This article provides an in-depth analysis of the CESTAT Chennai order in the case of Chemplast Sanmar Ltd. vs. Commissioner of GST & Central Excise. The central issue revolves around whether capital goods installed in the Marine Terminal Facility (MTF) area can be considered an integral part of the manufacturing process and thus eligible for CENVAT credit. The case background, arguments, and the tribunal’s decision are examined comprehensively.
1. Background of the Case: This section offers an overview of the case, highlighting the appellant’s involvement in the manufacture of Polyvinyl Chloride Resin and their registration with the Central Excise Department.
2. Reasons for Denial of CENVAT Credit: The article outlines the reasons behind the denial of CENVAT credit, specifically focusing on capital goods installed in the MTF area and the alleged lack of interlinking with the manufacturing process.
3. Appellant’s Arguments: This section presents the arguments put forth by the appellant, emphasizing the significance of the MTF in receiving raw materials and its integral role in the manufacturing process.
4. Department’s Counterarguments: The article discusses the counterarguments presented by the department, which contend that the MTF does not align with the definition of a factory under the Central Excise Act.
5. Analysis of CESTAT’s Decision: The analysis delves into the CESTAT’s decision, considering precedents and key legal principles related to the eligibility of capital goods for CENVAT credit.
6. Precedents and Legal Principles: This section explores relevant case laws and legal principles that influenced the CESTAT’s decision, including the definition of a factory and the integral nature of certain processes in manufacturing.
7. Conclusion of the Case: The conclusion summarizes the key findings of the case and the decision made by the CESTAT Chennai, which sets aside the demand and allows the appeals.
8. Conclusion: The case of Chemplast Sanmar Ltd. vs. Commissioner of GST & Central Excise, as heard by CESTAT Chennai, underscores the importance of considering the integral nature of certain processes in manufacturing when determining eligibility for CENVAT credit. The article provides a detailed analysis of the case, including the arguments presented by both parties and the legal principles applied by the tribunal.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that the appellants are engaged in the manufacture of Polyvinyl Chloride Resin and are registered with the Central Excise Department. They are availing the facility of CENVAT credit of duty paid on inputs, capital goods and service tax paid on input services. The appellants have a Marine Terminal Facility (MTF) which comprises of jetty in the middle of the sea, which is an operating platform, berthing dolphins, mooring dolphins etc. along with an unloading arm to unload Vinyl Chloride Monomer bulk cargo from the ship. Show Cause Notices were issued to the appellant to recover CENVAT credit taken on capital goods installed / laid in the MTF area alleging that there is no interlinking of the manufacturing process of the factory and jetty (MTF). After due process of law, the original authority confirmed the demand, interest and penalties. On appeal, Commissioner (Appeals) upheld the same. Hence these appeals.
3. The learned counsel Smt. Radhika Chandrasekar appeared and argued for the appellant. It is submitted that the jetty is located in MTF area and MTF is the facility constructed for receiving liquid raw materials from ship. It involves facilities for receiving goods from ships, unloading of cargo and transferring of cargo through a pipeline to the storage facility which is located inside the plant on shore. The appellant had also acquired considerable land areas for laying the pipeline from the MTF to their factory. The entire stretch of land through which the pipelines are laid except the public land like the road and river has been purchased by the appellant. They have necessary permission from the PWD also. The Ministry of Environment and Forest has accorded their approval and clearance for setting up MTF and pipelines which proves beyond doubt and substantiate that without the MTF the factory cannot be functional. The MTF is an integral part and parcel of the whole manufacturing facility without which the appellant is not able to run the factory. The appellant has a pipeline up to certain point of the sea where the ship unloads the imported ethylene. From that point, the ethylene is transferred to the offshore tank. The capital goods in the MTF are necessary for receiving the goods from ships, unloading of cargo, transferring of cargo through pipeline to the storage facility located on the shore. The MTF pipeline are inevitable and integral part of the plant without which the raw material, Vinly Chloride Monomer (Inputs brought in bulk in ships) cannot be brought into the factory for use in manufacture. The learned counsel submitted that in the appellant’s own case, the issue was considered vide Final Order No. 40268/2018 dated 1.2.2018 and the Tribunal has held the issue in favour of the appellant. Similar view was taken in the case of Final Order No. 41217 to 41219/2018 dated 14.3.2018. The learned counsel prayed that the appeals may be allowed.
4. The learned AR Shri Rudra Pratap Singh appeared and argued for the department. It is submitted that the MTF does not come within the definition of factory as defined under sec. 2(e) of the Central Excise Act, 1944. MTF is not connected with the shore and it is very far away. The department has correctly denied the credit availed on capital goods in regard to the MTF. It is also argued that the decision of the Tribunal in Finolex Industries Ltd. Vs. CCE, Pune – 2003 (156) ELT 96 (Tri.) which was relied by the Tribunal in the appellant’s own case is not applicable to the facts of the case for the reason that in the said case jetty was connected with the shore whereas in the present case MTF is almost three kilometers away from the shore. The learned prayed that the appeal may be dismissed.
5. Heard both sides.
6. The issue is whether the capital goods installed / laid in the MTF area is eligible for credit. In the appellant’s own case, the very same issue was considered and the relevant portion is reproduced below:-
“6. We note that the appellant have put up jetty and connected facilities in the sea near Karaikal Port only to facilitate the receipt and transfer of their essential raw materials ethylene to bring it to the factory for further manufacture. Apparently, such handling and receipt of essential raw materials is to be considered as part of Integral manufacturing process. We note that similar dispute came before the Hon ‘ble Bombay High Court in the case of Reliance Industries Ltd. reported in 2017- TIOL-1630-HC-MUM-CX. The Hon’ble High Court after Extensively analyzing various decided case laws including the decision of the Hon’ble Supreme Court in the case of Jawahar Mills Ltd. -2001 (132) ELT 3 (SC) and Jayaswal Neco Ltd. Vs. Commissioner of Central Excise, Ralpur – 2015-TIOL-70-SC-CX held that single point mooring system along with connected equipment like anchor chain, piles on pipes, offshore services etc. are eligible for credit as capital goods, as these are connected to the receipt of raw materials essential for manufacturing process. In the said dispute also, the single point mooring system was installed for discharge and transport of liquid cargo used as a raw material.
7. The Hon’ble Supreme Court in Jayaswal Neco Ltd. (supra) referred to principle laid down in J. K. Cotton Spinning and Weaving Mills Co. Ltd. 2002-TIOL-116-SC-CT-LB to allow credit on railway track materials which are used for carrying materials and finished goods for the assessee. The principle laid down in J.K. Cotton Spinning and Weaving Mills Co. Ltd. (supra) is that where any particular process is so integrally connected with production of goods that but for that process, manufacture or processing of goods would be impossible or commercially inexpedient, goods required in that process would fall within the expression “In the manufacture of goods”.
8. We also note that the Tribunal in Finolex Industries Ltd. Vs. Commissioner of Central Excise, Pune – 2003 (156) ELT 96 (Tri.) examined a similar dispute and held that the jetty put up by the appellant was part of the premises and the same should be considered as falling within the scope of section 2(e) “factory” as defined under the Central Excise Act, 1944.
9. Based on the analysis of various case laws as discussed above, we find that denial of credit in the present case is not legally sustainable. The impugned order is set aside and the appeal is allowed with consequential relief, if any.
10. The miscellaneous application filed for change of cause title of the name of the respondent to Commissioner, GST & Central Excise, Puducherry is allowed.”
7. By judicial discipline, following the above decision, we are of the considered opinion that the demand cannot sustain and requires to be set aside. In the result, the impugned orders are set aside. The appeals are allowed with consequential relief, if any, as per law.
(Pronounced in open court on 12.09.2023)