and respectfully following the decision of the Honble Madras High Court in the appellants own case, vide judgment dated 13.12.2013 (supra), we set aside the impugned order. The appeal is allowed with consequential reliefs.