Full Judgment
Per: Shri P. Karhikeyan
The impugned order disposed of four appeals filed by the respondents as per the following details: -
Sr. No.
Appeal No.
Order-in-Original No. and date
Period involved
Credit amount involved (Rs.)
Penalty imposed (Rs.)
1.
247/08
ADJ/114/KOP-I/ 2008 dated 29.7.08
March, 2007
3,29,326/-
20,000/-
2.
295/08
ADJ/229/KOP-I/ 2008 dated 29.10.08
April, 2007
4,33,916/-
50,000/-
3.
296/08
ADJ/230/KOP-I/ 2008 dated 29.10.08
March, 2007
4,33,916/-
50,000/-
4.
297/08
ADJ/231/KOP-I/ 2008 dated 29.10.08
April, 07 to Sept. 2007
1,47,756/-
10,000/-
The Orders-in-Original deal with common issue of the eligibility of the respondent to take capital goods credit on items such as HR Plates, Channels, Hot Rolled Steel Plates, M.S. Angles, H.R. Coils, H.R. Chequred Coils, M.S. Channels, M.S. Flat bars, M.S. Joists, Flange Beam etc. during the period March, 2007 to September, 2007. Four show-cause notices were issued to the respondent proposing to disallow and demand CENVAT credit of Excise duty paid on the above mentioned goods falling under Chapter 72/73 of the Central Excise Tariff and not being capital goods defined under Rule 2A of the Cenvat Credit Rules, 2004, namely goods falling under Chapter No. 82, 84, 85 and 90 of the Tariff or parts of components thereof. The appeal filed by the department against the impugned order relating to Order-in-Original No. ADJ/231/KOP-I/2008 dated 29.10.2008 is taken up for detailed examination. The connected appeal No. filed by the Revenue is E/536/09-Mum.
2. The impugned order vacated the order of the original authority holding that the items mentioned above falling under Chapter Heading 72 received by the respondents during April, 2007 to Sept. 2007, on which it had taken capital goods credit of Rs.1,47,756/-, were used in fabrication of supporting structures for Boiler and Auxiliary unit embedded to the earth. The items so fabricated were not being used in or in relation to the manufacture of the respondent’s final products sugar and molasses. The impugned goods had been used in the erection of a co-generation plant in the assessee’s premises. As the co-generation plant produced electricity, which was not excisable, the impugned capital goods could not yield credit. Vide the impugned order, the Commissioner (Appeals) found that the original authority had adjudicated the show-cause notice on an altogether new ground not raised in the show-cause notice. As the order has traveled beyond the show-cause notice, he held that order was not sustainable. In holding so, he relied on several decisions of the Tribunal and judgment of Hon’ble Apex Court in the case of CCE, Mumbai Vs. Toyo Engg. India Ltd. - 2006 (201) ELT 513 (SC). The said judgment also held that ‘the department cannot travel beyond the show-cause notice while adjudicating the dispute’.
3. The Commissioner (Appeals) decided the dispute on merits relying on a couple of decisions of the Tribunal. In the instant case, there was no dispute that electricity generated was used for manufacture of sugar and molasses, which were excisable goods. Therefore, the impugned capital goods used in the erection of co-generation plant were eligible for the CENVAT credit. Co-generation plant was an immovable property. He found that in the case of Mahalaxmi Gas Works Ltd. - 1999 (118) ELT 558, the Tribunal had held that ‘the credit cannot be denied if parts are used in the immovable property’. Accordingly, he held that the respondents were eligible to avail CENVAT credit on the impugned goods. He vacated the Order-in-Original disallowing CENVAT credit demand in the same along with applicable interest and imposing penalty on the respondents.
4. In the appeal filed by the Revenue, the sole ground taken is that the Commissioner (Appeals) had erred in allowing the CENVAT credit on inputs used in the erection of co-generation plant, which was an immovable property. The decision of the Tribunal in the case of Mahalaxmi Gas Works Ltd. (supra) had been rendered while reading the scope of capital goods under Rule 57Q of the Central Excise Rules, 1944, which was not in force during the material period. It is also the submissions of the Revenue that if the original authority had decided the case on a ground not raised in the show-cause notice, the Commissioner (Appeals) should have remanded the case back to the original authority for deciding the case afresh.
5. The learned DR reiterates the grounds taken in the appeal and submits that the case of the Revenue is squarely covered by the decision of a Larger Bench of the Tribunal in the case of Vandana Global Ltd. Vs. Commissioner of Central Excise, Raipur reported at 2010 (253) ELT 440 (Tri-LB). He invited my attention to paragraph 49 of the said decision, which reads as follows: -
‘49. In the light of the foregoing findings, we answer the questions referred to the Larger Bench as follows: -
a) The term ‘capital goods’ has been defined in the Cenvat Credit Rules, which in turn have been framed under the rule making powers conferred under Section 37(2) of the Act. The said Section refers to credit of duty paid on goods used in, or in relation to the manufacture of excisable goods. Hence, ‘capital goods’ defined in the Cenvat Credit Rules in the context of providing credit of duty paid, have to be excisable goods. Whether a particular plant or structure embedded to earth can be considered as excisable goods or not has to be determined in the light of the decisions of the Hon’ble Supreme Court on the issue, which is no longer res integra.
b) Goods like cement and steel items used for laying ‘foundation’ and for building ‘supporting structures’ cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the Central Excise Rules for the impugned period.’
He submits that in the instant case, the impugned items were used for building structure, which was immovable and therefore, not entitled to credit.
6. The learned Advocate for the respondents submits that since the original authority had decided the dispute on grounds not raised in the show-cause notice and if the impugned order is found not sustainable, the matter may be remanded to the original authority for adjudication afresh. He canvassed the entitlement of CENVAT credit on the impugned goods on the basis that they formed parts of the components of Boilers falling under chapter 84 of the Central Excise Tariff. These were used to fabricate ducting of the Boilers. He also submits that HR Plates, Channels, Hot Rolled Steel Plates, M.S. Angles, H.R. Coils, H.R. Chequred Coils, M.S. Channels, M.S. Flat bars, M.S. Joists, Flange Beam etc. were used for fabrication of DM water tank (storage tank) used for treatment of water. These materials were, therefore, entitled to credit as capital goods/inputs as held by the Tribunal in the following decisions: -
(i) JOCIL - 2006 (195) ELT 305
(ii) CCE Vs. Tarapur Coatings and Ahesives Pvt. Ltd. - 2006 (194) ELT A-56.
(iii) Lloyds Metals and Engineers Ltd. Vs. CCE - 2002 (150) ELT 638
(iv) Jindal Pipes ltd. - 2006 (74) RLT 699 (T)
(v) CCE Vs. Shri Chh. Shahu SSK Ltd. - 2006 (77) RLT 570
He prays that the matter may be remanded to the original authority for considering their claim in the light of the proposals contained in the show-cause notice.
7. I have carefully perused the case records and considered the rival submissions. In the instant case, the respondents had received items such as HR Plates, Channels, Hot Rolled Steel Plates, M.S. Angles, H.R. Coils, H.R. Chequred Coils, M.S. Channels, M.S. Flat bars, M.S. Joists, Flange Beam etc. falling under Chapter 72 of the Central Excise Tariff and had taken CENVAT credit of duty paid on them. In the show-cause notice, the credit was proposed to be disallowed on the ground that the items did not satisfy definition of the ‘capital goods’ in Rule 2(a) of Cenvat Credit Rules, 2004. The definition of the capital goods are reproduced herein as under: -
"Capital goods" means:-
A) the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
used-
(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or
(2) for providing output service;
8. While deciding the issue, the proposals to deny the credit were confirmed on the basis that the impugned items were used in fabrication of a facility to generate electricity. As electricity was not excisable, the impugned goods could not yield the CENVAT credit. The impugned order while holding that the original authority had traveled beyond the show-cause notice in deciding the matter against the respondent, considered the entitlement of the impugned goods to credit on merits and allowed the appeal filed by the assessee.
9. In the appeal filed by the Revenue, the ground taken is that the impugned goods were not capital goods as the same were used in the erection of immovable property. I find that this ground is consistent with the proposal made in the show-cause notice. As per the decision of the Tribunal in the case of Vandana Global Ltd. (supra), the eligibility of credit to duty paid on the impugned goods needs to be examined in the light of the Tribunal’s observation contained in paragraph 49 cited above.
10. In the circumstances, the impugned order is set aside and the matter is remanded to the original authority for taking a fresh decision in the light of the judgment of the Tribunal in the case of Vandana Global Ltd. case (supra). Needless to say that the respondent shall be heard before the decision is taken in the remand proceedings.
Appeals No. E/537 to 539/09
The dispute involved in these cases is same as considered in Appeal No. E/536/09 except that the capital goods in question also fall under CH 73. These appeals are also allowed by way of remand on the same terms as the order passed in Appeal No. E/536/09.