By TIOL News Service

MUMBAI, NOV 26, 2013: THE appellants are engaged in the manufacture of excisable goods namely, HR Coils and sponge iron falling under Chapter 72 of the Central Excise Tariff. They entered into a contract with M/s Inox Air Products Ltd. for setting up of an Oxygen Plant. As per the arrangement, certain equipments were received by the appellants and certain equipments were procured by M/s Inox Air Products Ltd. in the name of the appellant and the Oxygen Plant was set up by M/s Inox Air Products Ltd., which was further leased to the appellant.

The Revenue was of the view that the appellant is not eligible for capital goods credit on the machinery/equipment which have gone in the fabrication of the plant since the plant is an immovable structure and not excisable and since no duty has been paid on the plant, the credit is not admissible.

Accordingly, a SCN was issued proposing to inter alia deny CENVAT Credit amounting to Rs.4,85,00,029/- availed during the period June, 2005 to March, 2010.

The CCE, Raigad confirmed the demand with the usual accoutrements and hence the appellant is before the CESTAT.

Incidentally, the Revenue has also filed an appeal against the impugned order for the reason that there is an error in the impugned order, which has been corrected by corrigendum, wherein as against the duty demand of Rs. 4,85,00,029/-, in the impugned order a demand of Rs. 4,40,05,465/- only has been confirmed, even though the Commissioner by issuing a corrigendum has rectified this mistake. So, the appeal, to be on the safer side that is!

Holding that the appellant had a strong prima facie case in favour the Bench had waived the pre-deposit of Rs.4.85 Crores & other amounts and granted stay. We reported the Stay order as 2012-TIOL-1140-CESTAT-MUM.

The appeal was heard recently.

The appellant inter alia submitted as under –

++ All the equipments which were procured as part of the plant were invoiced to the appellant and were utilized and the details of these were submitted by the appellant in the monthly ER-1 Returns filed by them during the relevant period. The records of the appellants were audited during 2007 and the department was aware that M/s Inox had set up the Oxygen Plant and leased out the same to the appellant. The Audit Party raised objection only with regard to non-payment of Service Tax on the commissioning and installation charges by M/s Inox. In other words, the entire transaction was within the knowledge of the department and there was no suppression of any facts.

++ it is held in a catena of cases that credit is available on parts, components, accessories even if they are assembled to form plants which are immovable; that merely because the plant has been leased out to the appellant, CENVAT Credit cannot be denied as ownership of the goods cannot be a criterion for availment of CENVAT Credit on capital goods - Gujarat Ambuja Cement Ltd - (2008-TIOL-683-HC-HP-CX), Rajarambapu Patil SSK Ltd. Vs. Commissioner of Central Excise, Pune –II- (2006-TIOL-1570-CESTAT-MUM), KCP Ltd. Vs. CCE, Guntur – (2008-TIOL-2531-CESTAT-BANG), Pepsi Foods Ltd. -2010 (254) ELT 284 (P&H), Bannari Amman Sugars Ltd. Vs. CCE, Mysore - (2010-TIOL-869-HC-KAR-CX)

The Revenue representative laid emphasis on the Larger Bench decision in Vandana Global Ltd- (2010-TIOL-624-CESTAT-DEL-LB) to justify the department stand and also the decision in Bharati Airtel Ltd. where the Bench held that since the mobile tower as such is an immovable property, items which have gone into the erection of mobile towers are not eligible for CENVAT Credit as parts or components of capital goods.

The Bench after extracting the definition of 'capital goods' observed -

"…Thus, it includes not only goods falling under Chapters 82, 84, 85 and 90, which are machinery, equipment, appliances and also components, spares and accessories of the goods falling under the aforesaid chapters. In the present case, the plant has been set up using various machinery and equipments falling under Chapters 82, 84, 85 or 90 or components, spares or accessories of these goods and these facts are not disputed. Merely because the various machinery, equipment, appliances and parts have been assembled at the site to set up the Oxygen Plant and such a plant being immovable property, CENVAT Credit is sought to be denies. Nowhere in the Cenvat Credit Rules, it is envisaged that the machinery, equipment, appliances or their components should be used as such in the manufacture of excisable goods. The manufacturing plant facility in a factory would comprise of a number of capital goods and all these things have to be assembled together so that they act in unison to perform the required processes. For example, in a sugar factory there may be a Boiler plant for generation of steam, a crusher installed for crushing of the sugar cane, a distillation plant for undertaking the various chemical processes involved in the manufacture of sugar. The boiler, crusher and distillation equipment, all have to be assembled together to form a sugar plant. Merely because all have been assembled together to form a sugar plant, can it be said that the capital goods credit cannot be allowed on Boiler, Crusher or a distillation equipment. Such a view according to us results in an absurd situation. In none of the manufacturing plants, all the machineries can be used as such and directly, the various machineries and equipments have to function in conjunction and in unison with each other and for this purpose, they are assembled into a plant. Merely because all the individual equipment, machinery or components are assembled together, it will be preposterous to suggest that the capital goods credit cannot be allowed on this individual machinery/equipment or appliances. The purpose of allowing capital goods credit is to relieve the burden of cascading effect of taxes. If that purpose is to be achieved in a meaningful way, the law has to be interpreted in a reasonable manner so that the object is achieved."

As for the case laws cited by the appellant, the Bench after going through the same noted –

"In the light of these decisions, the interpretation of law undertaken in the impugned order does not appeal to any common sense or logic. So long as the individual machinery, equipment or appliance or parts and components thereof fall within the definition of capital goods under Rule 2(A) of the Cenvat Credit Rules, 2004 and so long as they are used within the factory of production for the manufacture of excisable goods which are chargeable to duty, the benefit of capital goods credit cannot be denied and we hold accordingly.”

The case laws relied upon by the Revenue were distinguished thus –

+ In the said decision, there was no finding by the Larger Bench stating that capital goods credit is not admissible in respect of machinery, equipments and appliances used within the factory of production which were used in the assembly of the manufacturing plant. Therefore, the facts of the said case are completely different and distinguishable from the facts of the present case and, therefore, the ratio of the said decision is not applicable to the present case and, therefore, the ratio of the said decision is not applicable to the present case.

+ Similarly, in the case of Bharati Airtel Ltd. (supra), the question before the Tribunal was whether the erection of a tower consisting of various Iron & Steel items and cement can be considered as capital goods and this Tribunal held that tower per se is not capital goods as it does not undertake any process either in relation to manufacture of goods or in the rendering of any services and, therefore, it was held that iron and steel products and cement which have gone into the erection of any immovable property cannot be considered as capital goods. Thus, the facts involved in the said case are also completely different and distinguishable from those involved in the case before us. Therefore, the ratio of the said decision also has no application.

Holding that the appellants are rightly entitled for capital goods credit on various machinery, equipment, appliances and parts and components thereof used in the setting up of oxygen plant within the factory premises, the Bench set aside the order of the CCE, Raigad and allowed the appeal. Consequently, the Revenue appeal was held as infructuous and dismissed.

In passing: Year 2000 - Introduction of credit of duty on Capital goods. Thirteen years have gone by, still the purpose for which such credit was introduced is required to be explained …or is there something more!

Also read Inox Air Products 2012-TIOL-135-CESTAT-Mum & 2012-TIOL-510-HC-Mum-ST & 2012-TIOL-1077-CESTAT-Mum.

(See 2013-TIOL-1758-CESTAT-MUM)