| SooperKanoon Citation | sooperkanoon.com/44973 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Feb-28-2007 |
| Judge | R Abichandani |
| Appellant | Kisan Co-operative Sugar Factory |
| Respondent | Commr. of C. Ex. |
2. According to the Revenue, during April 2003 to December 2003, the assessee had taken and utilized Cenvat credit of Rs. 1,49,010/- on welding electrodes falling under Heading 8311, plain plates, HR sheets, channels, angles falling under Chapter 72 and synthetic enamel (paints) falling under Chapter 32 of the schedule to the Central Excise Tariff Act, 1985, as capital goods. Since these were not covered under the definition of "capital goods" given in Rule 2(b) of the Cenvat Credit Rules, 2002, the appellant had violated the provisions of the rules by taking such credit. Show cause notice dated 27-3-2004 was, therefore, issued to the appellant proposing the demand and recovery of the amount of Rs. 1,49,010/-, imposition of penalty and recovery of interest.
3. The case of the assessee was that welding electrodes were used as accessories for filing cavities of the machines and for repair and maintenance of the plant. Therefore, modvat credit was admissible on them as capital goods. Moreover, plates, channels and angles were used for replacement of damaged/worn out parts of different goods and were, therefore, eligible for credit on the authority of the ratio of the decision of the Tribunal in Simbhaoli Sugar Mills, reported in 2001 (135) E.L.T. 1239. As regards the paints, it was contended that modvat was claimed in respect of their use in the factory on boiler, chimney etc., which was allowable as input under Rule 2(g) of the said rules; but, the claim was made under a wrong head due to clerical error by claiming it as "capital goods". The authorities below rejected these contentions and concurrently held that modvat credit was not admissible for these goods.
4. The learned Counsel appearing for the appellant argued that plain plates, channels and angles were eligible for cenvat credit, because these were parts of the plant of the appellant, since they were cut to required size and fitted in place of worn out/damaged parts of machines which were parts of plant. It was submitted that, Cenvat credit was, therefore, admissible under Rule 2(b)(iii) of the Cenvat Credit Rules, 2002, in respect of these items.
5. As regards the welding electrodes, since the matter was covered by the ratio of the decision of the Larger Bench in Jaypee Rewa Plant v.CCE Raipur, Cement Works v. CCE, Jaipur reported in 2007 (6) S.T.R. 60 (T) : 2007 (78) R.L.T. 581 (CES-TAT-Del.), the claim in respect of welding electrodes was not pursued. It is evident that in view of the decision of Jaypee Rewa Plant (LB), welding electrodes, which were used for maintenance and repairs, were not eligible for cenvat credit. So far as the claim regarding paints is concerned, admittedly, it was made on the footing that goods were covered within the definition of capital goods.
The Cenvat credit was not allowed on the ground that the paints were not used as input in relation to the manufacture of sugar and molasses.
It has been held by the Larger Bench of five Members Bench in CCE, Indore v. Surya Roshni, which are claimed as inputs, cannot be claimed as capital goods (para 13) of the judgment. Obviously, therefore, the goods, which are claimed to have been used as capital goods, cannot get cenvat credit as inputs, on the ratio of the said decision. This decision leaves no scope for considering that when, in substance, cenvat credit is admissible either on the ground that the goods are eligible capital goods or are used as eligible inputs, mere wrong mention of the head under which they are claimed should not make any difference, if and when the entitlement to it is otherwise established under the law.
6. The learned authorized representative for the department contended that, there was no evidence adduced regarding any specific use of the items, namely, plain plates, HR sheets and angles and in the absence of such evidence, these goods of general nature cannot be considered to be capital goods under Rule 2(b)(iii) of the Cenvat Credit Rules, 2002. He relied upon the decision of the Tribunal in CCE, Noida v. DSM Ltd. , in which the Tribunal held that these items, when used for fabrication of steel structure, sheds etc., could not be treated as parts, accessories, or components of any machine.
7. As per the definition of "capital goods" under Rule 2(b)(iii) of the Cenvat Credit Rules, 2002, the components, spares and accessories of the goods specified at Clauses (i) and (ii) of Clause (b) would also be capital goods. The words "components, spares and accessories" do not leave any scope for inclusion of the items of general nature such as, plain plates, channels, HR sheets and angles being treated as capital goods unless it is specifically shown that the goods are adapted for being used as components, spares or accessories of any of the other goods covered by Sub-clauses (i) and (ii) of Clause (b) of Rule 2.
Reliance placed on behalf of the appellant on the ratio of Simbhaoli Sugar Mills and Malvika Steel Ltd. is misconceivedCCE Chandigarh v. Modern Steels Ltd. reported in 2007 (78) R.L.T. 499 (CESTAT-Del.), in both these decisions the Tribunal was concerned with the definition of "capital goods" under explanation to Rule 57Q(1/b) under which 'capital goods' also meant "components, spare parts, and accessories of the machines mentioned in Clause (a) of explanation to Rule 57Q(1), machinery, plant, equipment, apparatus, tools or appliances and used for the indicated purpose".
There was a significant departure in the definition of "capital goods" made in Rule 57Q(1) by the substituted explanation which was brought into force from 23-7-1996, and thereafter under the said Rule 2(b) under which only components, spares and accessories of such goods were to be treated as "capital goods". The decisions in Simb-haoli Sugar Mills and Malvika Steels Ltd., which were rendered in the context of definition of "capital goods" in explanation to Rule 57Q(1) which included plant and the components, spares and accessories of plant, cannot apply in respect of the period in question, which was covered by the definition of "capital goods", as provided in Rule 2(b) of the Cenvat Credit Rules, 2002, which alone would apply.
8. It also transpires from the record that the appellant was not able to establish that these goods were in fact used in respect of any particular machinery. As held by the Tribunal in CCE, Noida v. DSM Ltd. (supra), when such items are used for fabrication of steel structures, shed etc. and they could not be treated as parts/accessories/components of any machine, for the purpose of Modvat credit, and where there is no evidence that the items were used as components of boilers, the order disallowing modvat credit would be justified.
8.1 Even in the present case, the authorities below have held that it was not shown by any corroborative material/evidence that the items, which were of generic nature, were used as components, spares or accessories of the eligible capital goods. The Commissioner (Appeals) has, therefore, rightly held that in the absence of any such evidence, they can only be considered to have been used for general repairs and maintenance of the fabrication work in the factory.
8.2 Since the cenvat credit was taken by violating the provisions of Rules 2 and 3, a penalty has been imposed. It will, however, be seen from the show cause notice dated 27-3-2004, that there is no allegation of fraud, willful misstatement, collusion or suppression made therein.
It was only alleged that the Cenvat credit was "wrongly" taken. The penalty prescribed for "wrong" avail-ment of Cenvat credit in cases where there is no fraud, willful misstatement etc. under Rule 13(1), is not exceeding the penalty of the excisable goods in respect of which contravention is committed or Rs. 10,000/-, whichever is greater. The penalty in case where cenvat credit has been separately taken with a guilty mind such as, fraud, willful, misstatement etc. has been prescribed under Sub-rule (2) of Rule 13, which is required to be the same as in terms of provisions of Section 11AC of the Act under which it has to be a penalty equal to the duty determined. Since no guilty mind such as, suppression, willful mis-statement was alleged in the show cause notice, the mandatory penalty under Sub-rule (2) of Rule 13, which was required to be equal to the amount of Cenvat credit involved, could not have been mechanically imposed. Having regard to the facts and circumstances of the case, since there was no allegation of fraud, suppression, willful misstatement etc., as contemplated by Sub-rule (2) of Rule 13, and there was allegation of, only "wrongly" taking the inadmissible credit, imposition of the minimum prescribed penalty of Rs. 10,000/- will meet the ends of justice, having regard to the facts and circumstances of the present case.
9. Therefore, while confirming the impugned order denying the modvat credit and directing recovery thereof and recovery of interest; the penalty amount is reduced to Rs. 10,000/- (rupees ten thousand only).
The appeal is, accordingly, partly allowed.
10. In this appeal the appellant has challenged the order of the Commissioner (Appeals) dated 29-4-2005 upholding the order of the Assistant Commissioner made on 30-9-2004 denying Cenvat credit of Rs. 1,35,666.33, imposing penalty of the like amount and ordering interest to be charged under Section 11AB of the Central Excise Act.
11. According to the Revenue, the appellant had wrongly taken Mod-vat credit of the said amount on welding electrodes, items of iron and steel as they were not declared as eligible 'capital goods'. As noted above, Modvat credit was not admissible in respect of welding electrodes, plates and channels etc. Therefore, the concurrent findings given by the authorities below of denial of Modvat credit are correct and given in accordance with law.
12. The only contention that was raised by the learned Counsel in this appeal, therefore, was against the imposition of penalty of Rs. 1,35,666.33, under Rule 17Q(1)(bb) of the Central Excise Rules, 1944.
According to the learned Counsel, when initially the Deputy Commissioner had decided the matter on 3-4-2002 before the matter was remanded by the Commissioner (Appeals) on 20-11-2003, no penalty was imposed. It was argued that since the adjudicating authority had initially not imposed any penalty, it could not have been subsequently imposed penalty at the instance of the executive Commissioner, who had undertaken the review. It was argued that the Appellate Commissioner had chosen not to impose any penalty on the ground that the adjudicating authority had not imposed it. The Assistant Commissioner could not have acted on the basis of the observations conveyed by the executive Commissioner (Review).
12.1 The contention that the adjudicating authority had not imposed penalty initially and that after the Commissioner (Appeals) had rendered the decision on 23-11-2003, it came to be imposed by the Assistant Commissioner at the behest of the executive Commissioner is wholly misconceived. It transpires from the record that by order-in-appeal No. 302-CE/MRT-I/2003 dated 20-11-2003, which was made in appeal filed against the earlier order of the adjudicating authority (Deputy Commissioner) dated 3-4-2003, the Commissioner (Appeals) had, in terms, held as under: As discussed above, violation of Rule 173Q is clearly established and therefore, the respondent are liable to penalty. The original adjudicating may take appropriate action (sick) after following the principles of natural justice regarding imposition of penalty and interest as proposed in the impugned show cause notice.
Even though the word "remand" was not used, this was a clear direction to the adjudicating authority to consider the question of imposition of penalty on the footing that the violation of Rule 173Q was clearly established. This order dated 20-11-2003, admittedly, was not challenged by the assessee. Pursuant to this order, the Assistant Commissioner, after giving an opportunity of hearing to the appellant, had passed the order imposing equivalent amount of penalty of Rs. 1,33,666.33. It, therefore, cannot be said that the order imposing penalty was without jurisdiction.
13. It, however, appears from the record that in the show cause notice, there was no allegation made that the Cenvat credit was taken or utilized wrongly on account of fraud, willful misstatement, collusion or suppression of facts. It was only alleged that it was wrongly taken.
Since there was no allegation of any guilty mind, made in the show cause notice, nor found against the appellant at any stage, the facts and circumstances of the case did not call for the stringent penalty of the equal amount to the Cenvat credit involved. Therefore, having regard to the facts and circumstances of the case, the ends of justice would be met if the penalty is reduced to Rs. 10,000/- (rupees ten thousand only). With this modification, the rest of the impugned order is confirmed. The appeal is, accordingly, partly allowed.