Case Law Details
Commissioner Customs & Central Excise, Rajkot Vs Nayara Energy Limited (CESTAT Ahmedabad)
Conclusion: Interest was not leviable by Commissioner under Cenvat Credit rules as Commissioner, on his own, examined as to whether assessee was eligible to avail and utilize CENVAT credit under rule 11 or rule 3(2) of the 2004 Credit Rules however, assessee had not made any such claim for availing the credit. It was, therefore, not possible to uphold the order passed by Commissioner.
Held: In the instant case, the refinery project of assessee was expected to start in the year 1998, but it was put on hold and was revived only in the year 2005, after which the manufacturing activities commenced sometimes in the year 2006. Assessee claimed to have availed CENVAT credit in the months of January and February 2010 on steel plates which were used in the fabrication of Storage Tanks. These steel sheets were procured by assessee between November 1997 to December 1998 but the fabrication of the Storage Tanks could be completed only in the year 2007. Assessee had applied for registration before the Excise Department on 08.11.2006, as it had earlier been informed that CENVAT credit could be availed by assessee only after the refinery was setup. Commissioner had accepted the contention of assessee that the eligibility to take CENVAT credit had to be determined in the light of the 2004 Credit Rules. However, even after accepting that prior to the grant of central excise registration there could be no place called factory and that the date of registration had to be construed as the relevant date for deciding eligibility of credit, the Commissioner held that assessee was not eligible to avail CENVAT credit under rule 3(1) of the 2004 Credit Rules as the inputs in question were received prior to 10.09.2004, on which date the said rules came into force. Assessee contended that the Commissioner could not have arrived at this conclusion after having recorded a finding that it was only on the grant of central excise registration that the factory came into existence, which date in the present case, was on 08.11.2006. The show cause notice issued to assessee also stated that the eligibility to take credit was required to be examined in accordance with the 1944 Excise Rules and that assessee had to demonstrate that it had earned the credits under the said rules. However, the Commissioner did not accept this contention and upheld the denial of CENVAT credit on grounds and reasons beyond those urged in the show cause notice. A show cause notice laid down the foundation and the order had to confine itself to the allegations made in the show cause notice. It was held that assessee had explained as to why it could not immediately avail CENVAT credits on Tanks fabricated in the year 2007. It had been stated that the process of collating and mapping the actual quantity of steel plates issued and consumed in the fabrication of Storage Tanks took some time as the goods were received between 1997-1998 and the fabrication work of Storage Tanks was completed only in the year 2007. It was to be noted that under rule 4(1) of the 2004 Credit Rules, it was only in September 2014 that a time limit of 6 months/1 year was prescribed for availing CENVAT credit. The observations made by the Commissioner in the impugned order that declaration was required to be filed under rule 57(G) of the 1944 Excise Rules, was also not relevant as the eligibility of inputs received by assessee in the factory was to tested in terms of the 2004 Credit Rules and not the rule prevalent earlier, namely rule 57(G) of the 1944 Excise Rules. Even otherwise, the receipt of the HR sheets and Steel Plates were covered under the declarations submitted by assessee under the erstwhile rule 57(T) of the 1944 Excise Rules. The Commissioner, on his own, examined as to whether assessee was eligible to avail and utilize CENVAT credit under rule 11 or rule 3(2) of the 2004 Credit Rules. It was to be noted that assessee had not made any such claim for availing the credit. It was, therefore, not possible, for the reasons stated above, to uphold the order passed by the Commissioner.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The order dated 13.04.2012 passed by the Commissioner of Customs and Central Excise, Rajkot1, confirming the demand of CENVAT credit of Rs. 7,56,56,794/- said to have been irregularly availed by Nayara Energy Limited2 (formerly known as Essar Oil Ltd.), with interest under section 11AB of the Central Excise Act, 19443 and penalty in lieu of confiscation, has led to the filing of two appeals.
2. Excise Appeal No. 571 of 2012 has been filed by the Department contending that interest should also have been levied by the Commissioner under rule 14 of the CENVAT Credit Rules, 20044.
3. Excise Appeal No. 601 of 2012 has been filed by the appellant for setting aside the aforesaid order dated 13.04.2012 passed by the Commissioner.
4. The refinery project of the appellant was conceptualized sometimes in the year 1994 and was expected to be commissioned in the year 1998. However, for some reasons, the refinery project was put on hold in the year 1999 and it was only in the year 2004/2005 that it was revived and the manufacturing activities commenced sometimes in the year 2006.
5. The appellant has stated that CENVAT credit of Rs.7,56,56,794/-availed in the months of January and February 2010 on steel plates, which were used for fabrication of Storage Tanks/LPG spheres at the refinery, was denied to the appellant. The said steel plates were procured between November 1997 to December 1998 and the fabrication of the Tanks/LPG spheres could be completed in 2007, as the work for setting up the refinery was suspended from 1999 till 2004-05. The appellant had applied for excise registration in the year 1997 but it was refused by a letter dated 14.02.1997 by the Excise Authorities on the premise that registration can be granted only when the factory is ready for manufacturing the final products. The Department, in its letter dated 21.09.2005, also informed the appellant that it cannot avail CENVAT credit till the setting up of the refinery was completed. The appellant, therefore, applied for registration on 08.11.2006 when the refinery was ready for manufacture of the final products.
6. The appellant thereafter availed CENVAT credit on the steel plates required for manufacture of ‘capital goods’ in its factory as ‘inputs’ in terms of rule 3(1) of the 2004 Credit Rules. According to the appellant, the said credit could be availed only after the fabrication of Tanks/LPG spheres was completed in the year 2007. However, it took some time to collate and map the actual quantity of steel plates issued and consumed in the fabrication of the Storage Tanks/LPG spheres. According to the appellant, it collated grade wise and item wise steel plates made available to the sub-contractors against specific work orders and this was done with the relevant invoices/bills of entry, goods receipt notes and issue slips. It was only when such correlation was complete that the appellant availed the credit. According to the appellant, there was no upper time limit prescribed for availing credit under the 2004 Credit Rules at the relevant time.
7. The appellant was, however, issued a show cause notice dated 09.02.2011. The show cause notice proceeded on the premise that the appellant could not have availed credit under rule 3(1) of the 2004 Credit Rules as, credit could be availed only in respect of the central excise duty paid on ‘inputs’ received in the factory of the manufacturer on or after 10.09.2004, and in the present case, the inputs were received between November 1997 and December 1998. After excluding the eligibility to credit under rule 3(1), the show cause notice refers to rule 11 of the 2004 Credit Rules and mentions that under the transitional provision, a manufacturer can utilize CENVAT credit under the 2004 Credit Rules that was earned under the 2002 Credit Rules as they existed prior to 10.09.2004 and similar transitional provisions under the 2002 Credit Rules if the appellant could demonstrate that it had earned credit under the Central Excise Rules, 19445, as was in vogue at the time of receipt of ‘inputs’. The show cause notice further mentions that:
a) Credit had not been earned under the Excise Rules in as much as the steel plates were used in the manufacture of Storage Tanks which was not specified as eligible ‘capital goods’ under rule 57(Q) of the Excise Rules. It was only w.e.f. 01.03.2001 that the definition of ‘capital goods’ was amended to provide for Storage Tanks as one of the specified capital goods;
b) Under rule 57(G) of Excise Rules, a manufacturer intending to take credit was required to file a declaration with the Assistant Commissioner having jurisdiction over his factory, which was not done in the instant case; and
c) It is only after 01.03.2011 that the definition of ‘inputs’ was amended by inserting Explanation-2 in clause (d) of rule 57(AA) of the Excise Rules to provide that ‘inputs’ would include goods used in the manufacture of ‘capital goods’ further used in the factory of the manufacturer.
8. The show cause notice, after pointing out that credit had not been earned under Excise Rules, also sought to rule out the eligibility of the appellant to avail credit under rule3(2) of 2004 Credit Rules. According to the notice, in terms of the said provision, a manufacturer of final product is allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in final products lying in stock on the date on which the manufacturer ceases to manufacture exempted goods or the goods manufactured by him become exciseable. According to the notice, the appellant was not entitled to credit under rule 3(2) of 2004 Credit Rules as it had failed to establish that the inputs in respect of which it took credit were lying in stock on the date of registration.
9. The show cause notice also alleges violation of rule 9(5) of the 2004 Credit Rules as the appellant had not produced documentary evidence in the form of relevant invoices/records showing receipt, issuance, consumption and proper accounts of inputs on which credit was availed. It further alleges that in terms of rule 4(1) of the 2004 Credit Rules, credit was required to be taken immediately on receipt of the inputs in the factory but in the instant case the same had been availed after 11 years from the date of receipt and 4 years from the date of taking registration.
10. The appellant filed a detailed reply to the show cause notice and denied all the chargers levied against the appellant. The appellant contended that it had rightly availed the CENVAT credit and that neither interest could be charged nor penalty could be imposed.
11. The Commissioner, in the order dated 13.04.2012, accepted the contention of the appellant that its eligibility to avail credit has to be reckoned with respect to the 2004 Credit Rules, as prior to the date on which registration was granted, there was no place that could be called factory. While coming to this conclusion, the Commissioner took cognizance of various authorities which were cited and also the fact that such a finding that the eligibility of the appellant to take credit was to be reckoned under the Rules in vogue on the date on which excise registration was granted had been recorded in the own case of the appellant in the order dated 28.11.2019. The Commissioner also observed that this finding had attained finality as no appeal was preferred by the Department.
12. However, the Commissioner further held that the appellant was not eligible to avail credit under rule 3(1) of 2004 Credit Rules as the ‘inputs’ in question were received prior to 10.09.2004.
13. The findings recorded by the Commissioner in the impugned order are as follows:
“20. I have carefully gone through the case records, Show Cause Notice, written submission and oral submissions made during the personal hearing. The main issue to be decided in this case is whether the Noticee is eligible to take Cenvat Credit on inputs i.e. steel plates received in 1997 and 1998 i.e. much before their taking Central Excise registration in November, 2006 and on which Cenvat credit was taken in the year 2010. The other linked issues, are its recovery, chargeability of interest thereon, confiscation of said steel plates and imposition of penalty upon the Noticee under the various provisions of Central Excise Law.
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22. I have examined the above submissions and find that the gist of judgments referred above is that in case of receipt of goods prior to registration, the date of registration is to be construed as the relevant date for deciding eligibility or otherwise to Cenvat credit as prior to registration, no place could be called “factory” without manufacturing activity.
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24. Since the case on hand and one decided by my predecessor pertains to the same Noticee and involving issue of availment of Cenvat credit on goods received prior to taking registration, I intend to concur with the findings of the said order insofar as they relate to the applicability of a particular set of rules for determining the eligibility to Cenvat credit and hold that the relevant set of rules in this case would be Cenvat Credit Rules, 2004, which were vogue when the Noticee become a Central Excise registrant in November, 2006.
25. Now examining the whole issue in the context of Cenvat Credit Rules, 2004, I find that Rule 3 of Cenvat Credit Rules, 2004 allows taking of the Cenvat credit by a manufacturer or producer of final products of various kinds of duties specified under sub-rule (1) of Rule 3 ibid paid on any inputs received in the factory of manufacturer of final products on or after 10th day of September, 2004. This Rule lays down a cut-off date for receipt of the inputs in the factory of manufacture i.e. 10th day of September, 2004 for determining the eligibility of Cenvat credit.
26. However, sub-rule (1) of Rule 11 of Cenvat Credit Rules, 2004, provides that any amount of Cenvat Credit earned by the manufacturer under Cenvat Credit Rule, 2002 as they existed prior to 10th day of September, 2004 and remaining unutilized on that date shall be allowed as Cenvat credit to such manufacturer and be allowed to be utilized in accordance with these Rules. Likewise, sub-rule (1) of Rule 9 of Cenvat Credit Rules, 2002, provides that any amount of Cenvat Credit earned by the manufacturer under Central Excise Rules, 1944 as they existed prior to 1st day of July, 2001 and remaining unutilized on that date shall be allowed as Cenvat credit to such manufacturer and be allowed to be utilized in accordance with these Rules. Thus, the benefit of these transitional provisions would be available only to a manufacturer registered under Cenvat Credit Rules, 2002 or Central Excise Rules, 1944.
27. In backdrop of above legal provisions, I find that the entitlement of the Cenvat credit to the Noticee on any goods received prior to 10.09.2004 is ruled out in terms of Cenvat Credit Rules, 2004 which is applicable to them as per their own admission and as also held above.
29. ******
First of all by no stretch of imagination, the steel plates can be construed as an input for manufacture of petroleum products. Therefore, the eligibility to Cenvat credit is struck down on this count itself. Even otherwise, it is an admitted fact by the Noticee themselves, that the steel plates received in 1997 and 1998 were no longer in existence or in stock on the date of their taking Central Excise registration in November, 2006 as the same had already been issued or consumed for fabricating storage tanks. Therefore, the steel plates had already been used and converted into something new and in that process, it had lost their identity completely. Therefore, the question of granting any benefit of Cenvat credit to such non existent steel plates even under this stretched interpretation of Rule 3(2) of Cenvat Credit Rules, 2004 does not arise.
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32. The Noticee has also taken a plea that the steel plates were used in fabrication of storage tanks which are capital goods and therefore, the steel plates are eligible for Cenvat credit being inputs for manufacture of capital goods. In this regard, I find that eligibility of any inputs used in the manufacture of capital goods is also governed by same set of rules i.e. Cenvat Credit Rules, 2004, as discussed above. Since it is a fact admitted by the Noticee that these steel plates had been utilized prior to taking their registration, the Cenvat Credit on them is not admissible on the date of their taking registration on account of all the arguments given above even if they were used in the fabrication of capital goods. It will also be not out of place to mention that even such capital goods i.e. tanks lying in stock were not declared to the department as on the date of taking Central Excise registration. Even otherwise, the steel plates had lost their identity and what were lying in stock would have been tanks only. Had they intended to claim any Cenvat credit on tanks, then they should have produced evidence of duty payment on such tanks. However, nothing of that sort has been done. Therefore, the claim on this ground is also liable for rejection.
34. With reference to the charge relating to violation of Rule 4(1) of Cenvat Credit Rules, 2004, I find that the said rule provided for taking Cenvat credit immediately on receipt of inputs. For a new assessee- manufacturer, it can be construed as taking credit at the time of registration or receipt of goods. The word “immediately” connotes a reasonable time gap between the receipt of inputs and taking credit but this time gap has to be reasonable only and cannot be extended up to 13 years from the date of receipt of steel plates and more than 4 years from the date of obtaining Central Excise registration. Therefore, taking of Credit by the Noticee in this case after such a long gap cannot be categorized as reasonable by any standard.
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36.5 In view of my above findings recorded supra, I hold that the said irregularly availed Cenvat Credit of Rs. 7,56,56,794/- is recoverable from the Noticee under the provisions of Rule 14 of Cenvat Credit Rules, 2004 read with Section 11 of Central Excise Act, 1944 along with interest at appropriate rate under Section 11AB ibid.
37. ******
In the present case, I find that it is not shown that goods i.e. steel plates were seized at any point in time and released on bond and bank guarantee and against any form of surety and security. Therefore, the question of actual confiscation thereof and imposition of redemption fine in lieu of confiscation would not arise. Accordingly, I refrain from imposing any redemption fine on the steel plates under consideration. However, as already discussed above, the Noticee have taken Cenvat credit wrongly and in contravention of the provisions of Cenvat Credit Rules, 2004, therefore, I find that they are liable for penalty under Rule 15(1) of Cenvat Credit Rules, 2004.
(emphasis supplied)
14. The gist of the findings of the Commissioner in the aforesaid order dated 13.04.2012 are as follows:
i. The appellant would be governed by the provisions of the 2004 Credit Rules, which were in force when the applicant was granted registration in November 2006;
ii. Rule 3(1) of the 2004 Credit Rules permits taking of CENVAT credit paid on any inputs received in the factory of manufactures of final products on or after the 10th day of September, 2004, but rule 11(1) provides that any amount of CENVAT credit earned under 2002 Credit Rules and remaining unutilized on that day shall be allowed as CENVAT credit. Similarly rule 9(1) of the 2002 Credit Rules provides that any amount of CENVAT credit earned under the 1944 Excise Rules, remaining unutilized shall be allowed as CENVAT credit. However, the benefit of these transitional provisions would be available only to a manufacturer registered under the 2002 Credit Rules or the 1944 Excise Rules. Thus, the appellant would not be entitled to CENVAT credit on any goods received prior to 10.09.2004;
iii. Steel plates cannot be construed as ‘input’ for manufacture of petroleum products. Even otherwise, these steel plates that were received in 1997/1998 were no longer in existence in stock on the date central excise registration was taken in November 2006 as the same had already been consumed for fabricating Storage Tanks. Therefore, CENVAT credit cannot be granted even under rule 3(2) of the 2004 Credit Rules;
iv. Steel plates used in fabrication of Storage Tanks cannot be turned as ‘capital goods’;
v. Rule 4(1) of the 2004 Credit Rules provides for taking CENVAT credits immediately on receipt of inputs, but in the present case credit was taken after a long gap which cannot be said to be reasonable;
vi. The goods cannot be confiscated and, therefore, redemption fine cannot be imposed; and
vii. As the appellant had taken CENVAT credit wrongly in contravention of the provisions of the 2004 Credit Rules, it would be liable for penalty under rule 15(1) of the 2004 Credit Rules.
15. The Department has filed an appeal alleging that interest should also have been levied by the Commissioner under rule 14 of the 2004 Credit Rules.
16. Shri Vipin Jain, Shri Vishal Aggarwal and Ms. Dimple Gohil learned counsel appearing for the appellant, made the following submissions:
i. The Commissioner has traversed beyond the scope of the allegations levelled in the show cause notice and has upheld the denial of CENVAT credit on grounds and reasons beyond those urged in the show cause notice. To support this contention, reliance has been placed on the judgments of the Supreme Court in Commissioner of C.Ex., Nagpur Ballarpur Industries Ltd.6 and Commissioner of Customs, Mumbai vs. Toyo Engineering India Limited7;
ii. The finding recorded in the impugned order that steel plates cannot be considered as ‘inputs’ for the manufacture of petroleum products is without any basis. Not only has the impugned order gone beyond the scope of the allegations made in the show cause notice, but even otherwise the definition of ‘inputs’ in rule 2(k) of the 2004 Credit Rules is wide enough to cover any goods required for the manufacture of the final product. In this connection reliance has been placed on the decision of a Larger Bench of the Tribunal in Union Carbide India Ltd. vs. Collector of C.Ex., Calcutta-I8;
iii. The Commissioner committed an error in holding that CENVAT credit was not admissible for the reason that steel plates were not in existence on the date central excise registration was taken in November 2006. It is not necessary that the goods on which credit is availed should be received in the same form as on which the duty is paid. Reliance has been placed on the decisions of the Tribunal in Essar Oil Ltd. Commr. of Central Excise & Service Tax, Rajkot9 and Beico Industries Pvt. Ltd. vs. Commr. of C. Ex. & Service Tax, Vapi10;
iv. The Commissioner committed an error in holding that the appellant had not furnished details of inputs in stocks, even though the same had been requested by letter dated 22.02.2007;
v. The Commissioner committed an error in holding that the appellant had not discharged the burden of proof cast upon it under rule 9(5) of the 2004 Credit Rules;
vi. The Commissioner committed an error in holding that CENVAT credit should have been availed by the appellant under rule 4(1) of the 2004 Credit Rules immediately upon the receipt of the ‘inputs’ in the factory. The decisions of the Tribunal in Coromandel Fertilizers Ltd. Commr. of C.Ex. (A), Vishakhapatnam-IV11 and Steel Authority of India Ltd. vs. Commissioner of C.Ex., Raipur12 have been relied upon;
vii. The Commissioner committed an error in holding that the appellant was not eligible to avail and utilize credit under rule 11 or rule 3(2). The appellant had not made any claim for credit under rule 11 or rule 3(2);
viii. The Commissioner erred in imposing equivalent penalty under rule 15(1) of the 2004 Credit Rules as penalty could have been imposed only if credit was taken wrongly in contravention of the provisions of the 2004 Credit Rules; and
ix. The contention of the Department in the appeal filed by it that the Commissioner should also have ordered recovery of interest under rule 14 of the 2004 Credit Rules is not tenable as the said rule can be invoked only when CENVAT credit has been taken or utilized wrongly.
17. Shri S.N. Gohil, learned authorized representative appearing for the Department has however, supported the impugned and submitted that the Commissioner should have also ordered for recovery of interest under rule 14 of the 2004 Credit Rules. The submissions are:
i. It is not correct to suggest that the impugned order has travelled beyond the show cause notice. The show cause notice proposed denial of CENVAT credit on the basis of violation of the erstwhile CENVAT Credit Rules and the adjudicating authority has given a reasoned Order on the admissibility of CENVAT credit of inputs as well as failure to take the credit within a reasonable period of limitation;
ii. The declaration filed under rule 57(T)(1) of the 1944 Excise Rules are not relevant as the dispute in the present case is regarding credit of inputs and for availing the credit of MODVAT Declaration under rule 57(G) of the 1944 Excise Rules;
iii. Even in regard to declarations made under rule 57(T)(1) of the Excise Rules 1944, the Department had made a remark that they have not been accepted;
iv. Once the duty was paid, the appellant was eligible to take credit under rule 4(1) of the 2004 Credit Rules but it did not take the credit immediately or even within a reasonable period of time;
v. Storage Tanks is not included in ‘capital goods’, as per the definition of ‘capital goods’ in the erstwhile rule 57(Q) of the Excise Rules 1944 and was included only by the Notification dated 01.03.2001; and
vi. The adjudicating authority should have also invoked rule 14 of the 2004 Credit Rules for charging interest.
18. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the Department have been considered.
19. It is not in dispute that though the refinery project of the appellant was expected to start in the year 1998, but it was put on hold and was revived only in the year 2005, after which the manufacturing activities commenced sometimes in the year 2006. The appellant claims to have availed CENVAT credit in the months of January and February 2010 on steel plates which were used in the fabrication of Storage Tanks. These steel sheets were procured by the appellant between November 1997 to December 1998 but the fabrication of the Storage Tanks could be completed only in the year 2007. The appellant had applied for registration before the Excise Department on 08.11.2006, as it had earlier been informed that CENVAT credit could be availed by the appellant only after the refinery was setup.
20. The Commissioner has accepted the contention of the appellant that the eligibility to take CENVAT credit has to be determined in the light of the 2004 Credit Rules. However, even after accepting that prior to the grant of central excise registration there could be no place called factory and that the date of registration has to be construed as the relevant date for deciding eligibility of credit, the Commissioner held that the appellant was not eligible to avail CENVAT credit under rule 3(1) of the 2004 Credit Rules as the inputs in question were received prior to 10.09.2004, on which date the said rules came into force. The Commissioner could not have arrived at this conclusion after having recorded a finding that it is only on the grant of central excise registration that the factory comes into existence, which date in the present case, is on 08.11.2006.
21. The show cause notice issued the appellant also stated that the eligibility to take credit was required to be examined in accordance with the 1944 Excise Rules and that the appellant had to demonstrate that it had earned the credits under the said rules. However, the Commissioner did not accept this contention and upheld the denial of CENVAT credit on grounds and reasons beyond those urged in the show cause notice. A show cause notice lays down the foundation and the order has to confine itself to the allegations made in the show cause notice. This was observed by the Supreme Court in Ballarpur Industries Ltd. and Toyo Engineering India Limited.
22. In Ballarpur Industries Ltd., the Supreme Court observed:
“21. *******
It is well settled that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. If there is no invocation of Rule 7 of the Valuation Rules 1975 in the show cause notice, it would not be open to the Commissioner to invoke the said rule.”
23. In Toyo Engineering India Limited., the Supreme Court observed:
“16. *******
These grounds did not find mention in the show cause notice as well. The Department cannot be travel beyond the show cause notice.”
24. The Commissioner also observed that steel plates cannot be considered as ‘inputs’ for the manufacture of petroleum products. This is also not only beyond the scope of the allegations made in the show cause notice, but even otherwise cannot be accepted in view of the definition of ‘inputs’ in rule 2(k) of the 2004 Credit Rules. A perusal of the definition would indicate that ‘inputs’ has been defined to mean all goods used in or in relation to the manufacture of final products. In view of this expansive definition, ‘inputs’ would include any goods required for manufacture of the final product. It cannot be doubted that in a refinery, manufacturing operations cannot be undertaken till Storage Tanks are fabricated as all the raw materials, intermediate products and the finished goods are required to be stored in such tanks. In this connection it would be appropriate to refer to the decision of the Supreme Court in Collector of Central Excise vs. Solaris Chemtech Limited13, wherein the expression ‘in the manufacture of goods’ has been held to cover the entire process of converting raw material into finished goods and that the use of the expression ‘in relation to’ results in widening and expanding the scope, meaning and content of the expression ‘inputs’ so as to cover goods used not only for the mainstream manufacturing but also to something which is used for rendering the final product marketable or something used otherwise in the manufacturing process.
25. The Commissioner also committed an error in holding that CENVAT credit was not admissible for the reason that the steel plates were not in existence on the date the central excise registration was granted in November 2006, since by that time they had been consumed in fabrication of the Storage Tanks. There is no requirement that the goods on which credit is being availed should be received in the same form as on which the duty has been paid. There is no provision in the Rules which denies CENVAT credit merely on the ground that the form in which the goods were received was different. 26. In this connection, reference can be made to the decision of the Tribunal in Beico Industries Pvt. Ltd. The relevant paragraphs are reproduced below:
2. The relevant facts that arise for consideration are the appellant herein had availed Cenvat credit of the central excise duty paid on certain capital goods and service tax on input services which were received prior to the date of obtaining central excise registration i.e. 22-8-2007. Revenue authorities were of the view that as the appellant was not registered with the central excise department under Rule 9 of the Central Excise Rules, 2002, they were not eligible to avail the Cenvat credit of duty paid on capital goods and service tax paid on input services. *******
6. The issue involved in these two appeals is very short, inasmuch as whether the assessee appellant herein is eligible to avail the Cenvat credit of the duty paid on capital goods and Service Tax paid on input services which were used/consumed for the construction of the factory or otherwise.
7. Undisputed facts are appellants are manufacturing excisable goods and are discharging appropriate central excise duty for which purpose they setup a new plant at the Silvasa and prior to setting up of the new plant he procured capital goods and input services for erection, installation and commissioning of these capital goods.
8. Adjudicating authority has come to the conclusion that the eligibility to credit is not the issue, but it has been denied on the ground that assessee cannot avail the Cenvat credit as manufacturer until they get themselves registered as a manufacturer. We find that the adjudicating authority has completely misdirected himself in coming to a conclusion relying upon Rule 9 of the Cenvat Credit Rules, 2002 to hold that the appellant assessee herein is not a manufacturer as per the provisions of central excise law till he got registration certificate.
9. While trying to deny the Cenvat credit to the appellant on this ground, we find that the adjudicating authority has taken a diagonally opposite direction, as against the principles of the reducing the cascading effect of taxes. It is a common sense that unless a factory is setup, trial runs are taken, an assessee will be unable to manufacture excisable products. The entire exercise of the assessee for setting up of factory is for manufacturing excisable goods which can be done so only when he erects, installs and commissions the capital goods with the help of various agencies. In the case in hand, we find that there is no dispute that appellant has received the capital goods and the input services, utilized them for setting up the manufacturing facilities. To deny credit of the central excise duty paid and Service Tax paid, would be travesty of justice, more so when the assessee herein is discharging appropriate excisable duty on the finished goods cleared after taking the registration certificate. *******”
27. In Essar Oil Ltd., the Tribunal allowed CENVAT credits on ‘inputs’ such as enamels, paints, polyester resins, electrodes and chemicals which were used/consumed during the installation/erection or setting up of the factory.
28. The Commissioner also held that the appellant had not furnished details of inputs in stock even though, the same details were requested in the letter dated 22.02.2007.
29. What was required to be made available by the said letter were copies of all duty paying documents such as invoices, Bills of Entry on which MODVAT credit had been availed. The appellant was also asked to submit stock of inputs on which credit was availed as on the date of registration. According to the appellant, the information that was sought was, therefore, in the context of credit availed in the month of November 2006. These details were furnished by the letter dated 02.04.2007. The appellant had not availed credit on steel plates at that point of time and, therefore, no adverse inference can be drawn on that basis.
30. The Commissioner also observed that the appellant did not discharge the burden of proof required under rule 9(5) of the 2004 Credit Rules regarding receipt, consumption and utilization of inputs.
31. The appellant has contended that this finding is incorrect, as by letter dated 08.02.2011, detailed worksheets with relevant documents regarding receipt, consumption and utilization of steel plates in the fabrication of Storage Tanks had been provided. The reply dated 08.02.2011, sent by the appellant is reproduced below:
“Date: February 8, 2011
The Superintendent of Central Excise,
AR-IV, Laxmi Nivas, 3,
Mangal Park,
Gurudwara Road,
Jamnagar – 361 008
Dear Sir,
Sub: Cenvat Credit availed in the month of January’ 2010 & February 2010
Ref.: Your letter F. No. AR-IV/EOL/Er-1’s/10-11 dated 04.02.2011 & 07.02.2011
Kindly refer to the above letters wherein we have been directed by your office to furnish necessary documentary evidence to justify our claim for availing Cenvat Credit during Jan and Feb’ 2010 on the Invoices of 1997 & 1998.
As stated earlier vide our letter dated 13.01.2011, the task of collecting and co-relating the data for the actual quantity of steel plates issued and consumed in the fabrication activity of tanks have taken considerable time as the information/ documents were required to be collated from the old records as the construction activity of the storage tanks was kept on hold for 6 to 7 years since the total refinery project had passed through difficult times. This was also necessary as in most of the cases the contractors returned the balance material left out with them to the warehouse after the fabrication activity was completed.
Further, we wanted to ensure that credit is availed only on the quantity of steel plates consumed in the fabrication of storage tanks and this could not have been done prior to completion of fabrication activity.
We are enclosing details of the credit availed by us in January 2010 and February 2010 as below:-
01. Statement of Cenvat Credit availed during January 2010 on Steel plates imported during 1997-1998. We have also mentioned the exact quantity in MTs imported at the material point of time. The said information was furnished to your office along with ER-1. The same is attached again & marked as Annexure – A
02. Statement of Cenvat Credit availed during February 2010 on Steel plates procured indigenously during 19971998. The statement also reflects the Grade Wise / Item Wise details for material received against each Invoice and the same is attached as Annexure – B
03. Summary of Cenvat Credit availed Grade Wise / Item Wise on indigenous items procured and consumed. The same is marked as Annexure – C
Also, we wish to place on record the following documentary evidence obtained & reconciled before availment of Cenvat Credit to ensure that the Cenvat credit was availed only on the quantum of Inputs issued and consumed in the fabrication activity.
04. Statement of Grade Wise / Item Wise issues against respective Work Orders for fabrication of Tanks and marked as Annexure-D
05. Statement of Item wise material retuned by the Contractor against respective Work order and marked as Annexure – E
06. Consolidated statement of Grade wise material showing net quantity consumed by the Contractor for fabrication of Storage Tanks. The quantum of net material consumed is after deducting the balance material returned by the Contractor from the issues made originally for fabrication of Tanks. The same is marked as Annexure – F
07. Statement of Grade wise Indigenous Steel plates received, consumed for fabrication and accounted for availment of Cenvat Credit. Here we wish to state that though the actual consumption of indigenous Steel Plates is approx. 45000 MT, we could avail cenvat credit only to the extent of 16500 MT’s as we could not correlate with the documents. We would also like to mention that this exercise was carried out to ensure that cenvat credit is availed only on the quantum of material used in the above activity and against supporting duty paying documents. The statement attached herewith is marked as Annexure – G
08. We are attaching herewith all copies of Bills of Entry on which cenvat credit is availed, Packing List, Goods Receipt Note & Issue slips indicating that the imported steel plates have actually been received & issued for fabrication of Storage Tanks & these are installed in the refinery. As the documents are in bulk and are kept bound, we have attached specimen copies of GRN’s along with copies of Excise Invoices evidencing the receipt of indigenous Steel plates in our refinery premises. The entire set of documents is marked as Annexure H to this letter. However all the original invoices may be verified at our refinery site by your good-self or any other officer deputed for this purpose.
We also wish to add that although the cenvat credit is availed only on the quantity consumed in the fabricated tanks, we have been paying excise duty on all the Steel Scrap generated out of the fabrication process.
We trust the matter stands clarified, Receipt of this letter may please be acknowledged.”
32. The submission of this letter has not been denied by the Commissioner nor the correctness of the facts stated therein have been denied and it is only in a cursory manner, that a finding has been recorded that the appellant did not discharge the burden of proof. The Commissioner, therefore, committed an error in so concluding.
33. The Commissioner also observed that CENVAT credit should have been availed by the assessee under rule 4(1) of the 2004 Credit Rules, immediately upon the receipt of the inputs in the factory.
34. It would, therefore, be appropriate to reproduce rule 4(1) of the 2004 Credit Rules and it is as follows:
“Rule 4. Conditions for allowing CENVAT credit. – (1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of input service.”
35. In the context of rule 57AC of the Central Excise Rules, the Central Board of Excise and Customs had issued a Circular dated 29.08.2000, clarifying as follows:
“10. Rule 57AC provides that CENVAT credit may be taken immediately on receipt of inputs in the factory. Some apprehensions have been expressed that if the CENVAT credit is not taken “immediately”, like within 24 hours or so, the field officers may deny the CENVAT credit. The idea is that if the manufacturer desires he can take the CENVAT credit at the earliest opportunity when the inputs are received in the factory. This, however, does not mean, nor is it even intended that if the manufacturer does not take credit as soon as the inputs are received in the factory, he would be denied the benefit of CENVAT credit. Such an interpretation is not tenable.”
36. A Division Bench of the Tribunal in Coromandel Fertilizers Ltd., did not accept the view taken by the Department that credit cannot be availed after lapse of three to seven years of receipts of inputs in the factory, more particularly when the rules do not prescribe any outer time limit. The relevant paragraphs of the decision are reproduced below:
“5. The learned Departmental Representative reiterated the impugned order.
6. We have gone through the records of the case carefully. The entitlement of credit on the fuel is not under dispute. The only objection is that whether the credit can be availed after a lapse of 3 to 7 years of receipts of inputs in the factory. Even though, the rule say that the credit may be taken immediately, it is true that no outer time limit has been prescribed. The Revenue’s contention is that within reasonable time, the appellant ought to have availed the credit. It has been held by the Apex Court in the case of CCE, Jaipur v. Raghuvar (India) Ltd. reported in 2000 (118) E.L.T. 311 (S.C.) that any law or stipulation prescribing a period of limitation to do or not to do a thing after the expiry of period so stipulated has a consequence of creation and destruction of right and therefore specifically enacted and prescribed therefore. It is not for the course to import any specific period of limitation by implication where there is really none. The Tribunal in the case of Bharat Heavy Electricals v. CCE, Chennai reported in 2000 (122) E.L.T. 256 (Tri.) held that when there is no time limit prescribed, time limit should not be read by implication. The Tribunal in the case of Steel Authority of India Ltd. v. Commissioner of Central Excise, Raipur reported in 2001 (129) E.L.T. 459 (Tri.-Del.) while considering the fact of taking Modvat credit after a period of 3 to 4 years from the date of issue of duty paid documents, which was disallowed by the lower authority held that there was no time limit prescribed for taking credit during the material period and therefore the credit could be taken. This was followed in the case of Tamil Nadu Petro Products Ltd. v. CCE, Chennai – 2003 (160) E.L.T. 199 (Tri.-Chennai). Further, we find that there was sufficient reasons for the appellants for not taking credit during the relevant period in view of the uncertainty in the matter. When the law is settled on the issue, there is no justification to deny the credit on the ground that it is availed after a long time. In any case, the Cenvat Credit Rules have not prescribed any outer time limit. In view of this, we do not find any merit in the impugned order. We set aside the same and allow the appeal with consequential relief.”
(emphasis supplied)
37. In Steel Authority of India Ltd., the Tribunal after taking notice of the CBEC Circular dated 29.08.2000 and the provisions of rule 4(1) of the 2004 Credit Rules, observed as follows:
“6. We have carefully considered the submissions from both the sides and perused the records. The undisputed facts in this case are that while the inputs in respect of which the disputed amount of Cenvat credit had been taken had been received during April, 2000 to December, 2006 period, the credit was availed only during Jan. 2007 to March, 2007 period. ******* The point of dispute is as to whether the Cenvat credit can be denied if an assessee does not avail the Cenvat credit in respect of certain inputs immediately on their receipt.
*******
8. From a plain reading of the above provisions, it is clear that what the Rules prescribes is that a manufacturer can avail Cenvat credit in respect of certain inputs immediately on their receipt and there is no time limit period prescribed in these rules in this regard. The word ‘may’ in sub-rule (1) of Rule 4 cannot be read as ‘shall’. The Department’s contention would have been correct if sub-rule (1) of Rule 4 had provided that Cenvat credit in respect of inputs ‘shall’ be taken immediately on receipt of the inputs. We, therefore, agree with para 10 of the Board’s Circular No. 345/2/2000-TRU, dated 29-82000*******
*******
9. We find that the same view has been taken by the Tribunal by the Division Bench of the Tribunal in the cases of Coromandel Fertilizers Ltd. CCE (A) reported in 2009 (239) E.L.T. 99 (Tri. – Bang.), Steel Authority of India Ltd. v. CCE reported in 2001 (129) E.L.T. 459 (Tri. – Delhi) and Tamilnadu Petroproducts Ltd. v. CCE reported in 2003 (160) E.L.T. 199 (Tri. – Chennai). Moreover in this case there was a valid reason also for not taking the credit during April, 2006 to December 2006 period, as the judgments of the Apex Court and the Tribunal on the issue of eligibility for Cenvat credit of the inputs used in the mines were against the appellant and this issue was ultimately decided in the appellant’s favour sometimes in 2008. The judgment of the Single Bench of the Tribunal in the case of J.V. Strips Ltd. (supra) is not based on correct interpretation.”
(emphasis supplied)
38. The decisions on which reliance has been placed learned authorized representative appearing for the Department relate to cases where a demand is raised by an authority under the provisions where no time limit is prescribed. In such circumstances the view that has been taken is that it should be raised within a reasonable period of time. These decisions do not relate to cases where availment of CENVAT credit has been denied. Infact, the two decisions in Coromandel Fertilizers Ltd. and Steel Authority of India Ltd., squarely deal with this issue.
39. In the present case, it is seen that the appellant has explained as to why it could not immediately avail CENVAT credits on Tanks fabricated in the year 2007. It has been stated that the process of collating and mapping the actual quantity of steel plates issued and consumed in the fabrication of Storage Tanks took some time as the goods were received between 1997-1998 and the fabrication work of Storage Tanks was completed only in the year 2007.
40. It needs to be noted that under rule 4(1) of the 2004 Credit Rules, it was only in September 2014 that a time limit of 6 months/1 year was prescribed for availing CENVAT credit.
41. The observations made by the Commissioner in the impugned order that declaration was required to be filed under rule 57(G) of the 1944 Excise Rules, is also not relevant as the eligibility of inputs received by the appellant in the factory was to tested in terms of the 2004 Credit Rules and not the rule prevalent earlier, namely rule 57(G) of the 1944 Excise Rules. Even otherwise, the receipt of the HR sheets and Steel Plates were covered under the declarations submitted by the appellant under the erstwhile rule 57(T) of the 1944 Excise Rules. Copies of these declarations have been filed and from the same it is clear that the HR sheets under Steel Plates had been declared to the Department.
42. The Commissioner, on his own, examined as to whether the appellant was eligible to avail and utilize CENVAT credit under rule 11 or rule 3(2) of the 2004 Credit Rules. It needs to be noted that the appellant had not made any such claim for availing the credit.
43. It is, therefore, not possible, for the reasons stated above, to uphold the order passed by the Commissioner. It is accordingly, set aside and Excise Appeal No. 601 of 2012 is allowed and Excise Appeal No. 571 of 2012 filed by the Department deserves to be dismissed and is dismissed.
(Order Pronounced on 18.01.2022)
Notes:-
1. the Commissioner
2. the appellant
3. Excise Act
4. 2004 Credit Rules
5. the 1944 Excise Rules
6. 2007 (215) E.L.T. 489 (S.C.)
7. 2006 (201) E.L.T. 513 (S.C.)
8. 1996 (86) E.L.T. 613 (Tribunal)
9. 2014 (309) E.L.T. 336 (Tri.-Ahmd.)
10. 2014 (36) S.T.R. 551 (Tri.-Ahmd.)
11. 2009 (239) E.L.T. 99 (Tri.–Bang.)
12. 2013 (287) E.L.T. 321 (Tri.-Del.)
13. 2007 (214) E.L.T. 481 (S.C.)
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