Larsen & Toubro Limited. Vs Commissioner of Central Excise (CESTAT Kolkata)
Material Facts: The appeals arose from an order denying CENVAT credit on capital goods and imposing penalties on the appellants. M/s. Tata Steel Limited (“Tata”) was engaged in the production of sized iron ore concentrate and iron ore fines. To meet increased iron ore requirements for its Jamshedpur plant, Tata commissioned a new material handling system with wagon loading facilities at its Noamundi Iron Ore Mines. For this project, Tata entered into multiple contracts covering the supply of indigenous designs and drawings, design, manufacture and supply of plant, machinery and equipment, receipt and handling of materials at site, erection, testing, commissioning, and civil and structural steel works.
Pursuant to these arrangements, Tata placed purchase orders on M/s. Larsen & Toubro Limited (“L&T”) for the supply of equipment, plant and machinery qualifying as capital goods. The goods were either manufactured and supplied by L&T or procured from other manufacturers and delivered directly to Tata’s premises. Tata availed CENVAT credit on these capital goods.
During the erection and commissioning stage, Tata supplied the capital goods to L&T for installation. L&T discharged service tax under the Composition Scheme by clubbing consideration received under all contracts and did not avail CENVAT credit on goods supplied under the contracts. Tata availed CENVAT credit on the service tax paid by L&T and on the capital goods supplied under the sale contracts, but did not avail credit on goods used by L&T in executing the contracts.
Procedural History
In October 2010, the Revenue visited Tata’s premises, recorded statements, and subsequently issued a Show Cause Notice proposing denial of CENVAT credit on the capital goods supplied by L&T.
The allegation was that since L&T had opted to pay service tax under “works contract service” and was restricted from availing CENVAT credit on inputs used in providing that service, the capital goods on which Tata had availed credit became inputs for L&T, thereby disentitling Tata from claiming CENVAT credit.
The adjudicating authority denied the CENVAT credit and imposed penalties on all the appellants. The appellants challenged the order before the Tribunal.
Legal Issue
The Tribunal identified the principal issue as whether Tata was entitled to avail CENVAT credit on the capital goods procured under separate purchase contracts and subsequently handed over to L&T for installation and commissioning.
Parties’ Submissions
The appellant submitted that the issue had already been settled and that CENVAT credit could not be denied merely because the works contractor executing installation was restricted from availing CENVAT credit on inputs. Reliance was placed on:
- Commissioner of C.Ex. v. Gujrat Ambuja Cement Ltd.
- Commissioner of C.Ex.-I, Chandigarh v. Ambuja Cement Ltd.
- Commissioner, Central Excise & CGST, Udaipur v. Rajasthan Spinning & Weaving Mills (RWSM) Ltd.
- Commissioner of C.Ex. & CGST, Udaipur v. Hindustan Zinc Ltd.
The appellant further submitted that:
- the capital goods installed did not constitute inputs for the works contractor;
- the goods were supplied under independent sale contracts;
- similar proceedings in comparable matters had resulted in CENVAT credit being allowed; and
- the extended period of limitation was not invocable.
The Revenue supported the impugned order.
Tribunal’s Observations
The Tribunal observed that:
- the capital goods were procured by Tata under separate contracts upon payment;
- ownership of the goods vested with Tata;
- Tata merely handed over the goods to L&T for installation and commissioning;
- L&T paid service tax on the works contract activity without availing CENVAT credit on inputs; and
- throughout the relevant period, the goods remained Tata’s property.
The Tribunal noted that the Himachal Pradesh High Court had examined the issue in Commissioner of C.Ex. v. Gujrat Ambuja Cement Ltd.
The Tribunal also observed that the installed capital goods were used in the manufacture of Tata’s final products. It referred to the decision in Rajasthan Spinning & Weaving Mills (RWSM) Ltd., which relied upon the Supreme Court’s decision in CCE, Chandigarh Vs. Ambuja Cement, holding that components forming part of the manufacturing plant and used in manufacturing qualify for Modvat credit.
The Tribunal further relied upon Commissioner of C.Ex., Jalandhar v. International Tractor Ltd., wherein it had been held that where capital goods were assembled in the factory through a contractor and used in manufacture of final products, credit on the parts of such capital goods was admissible. It also referred to the Punjab and Haryana High Court’s affirmation of that decision, noting that duty-paid inputs and parts entitled one eligible party to Modvat credit and that no revenue loss occurred where credit had been availed only once.
Findings and Reasoning
The Tribunal held that Tata had correctly availed CENVAT credit on the capital goods procured by it.
It found that:
- the capital goods were purchased by Tata under separate sale contracts;
- ownership remained with Tata;
- the goods were ultimately used in manufacturing Tata’s final products; and
- L&T had not availed CENVAT credit on the inputs used for providing the works contract service.
Accordingly, the Tribunal held that denial of CENVAT credit was unsustainable.
Since the credit had been correctly availed, the Tribunal further held that no penalty was imposable on any of the appellants.
Final Decision
The Tribunal:
- set aside the impugned order;
- allowed the appeals;
- held that Tata was entitled to CENVAT credit on the capital goods;
- set aside the penalties imposed on all appellants; and
- granted consequential relief, if any.
Cases Discussed
- Commissioner of C.Ex.-I, Chandigarh v. Ambuja Cement Ltd. (Supreme Court), [2022 (9) TMI 1456 – Supreme Court]
- Commissioner of C.Ex. & CGST, Udaipur v. Hindustan Zinc Ltd. (CESTAT, New Delhi), [2023 (7) TMI 427 – CESTAT, New Delhi]
- Commissioner, Central Excise & CGST, Udaipur v. Rajasthan Spinning & Weaving Mills (RWSM) Ltd. (CESTAT, New Delhi), [2023 (5) TMI 650 – CESTAT, New Delhi]
- Commissioner of C.Ex. v. Gujrat Ambuja Cement Ltd. (Himachal Pradesh High Court), [2010 (256) E.L.T. 356 (H.P.)]
- Commissioner of C.Ex., Jalandhar v. International Tractor Ltd. (Tri. – Del.), [2007 (220) E.L.T. 155 (Tri. – Del.)]
- International Tractors Ltd. (Punjab and Haryana High Court), [2010 (255) E.L.T. 196 (P&H)]
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellants are aggrieved by the impugned order; accordingly they are in appeal before us.
2. The facts of the case are that the appellant –
M/s. Tata Steel Limited (hereinafter referred to as ‘Tata’) is engaged in the production of sized iron ore concentrate and iron ore fines. In order to cater to increased iron ore needs of the Jamshedpur plant, the appellant commissioned a new material handling system with wagon loading facilities at their Noamundi Iron Ore Mines to effectively handle the iron ore and load the same on wagon at railway siding for onward transportation of appellant’s integrated steel plant at Jamshedpur. For commissioning such new material handling system, the appellant entered into multiple contracts for supply of indigenous designs and drawings for material handling system, design, manufacture and supply of indigenous plant, machinery and equipment with auxiliaries, receiving of materials, unloading, storing or handling at site, preservation, erection, testing, commissioning, etc., and civil & structural steel work.
2.1. In view of these contracts / agreements, the appellants placed purchase orders to the appellant namely, M/s. Larsen and Toubro Limited (hereinafter referred to as ‘L&T’), who supplied equipment / plant and machinery to Tata, which duly qualified as ‘capital goods’ for Tata, the property wherein was transferred to the appellant/Tata at its warehouse. Such goods were either manufactured and supplied directly by L&T to Tata or were procured from other manufacturers and consigned directly to Tata’s premises. Accordingly, Tata took CENVAT Credit on the said goods as capital goods.
2.2. Further, the said goods were provided by Tata to L&T on requisition during erection and commissioning stage for carrying out installation thereof by L&T under the contracts. L&T paid tax under the Composition Scheme, clubbing the consideration received in all the contracts and did not take any credit of goods supplied under any of the contracts. Tata availed full credit of:
Service Tax discharged by L&T; and
Capital goods received under the contract on sale basis.
No credit of any goods used by L&T in the said contracts was availed by Tata.
3. In the month of October 2010, the Revenue visited Tata’s premises and recorded certain statements relating to the said activity and thereafter, issued a Show Cause Notice proposing to deny CENVAT Credit on capital goods supplied by L&T under the purchase order. The allegation for denial of such credit was that L&T had opted for payment of service tax on all the contracts under ‘works contract service’ wherein L&T is restricted from availing CENVAT Credit on the ‘inputs’ used in works contract service. Therefore, it was alleged that the capital goods on which the Tata had availed CENVAT Credit becomes the inputs for L&T, who is restricted from availing CENVAT Credit and thus, Tata is not permitted to avail CENVAT Credit on such goods.
4. The matter was adjudicated vide the impugned order wherein CENVAT Credit on the capital goods was denied and penalty on all the appellants have been imposed. Aggrieved from the said order, the appellants are before us.
5. The Ld. Counsel appearing on behalf of Tata / Appellant herein submits that the issue is no longer res integra inasmuch as it is settled that CENVAT Credit cannot be denied to the assessee solely for the reason that availment of CENVAT Credit on such goods is restricted to works contractor who installs such goods in the assessee’s premises. To support this contention, he relied on the decision of Commissioner of C.Ex. v. Gujrat Ambuja Cement Ltd. [2010 (256) E.L.T. 356 (H.P.)] which has been affirmed by the Hon. Apex Court in the case of Commissioner of C.Ex.-I, Chandigarh v. Ambuja Cement Ltd. [2022 (9) TMI 1456 – Supreme Court].
He also relied on the decisions of Commissioner, Central Excise & CGST, Udaipur v. Rajasthan Spinning & Weaving Mills (RWSM) Ltd. [2023 (5) TMI 650 – CESTAT, New Delhi] and Commissioner of C.Ex. & CGST, Udaipur v. Hindustan Zinc Ltd. [2023 (7) TMI 427 – CESTAT, New Delhi].
5.1. He further submitted that capital goods which are erected / commissioned do not constitute an input for the works contractor; the capital goods were supplied under sale simpliciter contract. He also submitted that the Department has sought to deny CENVAT Credit in various cases with similar facts on diverse grounds; however, such proceedings were set aside by the Courts and Tribunals to allow CENVAT Credit to the assessees.
5.2. It is further submitted that the extended period of limitation is not invokable in the facts and circumstances of the case.
6. On the other hand, the Ld. Authorized Representative appearing for the Revenue supported the impugned order.
7. Heard the parties and considered their submissions.
7.1. We find that the issue to be decided is whether appellants are entitled to take CENVAT Credit on capital goods or not.
8. It is observed that the capital goods have been procured by the appellant/Tata under a separate contract, on payment, which has become the property of the appellant and the same has been handed over by Tata to L&T for installation and commissioning. L&T paid Service Tax on the said activity without taking CENVAT Credit on inputs used in providing the said service. In these circumstances, the goods remain the property of the appellant namely, Tata during the impugned period.
8.1. We find that the issue has been examined by the Hon’ble High Court of Himachal Pradesh in the case of Commissioner of C.Ex. v. Gujrat Ambuja Cement Ltd. [2010 (256) E.L.T. 356 (H.P.)].
8.2. We also take note of the fact that said capital goods which were installed in the factory of the appellant have been used for manufacturing of their final product. The said view was taken by the Tribunal in the case of Rajasthan Spinning & Weaving Mills (RWSM) Ltd. [2023 (5) TMI 650 – CESTAT, New Delhi] wherein the Tribunal observed as under: –
“6. We have gone through the above referred decisions and also the latest decision of the Apex Court in CCE, Chandigarh Vs. Ambuja Cement vide order dated 8.09.2022 in CA No. 3005 of 2011, inter-alia, observing that DGPP sets on which modvat credit is allowed is part and parcel of the factory of the assessee which is ultimately used in the manufacture of the end product cement. Therefore, Sl. No. 5 of the Table appended to rule 57 Q shall be attracted and the assessee shall be entitle to the modvat credit on such DGPP sets being part/components of the cement plant/final manufacture product.
7. The above analysis is clearly applicable to the facts herein as the parts of DG sets were imported and were received by the assessee in their factory even where the purchases are made by WIL. Further, the assessee acquired the components of the generating set, not for use in the manufacture of generating set as a final product but to generate electricity which was required for the manufacture of yarn etc. which was their final product. Needless to mention that the parts, spares and accessories are covered under the definition of capital goods under Rule 57-Q.”
8.3. In the case of Commissioner of C.Ex., Jalandhar v. International Tractor Ltd. [2007 (220) E.L.T. 155 (Tri. – Del.)], the Tribunal has taken the view, as under: –
“4. The undisputed facts are that the respondents got manufactured a chassis painting plant through M/s. Haden Engineering India Limited. The parts of the plant were received in the factory of the respondents and the name of the respondents was also mentioned in the invoice as consignee along with the name of their contractor. We find that the Tribunal in the case of Aditya Cement Limited and N.R.C. Ltd relied upon by the respondents held that where the capital goods were assembled in the factory through a contractor and the capital goods so manufactured are used in the manufacture of final products for which the capital goods is entitled to the credit on the parts of capital goods. In view of the above decision, the appeal is dismissed.”
Which has been affirmed by the Hon’ble Punjab and Haryana High Court as reported in 2010 (255) E.L.T. 196 (P&H):
“As Duty had been paid on the inputs and the parts, therefore, the respondents were entitled to modvat credit. It is pertinent to mention here that M/s. Haden Josts Engineering India Ltd had not taken any modvat credit and the modvat credits were taken by the respondent M/s. International Tractors Ltd It is thus, clear that one of the parties was entitled to get the modvat credit for the inputs and the parts which were duty paid and the respondents were clearly entitled to receive the modvat credit. As far as the appellant is concerned, they have not suffered any loss, as the modvat credit has only been taken once by the respondent and no modval credit has been taken by M/s. Haden Josts Engineering India Ltd.”
9. Therefore, we hold that appellant-Tata has correctly taken CENVAT Credit on the capital goods procured by them which have been ultimately used in the manufacture of final products. In these circumstances, the denial of CENVAT Credit is not sustainable.
9.1. As the appellant-Tata has taken CENVAT Credit correctly, we hold that no penalty is imposable on the appellants. Consequently, the penalties imposed on all the appellants is set aside.
10. In the result, the impugned order is set aside and the appeals are allowed with consequential relief, if any.
(Operative part of the order was pronounced in open court)
