Agarwal Foundries Pvt Ltd Vs Commissioner of Customs & Central Excise (CESTAT Hyderabad)
CESTAT Hyderabad held that CENVAT Credit on inputs used for fabrication of capital goods like pollution control equipment, heating furnace, casting machine, coating machine, chimney, rolling machine, reheating machine, control panel, etc. is eligible.
Facts- The issue involved in this Appeal is whether the Appellant, MS Agarwal Foundries Pvt Ltd, have rightly taken Cenvat credit on various items of MS steel etc., utilized in fabrication of capital goods like pollution control equipment, heating furnace, casting machine, coating machine, chimney, rolling machine, reheating machine, control panel, etc., during the period December, 2005 to March, 2010.
Conclusion- Held that with the introduction of Cenvat credit rules 2004, capital goods as defined in rule 2(a)(A) of CCR includes items like pollution-control equipment, storage tank which are practically immovable. Thus, the concept of movable or immovable for allowing credit have been done away with. We further find Rule 2(K) of CCR entitles a manufacturer to take credit of all items/goods received in the factory of production whether forming part of the finished product or not. Even inputs received for fabrication of capital goods are also entitled for Cenvat credit. Only condition is that such fabricated capital goods should have been used in the production of dutiable finished goods. There is no such dispute raised in the SCN that the capital goods fabricated by the Appellant out of the inputs have not been used for manufacture of dutiable finished goods.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
The issue involved in this Appeal is whether the Appellant have rightly taken Cenvat credit on various items of MS steel etc., utilized in fabrication of capital goods like pollution control equipment, heating furnace, casting machine, coating machine, chimney, rolling machine, reheating machine, control panel, etc., during the period December, 2005 to March, 2010.
2. The brief facts are that the Appellant is involved in the manufacture of TMT bars and MS billets. The Appellant is duly registered with the Department and clearing the finished goods on payment of appropriate excise duty. The Appellant avails Cenvat credit on inputs, input services and capital goods under Cenvat Credit Rules, 2004 (CCR). On verification of records for the period from December 2005 to March 2010, it was observed by the Department that the Appellant has availed credit on MS items which appeared to revenue as ineligible credit availed on capital goods.
3. During the period August, 2008 to March, 2010, there was a series of correspondence by the Department and replies filed by the Appellant/ Assessee wherein, the details of Cenvat credit taken as requested by the Revenue was furnished by the Appellant/Assessee. Thereafter, vide letter dated 01.04.2010, the Range Superintendent directed the Appellant to reverse the Cenvat credit for an amount of Rs.1,67,19,152/-. In response, the Appellant reversed the Cenvat credit for the said amount under intimation to Revenue, vide letter dated 07.04.2010. The Appellant was under firm belief that they were entitled to Cenvat credit and accordingly, submitted representation to the Assistant Commissioner providing details of usage of inputs/MS items along with the supporting invoices and also gave details of utilization in the fabrication of capital goods/ plant and machinery being letters dated 15.06.2010, 21.07.2010, 08.10.2010 and 20.10.2010. As the Appellant did not hear anything from the Revenue, it accordingly took back the credit of amount of Rs.1,62,60,467/- (reduced amount except on PCS Poles & cement) in the Cenvat Register and submitted intimation to that effect to the Assistant Commissioner by letter dated 01.11.2010.
4. Revenue issued SCN dated 04.01.2011 invoking extended period of limitation, as it appeared to Revenue that during the period December, 2005 to March, 2010, the Appellant has taken Cenvat credit wrongly on the goods falling under Chapters 72, 73, 25, 6807, 38, 39 and Chapter 8415 as detailed in the Annexure to the SCN in contravention of Provisions of Rule 3(1) read with Rule 2(a)(A) (capital goods) of CCR, 2004. Further taken notice that the said amount of Cenvat credit has been utilized for the payment of duty on final products, though the Appellant is liable for disallowance of credit under provisions of Rule 14 of CCR read with Proviso to Sec 11A(1) of the Act. Further penalty was proposed under Rule 15 of CCR read with Sec 11AC of the Act. The SCN proposed to deny the amount of credit of Rs.1,67,63,105/- which was originally taken and also proposed to deny the recredit taken after reversal of Rs.1,62,60,467/- along with interest and penalty.
5. The SCN was adjudicated vide OIO dated 07.12.2011 on contest, whereby the Commissioner disallowed the Cenvat credit taken of Rs.1,67,63,105/- under Rule 14 of CCR and appropriated the same with the equivalent amount of reversal. Further ordered recovery of Rs.1,62,60,467/-unauthorizedly taken by the Appellant subsequent to the reversal made, along with interest and further equivalent penalty was imposed under Rule 15 of CCR read with Sec 11AC of the Act.
6. Being aggrieved, the Appellant had in the earlier round preferred an Appeal before this Tribunal being Appeal No. E/595/2012 and this Tribunal vide Final Order No. 27222/2013 dated 30.12.2013 allowed the Appeal by way of remand by observing as follows:
“5.1 The short question for decision in this case is whether the iron and steel items procured by the Appellant, on which they availed credit was used in the manufacture of capital goods, pollution control equipment or as packing material or in the construction of storage tank or they were used as supporting structures for the capital goods as concluded by the Revenue. It is the contention of the appellant that they have documentary evidence in support of their claim that the items on which credit were taken, had been used in the manufacture of capital goods and given an opportunity they would be able to substantiate their claim in this regard. In view of this contention of the appellant, we are of the view that the matter needs to be remitted back to the adjudicating authority for fresh consideration.
5.2 In view of the above analysis, we set aside the impugned order and remand the matter back to the adjudicating authority for decision afresh. We direct the petitioner to produce evidence before the adjudicating authority, to substantiate its claim that the goods on which credit was taken were in fact used as inputs in the manufacture of capital goods, within a period of four weeks from the date of receipts of this order. The appellant is also at liberty to submit written statement of defence asserting any other point in support of its claim for CENVAT credit. Thereafter, the adjudicating authority shall cause verification of the claim of the appellant and pass a speaking order with respect to the entitlement of the appellant to the CENVAT credit.
6. Thus the appeal is allowed by way of remand. The stay petition is also disposed of.”
7. Pursuant to remand, the matter was re-heard and in the course of Hearing, the Appellant filed additional submissions and explanations. Learned Commissioner called for report from the Deputy Commissioner. The Deputy Commissioner submitted the report dated 19.06.2014 to the Commissioner, inter alia, stating that it is contended that MS items were used in fabrication of various capital goods supported by certificate dated 16.02.2012 of Chartered Engineer, which states that Appellant used various inputs to make new and distinct articles/ capital goods and also main equipment. Such capital goods could be dismantled, transported and relocated to another site without any damage to the same. The Range Officer had visited the factory and had submitted the verification report to the effect:-
(i) The Cenvat credit availed on various items appears to be inadmissible under the category of capital goods as the said items were falling under Chapters of CETA (other than specified under Rule 2(a)(A)(i) of CCR).
(ii) Various items like HR Coils/sheets, MS angles/channels/joists/beams cannot be called as components (these being not spares or accessories) and could not be used directly but are subjected to process of coating and welding in fabrication and hence the same are not considered as parts/ components of the capital goods and hence are not covered under Rule 2(a)(A)(iii) of CCR.
(iii) Steel pipes and MS pipes used for movement of water, oil and gas are found to be eligible capital goods as they are explicitly covered under Rule 2(a)(A)(vi) of CCR.
(iv) Explanation 2 given under Rule 2(k) of CCR states that inputs includes goods used in the manufacture of capital goods, which are further used in the manufacture, in the factory. Thus HR Coils, HR Plates, Rough rolls which were used in manufacture or lining of the furnace and the rolls are used in the furnace and rolling mill, are integral parts of their machinery falling under Chapter 84 which are used in the factory, and are the eligible inputs within the meaning of definition of “inputs”.
(v) In respect of other items which were used in the fabrication are not identifiable parts of any capital goods and hence the credit availed on subject inputs is not admissible. Further it appears that the fabrication of items did not result in any new or distinct article or the capital goods themselves, as claimed by the Assessee.
(vi) Further MS beams/joists were found to be used in preparation of stand to support plant and machinery and the inputs used as structure for support of capital goods are excluded as per Explanation 2. Other items like HR coils/ plates/sheets, MS coils/plates/flats used for repair of articles/capital goods are not eligible inputs that were used in repair and maintenance activity.
(vii) Cenvat credit is available in respect of steel pipes and MS pipes used for movement of water, oil and gas and on HR Coils/plates, rough rolls, etc., which have been used for the purpose of patching/repair of the furnace, rolls used in furnace and rolling mill.
8. The Deputy Commissioner further observed that the Chartered Engineer who certified the use of MS items in the manufacture of capital goods was addressed to furnish the documents on which the report was based. In reply, the Chartered Engineer stated that he issued certification after due verification of invoices and drawings furnished by the Assessee and they have not furnished any other documents. Further observed that the Certificate of Chartered Engineer is not flawless and only on verification of invoices and drawings only establishes the manufacture of capital goods in general, but it does not signify the manufacture of capital goods in question out of the same inputs in the absence of factory records. Thus, Deputy Commissioner found that Cenvat credit was not admissible in its entirety.
9. The Commissioner passed the Re-adjudication Order being OIO dated 17.07.2014, framing the issues as follows:
(a) Whether or not the noticee are eligible for credit totalling Rs.1,67,63,105/- availed on the following items as capital goods:
(i) MS Channels, MS Beams, TMT Bars, HR Coild, MS Joists, HR Sheets, HRC Plates etc., falling under Chapter 72 of the first schedule to CETA, 1985 involving credit of Rs.1,58,58,360/-
(ii) PSC Poles/Cement falling under Chapter 68 & 25 of the first schedule of CETA, 1985 involving credit of Rs.23,049/- and Rs.3,42,802/-respectively.
(iii) Firecrete normal falling under Chapter 38 of the First schedule to CETA, 1985 involving credit of Rs.1,493/-
(iv) Water Tank falling under Chapter 39 of the First schedule to CETA, 1985 involving credit of Rs.387/-
(v) Window Air-Conditioner falling under Chapter 84 of the First schedule to CETA, 1985 involving credit of Rs.9,337/-
(vi) Steel Tubes/Pipes etc., falling under Chapter 73 of the First schedule to CETA, 1985 involving credit of Rs.5,27,677/-
(b) Whether the noticee were correct in suo-moto taking credit back of Rs.1,62,60,467/- vide entry No.160 dated 01.11.2010 of their RG23C Part II, already debited by them, accepting the same to be ineligible.
10. Learned Commissioner was pleased to disallow an amount of Rs.1,63,95,568/- as Cenvat credit irregularly availed and ordered its recovery under Rule 14 of CCR and also ordered appropriation against the amount already reversed. Further held that the Appellant has erred in taking re-credit of Rs.1,62,60,467/- suo-moto which is unauthorized and accordingly, the same is fit to be recovered under Rule 14 of CCR. Further interest was demanded and equal amount of penalty of Rs.1,63,95,568/- was imposed under Rule 15(2) of CCR read with Sec 11AC of the Act. Learned Commissioner also observed that Appellant seems to be under mistaken notion that their responsibility ceased the moment they file the statutory returns, and it is the onus of the Revenue to verify whether credit taken is admissible or not. However, the primary responsibility is cast on the Assessee to avail credit only to the extent they are eligible. He relied on the allegation of SCN that the fact of availing Cenvat credit could be gathered only on detailed verification of records of the Assessee. From the returns, by no stretch of imagination can the department know the exact usage of the goods in question, notwithstanding the report of the audit parties, who are expected to conduct audit of the records and accounts on selective basis.
11. Assailing the Impugned Order, learned Counsel for the Appellant, inter alia, urges that readymade plant and machinery is not available for steel factories engaged in manufacture of TMT bars and MS billets. The same are fabricated at the site after procuring various inputs of iron, steel, etc., which fall under Chapter 72 & 73 of CETA. Such items are utilized in the factory premises for fabrication, inter alia, including processes like cutting, shaping, trimming and turning, without which the fabrication of such capital goods like furnace, rolling mill, support structures for furnace, control panel, trolley for transport of goods within the factory, cannot take place. The trolleys are moved on rails which are installed on the shop floor of the factory.
12. Learned Commissioner has erred in observing that various items of plant and machinery are embedded to earth and attained the character of immovable property, and they are no longer goods. Relying on the Larger Bench ruling of this Tribunal in Vandana Global Ltd vs CCE, Raipur [2010 (253) ELT 440 (Tri-LB)], Commissioner also observed that MS items used for repair and maintenance of plant and machinery are neither capital goods nor inputs. The Appellant has furnished details of usage of inputs in question and utilization in the capital goods with details of Cenvat credit involved as follows:
