Commissioner of Central Excise Vs India Cements Limited (Madras High Court)
Summary: The Madras High Court dismissed the Revenue’s appeal against the CESTAT order dated 3 November 2015, which had allowed India Cements Limited to claim CENVAT credit on materials used in constructing its dry-process cement manufacturing plant. The dispute concerned OPC cement, M.S. plates, beams, angles, channels, sheets, flats, TMT rods and TOR rods. The Department contended that these materials were used for civil construction and did not qualify as capital goods under Rule 2(a)(A) of the CENVAT Credit Rules, 2004.
The Revenue raised substantial questions concerning the classification of construction materials as capital goods, the applicability of Vikram Cement v. Commissioner of Central Excise, and Notification No. 16/2009-CE (NT) dated 7 July 2009. It argued that the amendment excluding certain construction materials from the definition of inputs was clarificatory and retrospective. The High Court referred to the three-Judge ruling in Vikram Cement, which held that Jaypee Rewa Cement continued to apply under the CENVAT regime and that the contrary decision in J.K. Udaipur Udyog Limited was no longer good law.
The Court noted that earlier Madras High Court decisions involving the same assessee had recognised credit for structural steel materials used to fabricate and erect machinery, including crushers, kilns, hoppers, pre-heaters and conveyor systems. Applying the user test discussed in Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd., those decisions treated structures essential to machinery operation as eligible capital goods. The Court also distinguished the factual position considered in Saraswati Sugar Mills v. Commissioner of Central Excise.
The High Court found the issue no longer res integra and held that the Tribunal had properly followed earlier decisions concerning India Cements Limited. The immovable character of the completed plant did not, by itself, justify denying credit on eligible capital goods. It dismissed the Revenue’s appeal, answered the substantial questions of law in favour of the assessee and against the Revenue, and made no order as to costs.
Cases Discussed
- Vikram Cement v. Commissioner of Central Excise, 2006 (194) ELT 3 (SC).
- Vikram Cement v. CCE, Indore, 2005 (187) ELT 145 (SC).
- Commissioner of Central Excise v. India Cements Limited, 2012 (285) ELT 341 (Mad.).
- CCE, Trichy v. India Cements Limited, 2014 (305) ELT 558 (Mad.).
- CCE & Service Tax v. India Cements Limited, 2014 (310) ELT 636 (Mad.).
- Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd., 2010 (255) ELT 481 (SC).
- Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III, 2011 (270) ELT 465 (SC).
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
The present Appeal has been filed by the Revenue against the order dated 3.11.2015 of the learned CESTAT allowing the appeal of the Respondent/Assessee M/s. India Cements Limited following its earlier decisions and the decisions of the Madras High Court in the case of the same Assessee, in which reliance was placed on the judgment of the Hon’ble Supreme Court rendered by Three Judges in the case of Vikram Cements v. Commissioner of Central Excise, dated 18.1.2006 upon reference made by Two Judges Bench, reported in (2006 (194) ELT 3 (SC)).
2. The following substantial questions of law were sought to be raised for consideration:
“(i) Whether the Tribunal misdirected itself and thereby fell into an error in holding that CENVAT credit is admissible on the capital goods which were not specified in the CENVAT Credit Rules, 2004” target=”_blank” rel=”noopener”>Rule 2(a)(A) of CENVAT Credit Rules, 2004? (being contrary to the ratio laid down by the Apex Court in Vikram Cement Vs. CCE, Indore reported in 2005 (187) ELT 145 SC. [Appeal (Civil) No. 1197/2005 dated 24/8/2005]?
(ii) Whether the Tribunal was justified in holding that CENVAT credit is admissible on Construction materials (viz., Cement, MS Angles, MS Plates, MS Channels and HR Sheets etc), which are used for civil construction activity as “Capital Goods” eligible for CENVAT Credit in terms of Rule 2(a)(A) of sub clauses from (i) to (vii) of CENVAT Credit Rules, 2004 as it stood at the relevant time?
(iii) Whether the Tribunal committed an error of law in not appreciating the Legislative Intent in insertion of “but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other used for construction of factory shed. buildings or laying foundation or making structures for support of capital goods” vide Not.No.16/2009-C.E (N.T) dated 7/7/2009 being clarificatory in view of already existing explanation 2 to Sec.2 (k) of CENVAT Credit Rules, 2004 and therefore, operates retrospectively?”
3. The Hon’ble Supreme Court with reference to availing of Cenvat Credit under the new Rule 2004 which substituted the earlier Modvat Rules, clearly held in para 25 of the Judgment which is quoted below that the Cenvat Rules which is in effect substitutes the Modvat Rules and the decision of the Hon’ble Supreme Court in Jaypee Rewa Cement case would continue to apply and the decision of the Supreme Court in the case of J. K. Udaipur Udyog Limited holding to the contrary was no longer a good law:-
“25. In our opinion the doubt expressed by the referring Bench about the correctness of the decision in CCE v.J. K. Udaipur Udyog Limited (supra) was well founded. Having regard to the fact that the Cenvat Rules in effect substitute the Modvat Rules, the decision in Jaypee Rewa Cement would continue to apply. The decision in Commissioner of Central Excise v. J. K. Udaipur Udyog Limited (supra) holding to the contrary is, in our opinion, not good law. The reference is answered accordingly. All the appeals and special leave petitions will now be listed for being disposed of in the light of this judgment.”
4. Thus following the said judgment, the Madras High Court, in alteast four cases of the Assessee has decided that Cenvat Credit in respect of capital goods like Structural Steel items like M. S. Plates, Angles, Channels and HR Sheets used for civil construction activity/erection of machineries shall be allowed under the Cenvat Rules, 2004.
5. In our considered opinion, the matter is no longer res integra and the learned Tribunal has rightly followed the decisions and held in favour of the Assessee. The relevant portion of the Tribunal’s order in this regard is quoted below for ready reference:-
“4. After hearing the submissions of both sides, we find that the short issue in this case relates to availment of cenvat credit on OPC cement, MS plates, MS beam, MS Angle, MS channels, MS sheets, M. S. Flat, TMT Rod and TOR Rod which are used for the construction of their “Dry Process Cement Manufacturing Plant“. On perusal of records, and the OIO, we find that credit was denied only on the ground that these items were used in the construction of the cement plant. Adjudicating authority has denied credit on the ground that the term “plant” is not defined as “capital goods” in the CCR. We find that on an identical issue of the same appellant, this Tribunal in two different appeals had already allowed the appeals and the Revenue preferred C.M.As. against the Tribunal’s order. The Hon’ble Madras High Court in both the orders in the case of CCE Trichy Vs India Cements Ltd. 2014 (305) ELT 558 (Mad.), and CCE & Service Tax Vs India Cements Ltd. 2014 (310) ELT 636 (Mad.) had dismissed the Revenue’s appeals. The relevant paragraphs of the High Court’s order reported in 2014 (305) ELT 558 (Mad.) are reproduced as under:
“7. Heard learned Standing Counsel appearing for the Revenue and the learned counsel appearing for the assessee and perused the materials placed before this Court.
8. Even though Learned Standing counsel appearing for the Revenue submitted that the judgment in the assessee’s own case reported in AIT-2011-358-HC = 2012 (285) E.L.T. 341 (Mad.) (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 structural 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 = 2012 (285) E.L.T. 341 (Mad.) (The Commissioner of Central Excise v. Ms. India Cements Limited), pointing out to Rule 57Q and the interpretation placed by the Apex Court in the decision reported in 2010 (255) E.L.T. 481 (Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & 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’s case, this Court, held that steel plates and M.S. Channels used in the fabrication of chimney would fall within the ambit of “capital goods”. In the face of this decision in the assessee’s own case there being no new circumstance or decision in favour or 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 C.Ex., Delhi-III) 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 therein 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 & 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 “components/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 Revenue’s appeal, thereby confirming the order of the Tribunal.
12. Learned Standing Counsel appearing for the Revenue pointed out that, the Tribunal had merely passed a cryptic order by referring to the earlier decisions. We do not think that this would in any manner prejudice the case of the Revenue, given the fact that on the identical set of facts, the assessee’s own case was considered by this Court and by following the decision reported in 2010 (255) ELT 481 (Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd.), the Revenue’s appeal was also rejected. In the circumstances, this Civil Miscellaneous Appeal is dismissed. No costs. Consequently, C.M.P. No.16107 of 2005 is also dismissed.”
6. Further, we find, the Madras High Court by relying their own order reported in 2014 (310) ELT 636 (Mad.) again dismissed the C.M.A. filed by Revenue and upheld the Tribunal’s order. The Hon’ble High Court in a recent decision reported in 2015 (321) ELT 209 (Mad.) on an identical issue had allowed the C.M.A. filed by the very same appellant. The relevant portion of this Hon’ble Madras High Court order is reproduced as under:
“13. The present appeal is also in respect of the very same assessee and therefore we find no distinguishable fact or issue contrary to the earlier decision of this court.
14. It is relevant to note that this Court in the decision reported in 2014-TIOL-1185-H-Mad-CX = 2014 (310) E.L.T. 636 (Mad.) in respect of the very same assessee in C.M.A. No. 1265 of 2014, following the abovesaid decision of this Court, dismissed the appeal filed by the Revenue.
15. Accordingly, following the principles laid down in the decision reported in 2010 (255) E.L.T, 481 (Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd.) and the earlier decisions of this Court in C.M.A.No.3101 of 2005, dated 13-12-2012 and C.M.A. No. 1265 of 2014, dated 10.7.2014, we are inclined to allow the appeal, thereby set aside the order of the Tribunal. Accordir1gly, this civil miscellaneous appeal stands allowed. No costs. Consequently, M.P. No.1 of 2011 is closed.”
7. Respectfully following the three Hon’ble High Court decisions in the appellant’s own case cited supra, and also maintaining this Tribunal’s order in the case of Dalmia Cements (Bharath) Ltd. Vs CCE Trichy (supra), holding that immovability is not a criteria for denial of Cenvat Credit, we hold that appellants are eligible for Cenvat Credit on the capital goods used in “Dry Process Cement Manufacturing Plant”. Accordingly, the impugned order is set aside and the appeal is allowed.”
6. After having heard the learned counsels for both sides and perused the order passed by the Tribunal, which is extracted above, we do not find any merit in the present Appeal and the same is liable to be dismissed. Accordingly, it is dismissed. The substantial questions of law are answered in favour of the Assessee and against the Revenue. No costs.
