Salim Akhtar, MA. L.L.B.
The Cenvat Credit scheme under Cenvat Credit Rules, 2004 was gifted by the Central Government of India in place of old Modvat Scheme, in the year 2004 to the manufactures, dealers, importers and service providers. In the first instant, the Cenvat scheme was looked very simple, easy, excited, error or hassle free, undisputed and un-litigated etc……, but the reality is quite opposite. Before narrating its greatness and to share the prime issue, just want to draw the attention on the definition of ‘Input’ under rule 2(k) of Cenvat Credit Rules, 2004.
‘Input’ means (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Explanation 1: The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2: Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods;
Though, it is clear from the above definition that if any input is used for manufacture of final product or for manufacture of accessories of capital goods which are further used in the factory for manufacture of final product, directly or indirectly, then Cenvat Credit may be claimed on inputs, yet the disputes are raised on regular basis during audits, verifications and preventive visits by the departmental officers, particularly in case of Cenvat credit on Structural Steel i.e. Angle, Channel, Beam/Joist, Plate, Round, Strips, Welding Electrodes, HR Coils, Paints etc.
In the present scenario, the Cenvat Credit on structural Steel has become an irrational fear under Cenvat Credit Scheme, which does not have any solution. I am observing approx since last two decades that the issue is being litigated intentionally and it seems that the department does not want to give up this platinum instrument of harassment……!! Even though various Courts including Apex Court have delivered lot of judgements on this issue with specific remarks in favour of assesses, yet it is being kept alive in the same pace by our learned Revenue Scholars, as it was going on prior simplification of old Modvat Scheme.
If the Cenvat credit is availed on structural steel i.e. ‘Ms Plate, Ms Angle, Ms Beam, Ms Channel, Ms Joist, Ms Round, HR Plate etc….’, then it is viewed very seriously as if the industry has committed a crime. A terror has been created among the industries by issuing show cause notices with penal provisions even if they maintain the separate records for this common input as per provisions of law. Though it is well known to everyone that the structural steel is used mainly for manufacture of various components, parts, spares, accessories, pollution control equipments, material handling systems etc…, particularly in heavy industries like Steel, Cement, Power, Gas, Refineries and Sugar etc…..., yet a repulsion is created to demoralize the industrialists.
But it is universal truth that structural steel is the essential input which works as an OXYGEN for such industries and without it such industries cannot be established. Therefore, the Cenvat Credit Rules, 2004 also provides the provision of Cenvat Credit of an Industry, if the input is received within factory and used in or in relation to the manufacture of final product within the factory for production.
Hence, it can be said that the disallowance of Cenvat Credit on structural steel has become a fundamental right of CAG Auditors as well as Central Excise Revenue and Audit Officers. Mostly they use a common language while disputing the Cenvat Credit of Structural Steel in their Memos or Show Cause Notices without giving any specific reasons that the assessee has claimed in-eligible Cenvat Credit on structural steel which is not used for manufacture of capital goods but used for supports of capital goods or huge structure embedded to earth which is not covered under the definition of capital goods.
Thus it is shocked to know that the officers, who are disputing the matter, have no basic idea about the unit or even have no basic functional or operational knowledge of the unit for which they are conducting the audit. They dispute the eligible Cenvat Credit without verifying the eligibility of Cenvat Credit of steel and issue the memos or show cause notices due to only wrong perception or phobia towards Cenvat Credit of steel which has framed in their minds. It is really disappointing and it may be said that it is our system failure.
Therefore, in view of this apprehensive or critical issue, some questions come in mind and I am trying to clarify the same in the light of Cenvat Credit Rules, 2004:
Question No.1: Whether structural steel does not require for an industry?
Answer-1: As per my experience of eighteen years particularly in paper, steel and power industries, the structural steel is the basic and essential requirement and no one can imagine to establish such industries without use of structural steel wherein each and every part, spare, component, accessories, material handling, cranes and other various crucial systems etc. are made from structural steel only. Besides that it is also required for construction of building sheds wherein heavy machineries and its various systems are installed to protect the man and machine but the ratio of use of structural steel in sheds or buildings is very less or nominal compare to the use for manufacture of capital goods.
Question No.2: Whether Structural Steel is not an Input, if capital goods are manufactured from it?
Answer-2: As per definition of Input, the material should be received within factory and used in or in relation to the manufacture of final product within factory for production and in the same manner the steel is received within factory for manufacture of various components, accessories, parts, spares and other crucial systems required for manufacture of final product, which are further used directly and indirectly in the factory for production. Thus it is purely input used for manufacture of various capital goods essential for running an industry as per the definition of Input provided in the Cenvat Credit Rules, 2004.
Question No.3: Why structural steel is procured and used for manufacture of components, accessories, spares, parts thereof, if it cannot be used anywhere except support of capital goods or huge structure embedded to earth by an industry in view of the departmental /AG Auditors?
Answer-3: It is baseless misconception and phobia of the Revenue officers and AG Auditors that the structural steel can only be used for fabrication of support of capital goods or for huge structure embedded to earth which is not covered under definition of capital goods as per Rule 2(k) of Cenvat Credit Rules, 2004, whereas the truth is quite opposite from their mindsets. I also would like to ask a silly question, have any one seen any industry wherein any furnace & boiler and its components, parts, spares, cranes, material handling systems etc. are made from other than Iron and Steel? What is support of capital goods and is there any specific item mentioned in the definition of input which may be called as support of capital goods or it is only a perception which has been created without any fact?
Question No.4: Whether the procurement of structural steel is a passion for an industry, even though disputes are always raised on the use of it, by the departmental or AG Auditors? Then why it is procured to waste money and what is the other alternative of Inputs in place of structural steel from which these essential items may be manufactured?
Answer-4: The procurement of structural steel is not a wish or choice but it is a compulsion for an industry, since the items as narrated above can only be manufactured from structural steel according to design and drawings which are prepared by the expert technocrats or engineers as per the requirement of an industry. Thus by compulsion, an industry has to procure the structural steel, even though, it is known to them that the disputes would be raised by the departmental officers on Cenvat Credit of Structural Steel due to their wrong concepts and mindsets.
So, it is really shocked that no steps have been taken by the CBEC Board to clarify the issue ever, even though various Courts have clarified the issue and delivered the judgments in favour of the assesee, yet these judgments have no value in the eye of the departmental and AG Auditors. On 2nd April-2012 vide Circular No. 964/07/2012-CX, the CBEC Board tried to clarify the issue relating to use of structural steel in Boilers and it would be really a mile stone or for some relief to the industries if it would not be modified vide Circular No 966/09/ 2012-CX dated 18.05.2012 at the later stage.
Please refer Para-3 of Circular No. 964/07/2012-CX dated 02.04.2012
3. Accordingly it is clarified that those structural components which are to be used essentially as a part of Boiler System would be classifiable as parts of Boiler only under Heading 8402 of the Tariff. It is further clarified that since these structural components are nothing but the parts and accessories of the Boiler, they would be covered by the definition of inputs under Rule 2(k)(iii) of the CENVAT Credit rules, 2004 (i.e. all goods for generation of electricity & steam). Further these structural components shall not be hit by the exclusion clause to the said definition of inputs, as these are not used for laying of foundation or making of structures for support of capital goods, but are essentially the part of said Boilers.
Please refer Para-4 of Circular No. 966/09/ 2012-CX dated 18.05.2012
4. As clearly stated in para 3 of Boards’ above circular dated 2.4.2012, it is once again reiterated that in terms of the Rule 2(k) of the CENVAT Credit Rules, 2004, while CENVAT Credit is available in respect of parts of Boiler, the same is not admissible in respect of the structural components used for laying of foundation or making of structures for support of capital goods/ Boiler. The above clarification is in conformity with the views expressed in the judgments of the Hon’ble Supreme Court/ different benches of the CESTAT.
So it has established from the above that there are some cultured personalities who does not want to resolve and want to keep alive this issue for ever to create problems. Thus seeing such faulty provisions it obvious comes in mind how industries are targeted easily by raising such silly disputes, even though they are contributing a lot directly or indirectly for the growth of the nation and for such noble deeds, the industries must be acknowledged and congratulated rather than put in problems.
Besides the above I am also refereeing some specific case laws in tubular form which have been delivered by various courts in favour of assessee regarding Cenvat Credit on Structural Steel i.e. MS angle, Channel, Plate, Joist/Beam etc. and clarified the matter without prejudice, yet the department is not in a mood to accept it and it is being litigated continuously and repeatedly:
| Sl. No | Name of the Assessee or Authority | Name of the Court | Order No. & Date | Remark |
| 1 | Automax (Unit of Omax Autos Limited)
Versus Commissioner of CEX, Delhi |
In the CESTAT Principal Bench New Delhi | Stay Order Nos. 565-568/2007, dated 21-5-2007 in Application Nos. E/Stay/733-735 & 757/07 in Appeal Nos. E/858-860 & 889/2007 | 2007 (220) E.L.T. 932 (Tri. – Del.) |
| 2 | Lloyds Metal & Engineers Limited
Versus Commissioner of CEX Nagpur |
In the CESTAT West Zonal Bench Mumbai
|
Final Order No. A/251/2008-WZB/C-I/(SMB), dated 26-2-2008 in Appeal No. E/381/2007 | 2008 (226) E.L.T. 599 (Tri. – Mumbai)
|
| 3 | Hindalco Industries Limited
Versus Commissioner of Central Excise Belgaum |
In the CESTAT, South Zonal Bench, Bangalore | Final Order No. 613/2008, dated 22-5-2008 in Appeal No. E/219/2007
|
2008 (230) E.L.T. 649 (Tri. – Bang.)
|
| 4 | KCP Limited
Versus Commissioner of Central Excise Guntur |
In the CESTAT, South Zonal Bench, Bangalore | Final Order No. 1337/2008, dated 13-10-2008 in Appeal No. E/316/2005
|
2009 (237) E.L.T. 500 (Tri. – Bang.)
|
| 5 | Commissioner of Central Excise., Jaipur
Versus Rajasthan Spinning & Weaving Mills Limited |
In the Supreme Court of India | Civil Appeal No. 3760 of 2003, decided on 9-7-2010
|
2010 (255) E.L.T. 481 (S.C.)
|
| 6 | Commissioner of Central Excise Customs, Bangalore-II
Versus SLR Steel Limited |
In the High Court of Karnataka, Bangalore | C.E.A. No. 17 of 2010, decided on 10-3-2011
|
2012 (280) E.L.T. 176 (Kar.)
. |
| 7 | Mahesh Technologies Pvt. Limited
Versus Commissioner of Central Excise Customs Jaipur-I
|
In the CESTAT, Principal Bench New Delhi
|
Final Order Nos. E/55975-55976/2013-SM(BR)(PB), dated 26-3-2013 in Appeal Nos. E/1373-1374/2011-SM(BR)
|
2013 (293) E.L.T. 311 (Tri. – Del.)
|
| 8 | Chief Commissioner of Central Excise & customs, Belgaum
Versus Doodhaganga Krishna Sahakari Karkhane Niryamit |
In the High Court of Karnataka at Bangalore | C.E.A. No. 208 of 2008, decided on 30-7-2012
|
2013 (297) E.L.T. 361 (Kar.)
|
| 9 | Commissioner of Central Excise Customs., Panchkula
Versus Shahbad Coperative Sugar Mills Limited |
In the CESTAT, Principal Bench New Delhi
|
Final Order No. A/56965/2013-SM(BR), dated 31-5-2013 in Appeal No. E/3165/2010-EX(SM) in Cross Objection No. E/Cross/55/2011 | 2013 (298) E.L.T. 421 (Tri. – Del.)
|
| 10 | Shri Laxmi Iron & Steel
Versus Commissioner of Central Excise Kolkata-II |
In the CESTAT, Eastern Bench, Kolkata | Final Order No. A-417/Kol/2012, dated 15-6-2012 in Appeal No. E/482/2011 | 2013 (298) E.L.T. 477 (Tri. – Kolkata)
|
| 11 | Vinayak Steels Limited
Versus Commissioner of CEX., Hyderabad-III |
In the CESTAT, South Zonal Bench, Bangalore
|
Final Order No. 26690/2013, dated 4-10-2013 in Appeal No. E/165/2012 | 2014 (300) E.L.T. 93 (Tri. – Bang.)
|
| 12 | Sarloo Sahkari Chini Mills Limited.
Versus Commissioner of CEX, Lucknow |
In the CESTAT, Principal Bench New Delhi
|
Final Order No. A/57233/2013-SM(BR)(PB), dated 6-8-2013 in Appeal No. E/1437/2011-EX(SM)(BR) | 2014 (301) E.L.T. 387 (Tri. – Del.)
|
| 13 | Commissioner of Central Excise, Tirchurapalli
Versus India Cements Limited |
In the High Court of Judicature at Madras | Civil Miscellaneous Appeal No. 3101 of 2005 & C.M.P. No. 16107 of 2005, decided on 13-12-2012 | 2014 (305) E.L.T. 558 (Mad.)
|
| 14 | Narmada Sugar Pvt. Limited
Versus Commissioner of Central Excise., Bhopal |
In the CESTAT, Principal Bench New Delhi
|
Final Order No. 874/2010-SM(BR), dated 10-8-2010 in Appeal No. E/2158/2008-SM(BR)
|
2014 (311) E.L.T. 653 (Tri. – Del.)
|
| 15 | Reliance Infratel Limited
Versus Commissioner of Service Tax , Mumbai-II |
In the CESTAT, South Zonal Bench, Mumbai
|
Final Order Nos. A/382-383/2015-WZB/STB, dated 26-11-2014 in Appeal Nos. ST/88497 & 85682/2014-Mum | 2015 (38) S.T.R. 984 (Tri. – Mumbai)
|
| 16 | Commissioner of CEX Raipur
Versus HI-Tech Power & Steel Limited |
In the CESTAT, Principal Bench New Delhi
|
Final Order No. A/52621/2014-SM(BR), dated 30-5-2014 in Appeal No. E/1642/2008-SM
|
2015 (315) E.L.T. 428 (Tri. – Del.)
|
| 17 | Commissioner, CEX, Salem
Versus Madras Aluminium Co. Ltd. |
In the High Court of Judicature at Madras | T.C. (A) No. 1379 of 2006, decided on 4-9-2014
|
2015 (316) E.L.T. 59 (Mad.)
|
| 18 | Commissioner, CEX,, Bhopal
Versus Birla Corporation Limited |
In the CESTAT, Principal Bench New Delhi
|
Final Order No. A/53668/2014-EX(DB), dated 5-9-2014 in Appeal No. E/2154/2006-EX(DB) | 2015 (316) E.L.T. 169 (Tri. – Del.)
|
| 19 | Commissioner, CEX, Raigad
Versus Bhushan Steel & Strips Limited |
In the CESTAT, West Zonal Bench , Mumbai
|
Final Order No. A/833/2014-WZB/C-IV(SMB), dt. 21-4-2014 in App. No. E/713/2007-Mum | 2015 (316) E.L.T. 340 (Tri. – Mumbai)
|
| 20 | Hindustan Petroleum Corp. Limited
Versus C.C.E., C. & S.T., Vishakhapatnam -I
|
In the CESTAT, South Zonal Bench, Bangalore
|
Order Nos. 20082-20083/2014, dated 20-1-2014 in App. Nos. E/Stay/27471 & 27455/2013 in App. Nos. E/27172 & 27145/2013-SM | 2015 (317) E.L.T. 134 (Tri. – Bang.)
|
| 21 | Commissioner of Central Excise Customs, Ghaziabad
Versus Rathi Steel & Power Ltd. |
In the High Court of Judicature of Allahabad
|
Central Excise Appeal No. 38 of 2015, decided on 4-5-2015 | 2015 (321) E.L.T. 200 (All.)
|
| 22 | India Cements Ltd
Versus CESTAT, Chennai |
In the High Court of Judicature at Madras | Civil Misc. Appeal No. 347 of 2011 and M.P. No. 1 of 2011, decided on 6-3-2015 | 2015 (321) E.L.T. 209 (Mad.)
|
| 23 | Commissioner of Central Excise Aurangabad
Versus India Containers Ltd. |
In the CESTAT, West Zonal Bench, Mumbai | Final Order No. A/777/2007-WZB/EB, dated 28-9-2007 in Appeal No. E/959/2001
|
2015 (321) E.L.T. 473 (Tri. – Mumbai)
|
However, when the Hon’ble Courts have already clarified the issue in their judgments and allowed Cenvat Credit on structural steel, then what is the reason for non satisfaction of Revenue officers and AG Auditors and why they are repeatedly litigating the issue. Are they simply denying or ignoring the judgements, then why they are not approaching to Government to insert an specific definition of Input and Input Services wherein all if and buts or provided that etc. must be deleted. So that the precious time of the Courts can be saved.
As we are aware that the Government is going to give a simplified Indirect Tax structure in shape of ‘Goods and Services Tax (GST), but it would be a matter of eagerness that perhaps such types of litigated issues would not be taken place in the new statute. We also expect and hope that the language of this new statute would be plain, simple and understandable for common people, without using any if and buts, or provided that etc……….!!
(Author is Manager (Taxation) With Jindal Steel & Power Limited, Angul ( Odisha))
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Very nicely written article.
But sir , it is India and is a heaven of Advocates. We promised to keep it. If the law is understandable easily to common people then wthat will happen to Advoctes or the like consultant and the judiciary system?
Still your views should be kept under discussion in the law makers.
Tahnks & Regards
Sujit Kumar Das
9433036600