M/S. Monnet Ispat & Energy Ltd vs Commissioner Of Central Excise

[Arising out of Order-In-Appeal No. Commissioner/RPR/10/2009 dated 22.1.2009 passed by Commissioner of Customs & Central Excise, Raipur]

For approval and signature:

Honble Mr Ashok Jindal, Member (Judicial)

Hon'ble Mr. B Ravichandran , Member (Technical)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

M/s. Monnet Ispat & Energy Ltd. Appellants

Vs.

Commissioner of Central Excise Respondent

Raipur

Appearance:

Shri L P Asthana, Advocate for the Appellants

Shri Pramod Kumar, Jt.CDR for the Respondent

CORAM:

Hon'ble Shri Ashok Jindal, Member (Judicial)

Hon'ble Mr. B Ravichandran, Member (Technical)

Date of Hearing /decision: 03.08.2015

FINAL ORDER NO. A/52567 /2015-EX(DB)

Per B Ravichandran:

The appellants are engaged in the manufacture of sponge iron and paying excise duty on the same. They received various inputs, capital goods and fabricated / installed various production machinery in November, 2005. They have availed cenvat credit on various items received as per Cenvat Credit Rules, 2004. The Revenue, after examining the credit details availed by the appellants, initiated proceedings against them for denying the credit on various iron and steel items used in the fabrication of various capital goods like kilns, electrification and power plants, conveyor system etc. The notice cum demand was adjudicated resulting in the impugned order dated 23.1.2009. Learned Commissioner held that iron and steel items like angles, beams, channels, plates, pipes etc. used for fabrication / installation of various capital goods are not eligible for credit as various items fabricated out of these inputs are fixed to earth, they do not satisfy the requirement of being goods. He disallowed the credit on these items and imposed penalty equal to the amount. Aggrieved by this order, the appellant is before us.

2. The main plea of the appellant is that iron and steel items used for fabrication of components / accessories of various machinery like rotary klin, rotary cooler, conveyor systems, raw material preparation plant, power plant and pollution control equipment are rightly eligible for Cenvat credit as they are specifically covered under Rule 2(a)A (i) (ii) and (iii). They have emphasized that they have taken cenvat credit only on those items which were used for fabrication of parts, components, accessories of various capital goods as defined under Rule 2(a) of Cenvat Credit Rules. These components and accessories do come into existence before their installation and as such credit cannot be denied even if it is considered that they become ultimately part of immovable machinery after the installation. They contended that most of the capital goods or heavy equipments are generally embedded to earth for technological and operational reasons. This by itself cannot make them anything other than capital goods. In other words, the capital machinery cannot be held to be a civil structure on this ground.

3. During the arguments, learned counsel for the appellant relied on various case laws to emphasis that the various steel structural items like MS plates, channels sheet etc. are rightly eligible for credit. He specifically emphasized on the Honble Supreme Court decision the case of Rajasthan Spinning and Weaving Mills Ltd. reported in [2010 (255) ELT 481 (SC) and Jawahar Mills Ltd. case reported in [2001 (132) ELT 3 (SC)]. He further submits that appellant themselves submitted a detailed chart giving the usage of these items in central stores, coal shed, DRI godown etc. item wise. The details were certified by Chartered engineer vide certificate dated 26.9.2007. In the said certificate 16 different type of capital goods / structurals were listed on which, the learned Counsel submitted, they have availed credit only in respect of those steel items used in Klin, raw material processing plant and power plant. In respect of steel items used in DRI godown, D G room, canteen building, weigh bridge etc. they have not contested ineligibility of credit and they had reversed the same.

4. Learned AR, on the other hand reiterated the finding in the impugned order and stated that cenvat credit cannot be allowed for steel items used in fabricating various structurals in the factory if the resultant product is an immovable product, ineligible to be called as goods. As such, the question of allowing the credit for fabricating items other than goods does not arise.

5. Heard both the sides and examined the appeal records carefully.

6. The issue regarding the eligibility of steel items namely, bars, flats, channels and sheets used for fabrication of machinery and accessories has been the subject matter of dispute in various cases of similar nature. It is relevant to note here certain basic principles laid down by the Honble Supreme Court in the similar matters. The definition of capital goods under Rule 2(a) of Cenvat Credit Rules, 2004 is very wide and includes all goods of chapter 82, 84, 85 and 90, a few other specific tariff headings of Central Excise Tariff. Apart from these, other specific items like pollution control equipment, tubes, pipes etc. storage tanks, the components, spare and accessories of specific goods etc. are also included. The appellants contention is that steel items have been used in fabrication of components /accessories of specific capital goods namely, rotary klin, rotary cooler ( tariff heading 8417.10), conveyor system (tariff heading 84.28), raw material processing plant (84.79) power plant (85.02) and various pollution control equipment which are specifically covered under the category of capital goods.

7. These steel items used in this manner by the appellant has not been factually disputed. However, the point of dispute is that the resultant fabricated items became part of structures which are embedded to earth and become immovable, thereby losing the name of goods. Hence, Revenue contends that these items used are outside the purview of capital goods or inputs. We find that the Honble Supreme Court evolved user test to answer the question whether the items falls within the purview of capital goods and held that in the case of Rajasthan Spinning Mills (supra) that steel plates and MS channels used in the fabrication of chimney would fall within the ambit of capital goods. The Honble Karnataka High Court in the case of SLR Steels Ltd. [2012 (280) ELT 176 (Kar)] held as under:

7.?A perusal of the aforesaid provision makes it very clear though storage tanks may be immovable property and the pollution control equipment are included within the definition of capital goods, input as defined in Rule 2(k) makes it clear that input includes in goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Therefore, the input is not necessarily to be used in the manufacture of final product. By virtue of explanation 2 - goods used in the manufacturer of capital goods which are further used in the factory of the manufacture also falls within the definition of input. In 2009, this explanation has been amended to the following effect :

but shall not include cement, angles, channels Centrally Twister Deform bar (C.T.D.) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.

8.?Therefore, the notification of the Legislature is very clear that it is only the inputs used in the manufacture or construction of capital goods which is construed as input and cenvat credit is available on the duty paid in purchase of such inputs. If the cement, angles, channels, Centrally Twister Deform bar (C.T.D.) or Thermo Mechanically Treated bar (T.M.T.) and other items are used in the construction of factory shed, building or laying of foundation, the duty paid on such items the assessee would not be entitled to cenvat credit. Similarly, though the assessee is entitled to cenvat credit of cement and steel used in the manufacture of capital goods viz., storage tank, if any structure for support of capital goods is constructed and steel and cement is used for such support, the assessee is not entitled to the benefit of cenvat credit on the duty paid on such cement and steel. Therefore, there is no ambiguity in any of these provisions. When once a storage tank and pollution control equipment constitutes capital goods and any raw material purchased for construction of those goods, the duty paid could be utilized as a cenvat credit by the assessee notwithstanding the fact that the storage tank is an immovable property.

8. The Honble Madras High Court in the case of CCE vs. India Cements Ltd. [2014 (310) ELT 636 (Mad)] held that MS plates, angles, channels etc. used in the erection of various machineries such as electrostatic precipitator for raw mill project, additional fly ash handling system, MMD crusher, etc. can be considered as eligible for cenvat credit as component of capital goods. The Honble High Court held after examining the various case laws in favour of assessee. Applying this principles, we find that the allegation in the show cause notice that steel items used by the appellant are neither components nor spares nor accessories is not sustainable.

9. In the case of Associated Cement Company Ltd.[2011 (267) ELT 55(Chhattis), the Honble High Court of Chhattisgarh agreed with the findings of this Tribunal holding that wearplate, MS Plate, angles, channels etc. used for connecting / fitting fans, casing, ducting in kilns for the manufacture of clinker are eligible for Cenvat credit. Another allegation made in the show cause notice regarding various steel items having been used in the manufacture of structurals to support the other machinery, has not also been elaborated with evidence. For eg., the credit was sought to be denied on steel items used for installation of conveyor system on the ground that these items are merely structures giving support to conveyor system. We find that conveyor system as a whole is rightly categorized as capital goods and unless it is established that certain structures are not part of the conveyor system, mere allegation that certain steel items are only supports will not be sufficient to deny the credit. Similarly, the allegation that silo is merely an item which was for receiving finished product and is not used for processing the goods is misleading and contrary to facts. Silo is a storage facility of the finished good and it is a fact that silo is a storage tank included as a capital goods in the overall scheme of manufacture of final product.

10. The items in dispute are either specifically find place in Central Excise tariff as machinery, equipment (kiln, conveyor system raw material processing plant) or specifically included in the definition for capital goods like pollution control equipments, components spare and accessories, storage tanks. Applying the principle of user test laid down by the Honble Supreme Court in Jawahar Mills case (supra) the angles, beams and channels used in the making and fabrication of these capital goods are found eligible for Cenvat credit.

11. Accordingly, we allow the appeal, with consequential relief, if any.

(operative part of the order pronounced in the open court)

( Ashok Jindal ) Member(Judicial)

( B Ravichandran )

Member(Technical)

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