Case Law Details
Hindustan Zinc Ltd Vs C.C.E. (Rajasthan High Court)
Introduction: In the case of Hindustan Zinc Ltd Vs C.c.e. Jaipur, the Rajasthan High Court clarified that welding electrodes used for the repair and maintenance of plant and machinery are classified as inputs, not part of the manufacturing process. This decision came as the court sought to settle appeals based on the judgment passed in a previous case involving the same parties.
Analysis: The issue under consideration was the eligibility of welding electrodes used for repair and maintenance of plant and machinery for CENVAT credit under the Cenvat Credit Rules. CENVAT credit is a tax credit scheme that allows manufacturers or service providers to deduct the amount of tax paid on inputs from the tax payable on output.
The court’s ruling, in this case, hinged on earlier judgments, notably the Supreme Court’s judgment in CCE v. Jawahar Mills and a previous judgment of the Rajasthan High Court in the same case, Hindustan Zinc Ltd. vs. Union of India & Ors. These judgments had recognized the broad scope of capital goods and affirmed that goods used for producing or processing other goods, or bringing about a change in any substance, could be treated as ‘capital goods’.
On this basis, the court concluded that welding electrodes used for repair and maintenance should be treated as inputs eligible for CENVAT credit. The court did not accept the arguments of the revenue department that the issue should wait until the Supreme Court resolves pending appeals on related matters. It ruled in favor of the assessee, upholding their right to the CENVAT credit claimed.
Conclusion: This judgment by the Rajasthan High Court affirms the broad interpretation of ‘capital goods’ under tax law. It emphasizes that items used in maintenance and repair, such as welding electrodes, can be classified as inputs eligible for CENVAT credit. This decision could have implications for other companies and industries where maintenance and repair are integral to their operations. It underscores the importance of a comprehensive understanding of tax law for the appropriate claiming of tax credits.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. The matters come up for consideration of application (Inward No.1/23) preferred on behalf of the appellant with a prayer to decide these appeals in terms of the judgment dated 1.7.2008 passed by the Division Bench of this Court in Hindustan Zinc Ltd. vs. Union of India & Ors., reported in 2008 (132) ECC 3.
2. These appeals have been admitted while framing the following question of law :
(1) “Whether the Tribunal is correct in holding that Welding Electrodes used for repair and maintenance of plant and machinery as well as other welding work in building area are eligible for CENVAT Credit when in fact the welding electrodes are not capital goods as defined under Rule 2 (b) of the erstwhile Cenvat Credit Rules, 2002 now Rule 2 (a) of the Cenvat Credit Rules, 2004 ?”
(2) Whether the Tribunal is correct in deciding the issue which is sub-judice before the Hon’ble Supreme Court as the SLP filed by the department against the relied upon judgment of the Hon’ble Rajasthan High Court is pending for decision ?”
3. Learned counsel for the appellants have submitted that the question of law, framed in these appeals, has already been answered in favour of the assessee and against the revenue by the Division Bench of this Court vide aforesaid judgment passed in the case of Hindustan Zinc Ltd. (supra).
4. Learned counsel for the appellants has also submitted that leave to appeal against the above-referred judgment filed by the revenue has already been dismissed as withdrawn by the Hon’ble Supreme Court. It is further submitted that since the judgment passed in Hindustan Zinc Ltd.’s case (supra) has attained finality, these appeals are liable to be allowed in terms of the aforesaid judgment.
5. It is also submitted that relying on the above-referred judgment, the respondent – department has already granted benefit to the appellants for various time periods while holding that the welding electrodes used for repairing and maintenance of plant & machinery are eligible for CENVAT credit both as capital goods as well as inputs. Copies of such orders are annexed with the application No.1/23.
6. Learned counsel for the revenue has argued that though the SLP against the judgment passed by this Court in Hindustan Zinc Ltd.’s case (supra) has been dismissed as withdrawn, however, while withdrawing the SLP, the Hon’ble Supreme Court has clearly observed that the questions of law are left open. It is further submitted that certain SLPs filed on behalf of the revenue before the Hon’ble Supreme Court against the judgments of different High Courts are still pending, therefore, it would be appropriate to wait for the decision of the Hon’ble Supreme Court on the points involved in these appeals.
7. Heard learned counsel for the parties.
8. This Court, in Hindustan Zinc Ltd.’s case (supra), while considering the question of law, whether welding electrodes used for repairing and maintenance of plant & machinery both as capital goods as well as inputs, has answered the same in favour of the assessee and against the revenue by making following observations :
“6. This appeal was admitted on 13th January, 2006, by framing the following substantial question of law:
Whether welding electrodes used for repairs and maintenance of plant and machinery are eligible for CENVAT credit both as capital goods as well as inputs.
7. We have heard learned Counsel for the parties and have gone through the Judgment in Jaypee Rewa Plant’s case, as relied upon by the learned Counsel for the department, and have also gone through the Judgment of Hon’ble Supreme Court, in CCE v. Jawahar Mills reported in MANU/SC/0397/2001MANU/SC/0397/2001:2001(132)ELT3 (SC), relied upon by the learned Counsel for the Appellant.
8. In Judgment of Hon’ble Supreme Court in Jawahar’s case, it is held, that capital goods can be machines, machinery, plant equipment, apparatus, tools or appliances. Any of these goods, if used for producing, or processing of any goods, or for bringing about any change in any substance, for the manufacture of final product, would be ‘capital goods’, and would qualify for MODVAT credit. Then as per clause-b the components, spare parts and accessories of the goods mentioned above, would also be capital goods, and would qualify for MODVAT credit. Then moulds and dies, generating sets, and weigh etc. has four also been held to be eligible for MODVAT credit, even if they are not used for producing the final product, or used for process of any product, for the manufacture of final product, or used for bringing about any change in any substance, for the manufacture of final product. The only requirement is, that the same should be used in the factory of the manufacturer, thus, it was held, that the language is to be interpreted very liberally. Then the contention of the Revenue, about the goods involved, being not satisfying the requirement of capital goods, was negatived on the ground, that it was not the case of the Revenue, set up all through.
9. On the other hand in JP Rewa’s case the eligibility of credit was denied, which was claimed as “inputs”. Then so far as the claim made for MODVAT credit on the basis of it being capital goods, it was denied only on the ground, that in the declaration, it was not so claimed, and the Assessee has not even furnished details of any capital goods for captive consumption, to enable the adjudicating Authority to ascertain, whether such goods were covered by definition of capital goods. Thus, for want of evidence to show, that any part of any electrodes, and gases, was used in the manufacture of any capital goods for captive consumption, the claim was negated.
10. In our view, the Judgment of Hon’ble Supreme Court, in JK Cottons SPG. & WVG Mills Co. Ltd v. Sales Tax Officer, Kanpur reported in 1997 (91) ELT 34 has a 5 material bearing on the controversy involved in the present case. It may be noticed, that the Tribunal in J.P. Rewa case has referred to this Judgment of Hon’ble Supreme Court in JK Cotton’s case, by reproducing a part of the headnote, but then, the very significant continuing next sentence has been omitted from consideration, in as much as the sentence following the portion quoted by the Tribunal, is as under:
They need not be ingredients or commodities used in the processes, nor must they be directly and actually needed for turning out or the creation of goods.
11. In that case the Hon’ble Supreme Court even went to the extent of holding, that use of electrical equipments, like lighting, electrical humidifiers, exhaust fan etc. were also taken to be necessary equipment, to effectively carry on the manufacturing process. Thus, with the above, if the quoted part of the Judgment in JK Cotton’s case is read, it becomes clear, that the expression “in the manufacture of goods” should normally encompass entire process carried on by the dealer, of converting raw materials into finished goods, where any particular process, or activity, is so integrally connected with the ultimate production of the goods, but for that process, manufacturing, or processing of the goods would be commercially inexpedient, goods required in that process would, fall within expression “in the manufacturing of goods”.
12. In our view the proposition propounded above sets the controversy at rest. The question, as framed, is accordingly required to be answered in favour of the Assessee.
13. We are not inclined to accept the logic and reason given in the JP Rewa Plant Mills’s case, and following the letter and spirit of the JK Cotton’s case coupled with Jawaharmal’s case, set aside the Order of the Authorities below.
14. In view of the above discussion, the question so framed, is answered in favour of the Assessee and against the revenue. Resultantly the appeal is allowed. Impugned Order is set aside. The Appellant is held to be entitled to the credit as availed. The notice issued by the Dy. Commissioner accordingly stands quashed, and the proceedings dropped.”
9. Since the controversy raised in these appeals has been set at rest by the Division Bench of this Court by judgment passed in Hindustan Zinc Ltd.’s case (supra), while answering the question framed in these appeals in favour of the assessee, we deem it appropriate to allow these appeals in terms of the judgment passed by the Division Bench of this Court in Hindustan Zinc Ltd.’s case (supra).
The application (Inward No.1/23) is disposed of.
