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CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
WEST ZONAL BENCH
COURT No.
Appeal No. E/526/2008
(Arising out of Orders-in-Original No. 04/2008/C dated 27.02.2008
passed by Commissioner of Central Excise, Nagpur)
Indo Rama Synthetics (I) Ltd. Appellant
A-31, MIDC Indl. Area,
Butibori, Nagpur 441 122
Vs.
Commissioner of Central Excise, Nagpur Respondent
Telangkhedi Road, Civil Lines, Post Box No.81, Nagpur 440 001.
WITH Appeal No. E/1101/2008 (Arising out of Orders-in-Original No. 12/2008/C dated 21.08.2008 passed by Commissioner of Central Excise, Nagpur) Indo Rama Synthetics (I) Ltd. Appellant A-31, MIDC Indl. Area, Butibori, Nagpur 441 122 Vs.
Commissioner of Central Excise, Nagpur Respondent Telangkhedi Road, Civil Lines, Post Box No.81, Nagpur 440 001.
Appearance:
Shri Gajendra Jain, Advocate for the Appellant Shri Bidhan Chandra, Authorised Representative for the Respondent CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial) Hon'ble Mr. Sanjiv Srivastava, Member (Technical) FINAL ORDER NO. A/85893-85894/2019 Date of Hearing: 28.11.2018 Date of Decision: 14.05.2019 PER: SANJIV SRIVASTAVA 2 E/526,1101/2008 These appeals are directed against orders in original passed by the Commissioner of Central Excise Nagpur. By the said orders commissioner has held as follows:
1.2 Order in Original No 04/2008/C date 27.02.2008 [Appeal No E/526/08]-
"13.01 I confirm an demand an amount of Rs 3,63,05,053/- [Rupees Three Crore Sixty Three Lakhs Five Thousand and Fifty Three only] towards the credit wrongly availed on capital goods used for construction of power plant during the period from April 2005 to September 2006 from the Noticee No 1, M/s Indo Rama Synthetics Ltd under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A(2) of the Central Excise Act, 1944. I also demand interest at the rate as applicable from time to time on the amount proposed to be demanded as above, from Noticee No 1, M/s Indo Rama Synthetics Ltd under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944.
13.02 I impose a penalty of Rs 3,63,05,053/- [Rupees Three Crore Sixty Three Lakhs Five Thousand and Fifty Three only] on the Noticee No 1, M/s Indo Rama Synthetics Ltd under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.
13.03 I impose a penalty of Rs 36,00,000/- [Rupees Thirty Six Lakhs Only] on the Noticee No 2, M/s Indo Rama Petrochemicals Ltd, under Rule 26 of Central Excise Rules, 2002. There shall be no penalty under Rule 27 ibid on the Noticee No 2."
1.3 Order in Original No 12/2008/C date 21.08.2008 [Appeal No E/1101/08]-
"12.01 I disallow an demand an amount of Rs 3,97,70,821/- [Rupees Three Crore Ninety Seven Lakhs Seventy Thousand Eight Hundred and Twenty One only]{i.e. Rs 3,89,89,358/- (Basic) + Rs 7,79,881/- (Edn Cess) + Rs 1,582/- (S & HS Cess)]towards the credit 3 E/526,1101/2008 wrongly availed on capital goods used for construction of power plant during the period from 7January 2007 to October 2006 from the Noticee No 1, M/s Indo Rama Synthetics Ltd A-31 MIDC, Industrial Area, Butibori, Nagpur under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A(2) of the Central Excise Act, 1944. I also demand interest at the rate as applicable from time to time on the amount proposed to be demanded as above, from Noticee No 1, M/s Indo Rama Synthetics Ltd under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944.
12.02 I impose a penalty of Rs 3,97,70,821/- [Rupees Three Crore Ninety Seven Lakhs Seventy Thousand Eight Hundred and Twenty One only] on the Noticee No 1, M/s Indo Rama Synthetics Ltd under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. However, the noticee is given an option to pay only 25% of this penalty amount subject to condition that entire amount of CENVAT credit disallowed and demanded and interest along with 25% of penalty imposed under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 are paid simultaneously within thirty days of communication of this order.
12.03 I impose a penalty of Rs 40,00,000/- [Rupees Forty Lakhs Only] on the Noticee No 2, M/s Indo Rama Petrochemicals Ltd, under Rule 26 of Central Excise Rules, 2002. There shall be no penalty under Rule 27 ibid on the Noticee No 2."
1.4 Since the issues involved in both the appeal are identical both are taken up together.
2.1 Appellant had taken the credit on certain items declaring them as capital goods, Revenue has sought to disallow the said credit for the reasons as stated below:
i. Appellants had leased out a plot/ premises to M/s Indo Rama Petrochemicals Ltd, (2nd Party). 2nd party 4 E/526,1101/2008 had erected a thermal Power Plant on the said premises, through a work contract on turnkey basis. Both appellant and 2nd Party are separate legal entity having separate CST No, BST/MST No and Separate PAN No etc. ii. The balance sheet of 2nd Party for the year 2005-06 showed that they would sell/ supply power to Appellants and other group companies at mutually agreed tariff an terms.
iii. Certain expenses have been debited by the appellant and an amount of Rs 1,50,90,000/- has been shown against re-imbursement of CENVAT Credit from Appellant, which clearly showed that power plant was not the property of appellant. The goods against which the appellant has taken the credit were used by the 2nd Party for setting up the power plant. These goods were actually never received by the appellants in their factory premises. Even the payments for goods/ raw material, erection and installation of the power plant were made by the 2nd Party. Thus the CENVAT Credit taken by the appellants was irregular and inadmissible in view of Section 2(d) of Central Excise Act, 1944 read with Rule 2 (a) of Cenvat Credit Rules, 2004. iv. The final output of power plant is electricity, steam and ash which are not chargeable to excise duty or are exempt from payment of Central Excise Duty and thus the credit of duty paid on the goods used in erection of the power plant is not admissible in view of Rule 2(a) and 2(h) of CENVAT Credit Rules, 2004. v. The credit has been taken in respect of certain goods namely-
a. Bunker used temporarily in the boiler for storage of crushed coal;
b. Ash handling system used for disposal of ash; c. The supporting structures used for platform and for installation of various parts and 5 E/526,1101/2008 components are in nature of construction material for support;
d. Supporting columns of the boiler which are fabricated goods of iron and steel and are neither machinery or components nor in the nature of spares and accessories of machine; e. Miscellaneous materials not described in detail in invoice;
f. Brought out items such as resin etc, not specified as capital goods;
is inadmissible as these goods do not qualify to be capital goods as defined under CENVAT credit Rules, 2004 2.2 Thus a show cause notice dated 05.02.2007 was issued to the Appellant and 2nd Party proposing to- a. Recover CENVAT Credit amounting to Rs 3,63,05,053/- [Rupees Three Crore Sixty Three Lakhs Five Thousand and Fifty Three only] from the Appellants in terms of Rule 14 of CEVAT Credit Rules, 2004 read with proviso to Section 11A of Central Excise Act, 1944 with interest under section 11AB ibid.
b. Impose penalty on appellant under Rule 15 of CEVAT Credit Rules, 2004 read Section 11AC of Central Excise Act, 1944.
c. Impose penalty on 2nd Party under Rule 26 and 27 of Central Excise Rules, 2002.
2.3 Another Show Cause Notice dated 11.01.2008 was issued to the Appellant and 2nd Party proposing to- a. Recover CENVAT Credit amounting to Rs 3,97,70,621/- [Rupees Three Crore Ninety Seven Lakhs Seventy Thousand Eight Hundred and Twenty One only]{i.e. Rs 3,89,89,358/- (Basic) + Rs 7,79,881/- (Edn Cess) + Rs 1,582/- (S & HS Cess)] from the Appellants in terms of Rule 14 of CEVAT Credit Rules, 2004 read with proviso to Section 11A of Central 6 E/526,1101/2008 Excise Act, 1944 with interest under section 11AB ibid.
b. Impose penalty on appellant under Rule 15 of CEVAT Credit Rules, 2004 read Section 11AC of Central Excise Act, 1944.
c. Impose penalty on 2nd Party under Rule 26 and 27 of Central Excise Rules, 2002.
2.3 Both the show cause notices have been adjudicated by the Commissioner vide his order in originals as referred to in para 1.2 and 1.3, supra. 2.4 Aggrieved by the order of Commissioner, appellants have filed these appeals.
3.1 In their appeal, appellants have challenged the order of Commissioner stating that-
Appeal No E/526/2008 a. The capital goods against which they have taken the credit are covered by the definition of capital goods and were used in their factory premises for manufacture of final products namely polyester yarn, polyester chips etc. Hence the credit has been correctly taken by them.
b. Ownership of capital goods is not relevant for taking the Cenvat Credit. As per Rule 4 of the CENVAT Credit Rules, 2004, the ownership of capital goods has not been prescribed as criteria for taking the CENVAT Credit. Reliance is placed on the decisions in case of German Remedies Ltd [2002 (144) ELT 606 (T), Maruti Udyog Ltd [2004 (165) ELT 226 (T)], Sharda Motor Industries Ltd [2002 (150) ELT 759 9T)], Hongo India (P) Ltd [2003 (160) ELT 470 (T)] & Iljin Automotive Pvt Ltd [2004 (175) ELT 169 (T)]. c. All the goods on which the credit has been taken by the appellants were used in their factory since the thermal power plant is within their factory premises without any boundary wall or any fence demarcation. The fact that certain portion of the land within their premises has been leased out for setting up the said 7 E/526,1101/2008 power plant will not mean that the said portion of land is not the part of their factory premises. Decision relied upon by the commissioner viz Majestic Auto Ltd [1999 (107) ELT 133] has been differed by the tribunal in case of Dalmia Cements (Bharat) Ltd. [2008 (224) ELT 484] d. Neither the power plant nor the electricity is final product since electricity generated is entirely used within the factory for the manufacture of final products. Reliance is placed on the decisions in case of Gujarat Ambuja Cement Ltd [2001 (130) ELT 129], NCR Limited [2001 (135) ELT 1012], Chemplant Sanmar Ltd [2004 (177) ELT 446], Vasavadatta Cement [2002 (148) ELT 1046], Rajarambapu Patil SSK [2007 (208) ELT 372], Nava Bharat Ferro Alloys Ltd [2004 (166) ELT 72] e. The fact that thermal power plant is immovable property cannot be reason to deny the credit on capital goods used in setting up of such thermal power plant. Reliance placed on Mahalakshmi Glass Works Ltd [1999 9113) ELT 558], United Phosphorus Ltd [2002 (150) ELT 650}. HEG Ltd {2004 (177) ELT 605], Bellary Steel and Alloys Ltd. [2005 (177) ELT 605}, Lloyds Metals & Engineers Ltd [2002 (50) RLT 109} f. The fact that 2nd Party, is a separate entity cannot be the reason for determining the eligibility of CENVAT credit to the appellants. The decision of the tribunal in case of Ruby Mills [2007 (6) STR 178], relied upon by the Commissioner would not apply in present case.
g. The demand made by the first show cause notice is barred by limitation as they had taken the credit as early as in April 2005 against the invoices showing them as consignee and the capital goods were received in the factory premises and used in their factory premises. Thus it cannot be said that they 8 E/526,1101/2008 had suppressed any facts from the department for which extended period of limitation can be invoked. h. For the various reasons as stated in the appeal since the demand itself cannot survive on merits the demand, and further the issue whether the credit in present case would be admissible to them or not is pure question of legal interpretation, penalty is not imposable on them.
Appeal No E/1101/2008 a. They had reiterated the grounds stated at a to f and h above in this appeal too.
b. The order of Commissioner denying credit in respect of items listed below for the reason that they are not covered by the definition of Capital Goods is contrary to the decisions indicated-
a. Bunkers - Nava Bharat Ferro Alloys Ltd [2004 (174) ELT 375] b. Supporting Structures for installation of Capital Goods - Ispat Industries Ltd [2006 (195) ELT 164 (T)] upheld by Bombay High Court in Central Excise Appeal No 187/2006 order dated 19.07.2007, Aditya Cement [2008 (221) ELT 362 (Raj)] c. Miscellaneous materials but classified under chapter 84 c. 2nd Party was merged with the appellant with effect from 01.02.2007, Hence the denial of credit on the ground that the same was separate entity incorrect.
4.1 We have Shri Gajendra Jain, Advocate for the Appellant and Shri Bidhan Chandra, Additional Commissioner, Authorized Representative for the revenue. Both appellant and revenue has filed the written submission in the matter 4.2 Arguing for the appellants and in his written submissions, learned counsel submitted that-
9 E/526,1101/2008 a. Goods on which the credit has been taken by the appellants were all used in their factory since thermal power plant (TTP) is situated within the factory premises of the appellants and there is no boundary wall fence/ demarcating TTP from the factory premises. Merely for the reason that the place within the premises where TTP has been set up is leased to 2nd Party will not mean that the capital goods used in such place are not in their possession. b. The issue involved is no longer res-integra and covered by the decision in case of JSW Steel [2014 (307) ELT 929 (T)]. In view of the fact that issue on similar facts have been decided holding the admissibility of credit, the impugned orders need to be set aside.
c. Factory premises continued to be unaffected even when the ownership of the part of premises and plant is transferred. Reliance was placed on the decisions of Tribunal in case of Steel Authority of India Limited [2016 (332) ELT 825 (T)], Bhilai Steel Plant [2017 (1) TMI 293 (T)]. In case of Bhilai Steel, tribunal has distinguished the decision of Karnataka High Court in case Associated Cement Ltd [2009 (236) ELT 240 (Kar)] and tribunal in case of J K Paper Mills [2014 (309) ELT 359 (T)].
d. The decision of Majestic Auto Ltd [1999 (107) ELT 133 (T)] relied upon by the Commissioner while adjudicating the matters has been overruled by Allahabad High Court in case of Hero Motors [2014 (310) ELT 729 (ALL)].
e. Reliance placed on the power purchase agreement to decide the eligibility to credit, is incorrect. The intention of the power purchase agreement was to use the power captively for the manufacture of finished goods and not to sell the electricity to outside.
10 E/526,1101/2008 f. Reliance placed by the learned Authorized
Representative on the decisions in case of Associated Cement Limited [2009 (236) ELT 240 (Kar)] and J K Paper Mills [2014 (309) ELT 359 (T)] is not correct and both the said decisions are distinguishable in as much as in both these case the power plant was sold, whereas in the present case there is no sale of the same.
g. In case of Dalmia Cements [2015 (323) ELT 290 (Mad)] the situation dealt was identical to the present case and Hon'ble Madras High Court held that rule 3(5) is not applicable and credit taken on power plant is not required to be reversed. h. Since the capital goods were received in the factory premises of the appellant the reliance placed by the revenue on the decisions in case of KCP [2013 (295) ELT 353 (SC), Vikram Cement [2006 (197) 145 (SC)], Madras Cement [2010 (254) ELT 3 (SC)] & Madras Cement [2010 (257) ELT 321 9SC)] is fallacious.
i. Well settled that ownership of capital goods is not relevant to decide eligibility to credit . Reliance placed on decisions in case of German Remedies Ltd [2002 (144) ELT 606 (t)], Dharda Motor Industries Ltd [2002 (150) ELT 759 (T)], Maruti Udyog Ltd [2004 (165) ELT 226 (T), Sunrise Chemical Industries [2010 (262) ELT 110 (GUJ)], Modernova Plastyles Pvt Ltd [2015 (323) ELT 312 (Bom)], Iijin Automotive Pvt Ltd [2004 (175) ELT 169 (T)] j. Denial of credit on the support structures used for installation of TPP is not proper. The decision of Vandana Global [2010 (253) ELT 440 (T-LB)] relied upon by the Commissioner has been set aside by the Chhatisgarh High Court reported at [2018 (16) ELT GSTL 462 (Chhatisgarh)]. Issue is also covered by the decision in case of Mundra Port [2015 (39) STR (Guj)].
11 E/526,1101/2008 k. The decision of Tower Vision [2016-TIOL-539-
CESTAT-DEL-LB] relied upon by the AR has been overruled by the Delhi High Court in case Vodafone India [2018-TIOL-2049-HC-DEL-ST] l. The fact that 2nd Party has merged with the Appellant is not disputed and hence denial of the credit on the ground that the same was separate entity is incorrect in law.
m. Show Cause Notice dated 5.2.2007 sought to deny the credit availed by them during the April 2005 to November 2006. The demand for the period April 2005 to November 2005 is beyond normal period of limitation and hence time barred as they had not suppressed any facts from the revenue. Invocation of extended period of limitation in the present case cannot be justified.
n. Penalties cannot be imposed as on merits the duty is not payable., and hence penalty imposed cannot be sustained.
4.2 Learned Authorized Representative submitted stating that-
a. Show Cause Notice dated 5.02.2007 has been issued seeking to deny the credit taken by the Appellants during the period 19.1.2006 to 26.09.2006, hence has been issued within the normal period of limitation of one year, under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A of Central Excise Act, 1944.
b. Both appellant and 2nd Party were two separate legal entities, separately constituted and registered under the Company Act, 1956, having separate employees, management, accounts and balance sheet. They are also not holding and subsidiary companies, nor have Principal Job worker Relationship. [Statements dated 3.10.06 and 8.12.06 of Shri Debdutta Chatterjee, General Manager (Finance and Accounts) of 12 E/526,1101/2008 appellant and power of attorney holder for 2nd Party].
c. Both have separate PAN, CST and MST/BST registrations. Factory Act, 1948 applies independently to both for their separate manufacturing activities, at their premises at Butibori Nagpur.
d. Appellants had taken on lease a plot measuring 8,09,457 sq mtrs from MIDC and had been undertaking the manufacturing activities on that plot.
e. On 7.10.2004, they had got the permission to set up a TPP. On 20.04.2005 said permission was modified and accorded to 2nd party. By the letter dated 30.04.2005/ 4.05.2005/ 15.06.2005, 2nd Party sought permission from Environment Department Maharashtra for setting up a TPP.
f. On 10.06.2005 a power purchase agreement 9PPA) is executed between the appellants and 2nd Party stating as follows:
o Article 3- 2nd Party to construct TPP at Butibori. o Article 4- 2nd Party to Finance the entire venture.
o Article 5- 2nd Party to sell the electricity at a rate 12.5% below the prevailing MSE rate. o Article 6- Billing and Payments was to be done as per Tariff. Invoices and Interest was applicable on overdue payment at SBI Prime Lending Rate.
o Article 8- Terms of Agreement was 30 years further extendable by 10 years. On default, default notice to be served. If default not remedied, Termination Notice was to be served for termination.
o Article 9, 10,11- Liquidated Damages, Force Majeaure and Arbitration respectively.
13 E/526,1101/2008 o Article 11 & 12- Both parties to indemnify and other Miscellaneous Provisions.
o Schedule 3 - Appellant to give 2nd Party a No Objection Certificate.
g. As per MOU executed between Appellant ad 2nd Party on 26.09.2005:
o Appellant sub leased 46219 sq mts of its premises to 2nd Party.
o Clause (ii)- 2nd Party agreed to develop, design, procure, finance, construct, own, operate and maintain a TPP in the premises leased to them.
o Clause (iii)- 2nd Party agreed to sell power generated to Appellant and any excess power could be sold to any other person. o Clause (iv)- Both parties agreed to execute Definite Power Purchase Agreement (PPA). o Clause (vii)- Contract to be valid for the period from 1.04.2005 to 31.03.2005. No exit clause provided.
h. 2nd Party sought permission from Director Steam Boilers Maharashtra for erecting Boiler at its leased premises vide its letter dated 17.10.2005. By challan dated 11.10.2005/ 15.10.2005 paid the statutory inspection fees for this purpose.
i. On 18.01.2006, Environment Department Maharashtra granted Environmental Clearance to 2nd Party for setting up TPP and held it responsible for its activities and duties under o Water (Prevention & Control of Pollution) Act, 1971;
o Air (Prevention & Control of Pollution) Act, 1971;
o Environment (Protection) Act, 1986 o Public Liability Insurance Act, 1991. j. On 31.03.2006, MIDC accepts charges from Appellant for subletting premises to 2nd Party.
14 E/526,1101/2008 k. 17.04.2006, 2nd Party applies to MPCB for grant of consent for operation of 2 X 1 MW TPP.
l. Finances for TPP-
o Total Project Cost R 128 Crores. o Yes Bank loans Rs 27.5 Crores o SBI Loan Rs 74 Crores.
m. Appellant charges Rs 40,06,746 for the services provided between April 2006 to September 2006 at Butibori.
n. Reimbursement of Rs 1.5 Cr by Appellant to 2nd party towards CENVAT Credit.
o. 2nd Party has placed orders and procured and paid for TPP and its erection from Shapoorjee Pallonjee Ltd and Indure Pvt Ltd. Service Tax was paid by Shapoorjee Pallonjee Lt for services rendered and invoiced to 2nd Party for the erection of the TPP. p. The TPP was capitalized in the Books of Accounts of 2nd Party [Statements dated 3.10.06 and 8.12.06 of Shri Debdutta Chatterjee, General Manager (Finance and Accounts) of appellant and power of attorney holder for 2nd Party].
q. These facts demonstrate that 2nd Party had got the premises on lease from Appellant and as such these premises are legally not the part of premises of Appellant on which the factory of Appellant operates. These premises in terms of Section 2k(iii) and Sec 2(m) and Section 6 of the Factories Act, 1948 is a different factory belonging to 2nd Party. 2nd Party enjoys rights and privileges conferred on a lessee by Chapter V of the Transfer of Property Act, 1882. Appellants cannot lay claim to the leased premises during tenancy lease. 2nd Party also pays the lease rent to the Appellant for said premises, and also pays for all other services provided by appellant to them.
r. 2nd Party is different legal and juristic person having his own liabilities and duties under various Acts.
15 E/526,1101/2008 Hence the premises occupied by IRPL are not the factory of Appellant as defined in section 2 (e) of Central Excise Act, 1944 or the Factories Act, 1948 s. Legal Provisions of CENVAT Credit Rules, 2004 o Rule 2(a) defines "Capital Goods" and prescribes that such goods must be used in the factory of the manufacturer of final products. o Rule 2(h) defines the Final Product and includes goods used for manufactured or produced from input.
o Rule 2(k) defines input and includes goods used for generation of steam or electricity used within the factory of production.
o Rule 3(1) provides that credit of specified duties paid on capital shall be allowed only if the capital good are received in the factory of manufacture of final products after 10.09.2004.
o Rule 4(2) provides that credit of any capital goods shall be allowed only if the capital goods are received in factory of manufacture of final products. The installment system of allowing credit is available only on receipt of capital goods in the factory of manufacture of final products.
t. Mention of Appellants as consignee on the invoices was with an ulterior motive to enable appellants avail the credit. Appellants have credit between 19.01.2006 to 26.09.2006 on goods claimed to be capital goods received in their factory. The goods were never received in their factory but in the premises leased to 2nd Party.
u. Supreme Court has in decisions as follows held that if the Capital Goods are used in the factory of the manufacturer of final products and that the manufacturer can produce evidence of such use then only credit can be allowed:
16 E/526,1101/2008 o KCP [2013 (295) ELT 353 (SC), o Vikram Cement [2006 (197) 145 (SC)], o Madras Cement [2010 (254) ELT 3 (SC)] & o Madras Cement [2010 (257) ELT 321 (SC)] v. 2nd Party has also not received the said capital goods for manufacture of final products. The electricity generated by it is not used in the factory for production of finished goods. Hence 2nd Party is also not entitled to the credit.
w. Possession and use of Capital Goods within the factory for manufacture of Final Products is a condition prescribed for availing the credit. o IOCL [2015 (316) ELT 666 (Pat) o J K Paper Mills [2014 (309) ELT 359 (T)] x. Karnataka High Court has in case of ACC Limited [2009 (236) ELT 240 (Kar)] held that CENVAT Credit availed on such Capital Goods in a leased premises is not available and that such an action is a device to avoid tax liability and attracts penal provisions. y. Eligibility of CENVAT Credit on capital goods is to be determined as per the law prevailing the time of receipt of goods.
o Spenta International [2007 (216) ELT 133 (T-
LB)] o Saurashtra Chemical Ltd. [2007 (212) ELT 7 (SC)] z. CENVAT Credit availed on goods viz bunkers for storage of coal, ash handling system, structural and other goods which are either not related to manufacture at all or generation of electricity or form the part of immovable is not admissible in view of following decisions:
o Vandana Global Ltd [2010 (253) ELT 440 (T-
LB)] o Saraswati Sugar Mills [2011 (270) ELT 465 (SC)] 17 E/526,1101/2008 aa. A thermal power plant is not excisable goods. The plant is built/ erected by using components and machinery received. Hence there can be no credit available on goods received, by considering them as parts and components of capital goods. o Tower Vision India Pvt Ltd [2016-TIO-539- CESTAT-DEL-LB] o Virdi Brothers [2007 (207) ELT 321 (SC)] o GVK Industries Ltd [2005 (182) LT 364 (T)] o Spectrum Power Generation Ltd [2004 (177) ELT 968 (T)] bb. Appellants are thus not entitled to the CENVAT credit claimed by them. This credit has been availed by them by suppressing the fact that goods were not received in their factory. They are also liable to interest and penalty.
5.1 We have considered the impugned orders along with the submissions made in appeals and during the course of argument.
5.2 The issues for consideration in the present case can be listed as below:
i. Whether the plot of land leased out by the appellant to 2nd party formed the part of factory premises of the Appellant? Who owns, operates and maintains the Thermal Power Plant erected on that plot of land? ii. Whether the CENVAT Credit in respect of Capital Goods, receive by the 2nd Party on the leased plot and used by them for erection/ installation of thermal power plant will be admissible to appellant for the reason that invoices showed them as consignee. iii. Whether the CENVAT Credit on Capital Goods is admissible in respect of those Capital Goods which are reflected as Capital Assets in book of accounts of the other legal entity and have been capitalized therein. iv. Whether CENVAT Credit in respect of those goods which are not identifiable but classified under Chapter 84 of First Schedule to Central Excise Tariff Act, 1985.
18 E/526,1101/2008 v. Whether demand is hit by limitation and penalty under
Rule 15 of CEVAT Credit Rules, 2004 read Section 11AC justified in the present case on the Appellant.
5.3 Whether the plot of land leased out by the appellant to 2nd party formed the part of factory premises of the Appellant? Who owns, operates and maintains the Thermal Power Plant erected on that plot of land?
5.3.1 Undisputed or admitted fact is that the Appellant and 2nd Party are two separately constituted legal entities with different PAN, CST No & MST/ BST No as indicated below:
Appellant 2nd Party_________ CST No 441122/C/3 441122/C/041 MST/ BST No 441122/S/3 441122/V/001 PAN AAACI1530L AABCI3499M_____ 5.3.2 Para 9 of the Show Cause Notice dated 5.02.02007 reads as follows: "9. Inquiries were caused the Regional Officer,
Maharashtra Industrial Development Corporation, Nagpur to ascertain the title of the land on which the power plant is being set up. The Regional Officer, MIDC, vide letter issued under F No MIDC/RO/Butibori/112/2007 dtd 08.01.2007 informed that M/s Indo Rama Synthetics Ltd having plot No A-31, in Butibori Industrial Area has applied for sub letting of plot area 46219 sq mtr to M/s Indo Rama Petrochemicals Ltd., for manufacturing of Co-generation Thermal Power Plant. It was also reported vide the same letter that as per norms of the Corporation, the said land for period from 01.04.2006 to 31.03.2007 was sanctioned on sub lease basis. He also enclosed copies of letters written by M/s Indo Rama Synthetics Ltd., approval letter dated 29.03.2006, copy of confirmation letter dated 19 E/526,1101/2008 31.03.2006 and copies of letters/ no objection certificates of UTI, SBI, ICICI, BOU, PNB & OBOC conveying their no objection to granting of sub lease rights to the Noticee No 2 for the said piece of land admeasuring approx. 11.50 acres earmarked out of Plot No A-31, MIDC, Industrial Area Butibori. This indicates that Noticee No 2 has acquired the piece of land from the Noticee No 1 for erection of Thermal Power Plant."
5.3.3 Commissioner has in para 6.09.01 to 6.09.04 has discussed this issue as follows:
"6.09.01 The Noticee No 1, has contended that the power plant is located within their factory premises. This argument is not acceptable in as much as the land has been leased out to Noticee No 2, M/s Indo Rama Petrochemicals Ltd., Noticee No 1 has no locus standi as regards the interest/ possession of the leased premises. In terms of the lease agreement, the Noticee No 2 enjoy the leased premises and therefore the claim of Noticee No. 1 that the said leased premises is part of factory is not legally valid.
6.09.02 "The normal connotation of the term "lease" is the preservation of the demised estate to be in occupation and enjoyment thereof for a specified period or in perpetuities for consideration; the corpus by user thereof does not disappear and at the expiry of the term or on termination then same is handed over to the Lessor subject to the terms of the contract express or implied" as held by the Hon'ble Apex Court in the case of State of Karnataka Vs Subash Rukmayya Guttedar AIR 1993 SC 860; 1993 supp (3) SCC 290, 294: AIR SCW 3492 dated 16.02.1992.
6.09.03. A "lease" is transfer of a right to enjoy the property as held by Hon'ble Apex Court in the case of Tirth Ram Gupta Vs Gurbachan Singh AIR 1987 SC 770; 1987 (1) SC 712; 1987 (2) SCR 190; 1987 (1) 20 E/526,1101/2008 JT 365; 1987 (1) Scale 255; 1987 (1) UJ 610; 1987 (2) RCJ 369.
6.09.04 From the above judgments, it is clear that a lease is a document which effects an actual demise and operates as lease and must create a present and immediate interest in land. When there is interest and complete possession by the Noticee No 2, on the leased land, the Lessor i.e. Noticee No 1 cannot be held to be in possession of the leased portion of land and cannot have the right on the said land. Hence the contention of the Noticee No 1 that the power plant is located in their factory premises is untenable."
5.3.4 In our view once the plot of land which has been leased out by the Appellant to 2nd Party, the same cannot be said to be in possession of the appellant, for enjoyment and undertaking any commercial or production activities. The claim of the appellant that the said plot has not been segregated by the fence or boundary wall do not has any merits because the said plot of land has been clearly identified and earmarked in the land records as has been stated by the MIDC (Copy of the letter dated 31.03.2006 of MIDC reproduced below):
21 E/526,1101/2008 5.3.5 The fact that the plot of land on which the
Thermal Power Plant was located belonged to 2nd Party and is not part of the factory premises of the Appellant, is 22 E/526,1101/2008 evident from the para 02.01 of the impugned order wherein it has been recorded:-
"02.01 The Noticee No 1 submitted a revised ground plan of its factory premises to the Range Superintendent, Central Excise Range, Butibori on 16.10.006. During the course of verification of the same by the Range Superintendent, Butibori the authorized representative of the Noticee No 1 informed that the area where the thermal power plant is being erected belongs to Noticee No 2. He further admitted that there was no board displaying the name of Noticee No 2 in the area of power plant. The above proceedings were recorded under a panchnama dated 24.10.2006 before the authorized representative of the Noticee No. 1."
5.3.6 Thus we have no hesitation in holding that the plot of land on which the power plant was erected was the premises of 2nd Party and Appellant had no right to use that plot for any of their production activities. There is no dispute to the fact that this plot has been carved out of the Plot No A-31 MIDC Industrial Area, Butibori District Nagpur. No separate identification has been assigned to the plot leased by Appellant to 2nd Party and even no board identifying the plot with the 2nd Party has been put.
5.3.7 The fact 2nd Party is paying for all the services provided by the Appellant to them in respect of their operations at carved out plot, clearly establishes the distinction between the two and the fact that Appellants themselves do not for any purpose treat this plot as part of their premises. The Memorandum of Understanding dated 26th May 2005 signed between Appellants and 2nd Party clearly states-
"i) 46219 sq Meter out of 809457 Sq Meter, situated at A-31, MIDC Butibori Nagpur would be sub lased by IRSL to IRPL subject to necessary permission in this behalf being obtained from MIDC. The lease rental shall be payable by 23 E/526,1101/2008 IRPL to IRSL on a monthly basis on mutually agreeable terms
ii) RPL would develop, design, engineer, procure, finance, construct, own, operate & maintain the Captive Power Plant with a Gross Capacity of 2 X 15 MW and net exportable capacity of 2 X 13.5 MW at Butibori Nagpur.
iii) IRPL would supply entire requirement of power of IRSL to it on mutually agreed rates and only the surplus power not required by IRSL can be supplied by IRPL to parties (including MSEB) other than IRSL.
iv) The parties would execute a Definite Power Purchase Agreement upon fulfillment of the following C conditions precedent:
a) The company shall have been granted and received all permits, clearances and approvals (whether statutory or otherwise) as are required to execute and operate the Project (hereinafter referred to as "Approvals"
b) The Financial Closure shall have occurred.
v) That the terms and conditions as well as the payment for the power supply and all other relevant terms and conditions would be mutually agreed by the parties and form part of the Definite Power Purchase Agreement to be executed between the parties.
vi) IRSL has agreed to share common utilities, common infrastructure, common fire fighting facilities and uninterrupted water supply for fire fighting from common storage with IRPL for 2 X 15 MW power plant on the basis of net block ratio.
vii) The contract is valid for the period 1.04.2005 to 31.03.2010 and will automatically expired on 31.03.2010 and may be renewed for subsequent period on mutually accepted terms and conditions.
viii) The parties are free to include any common infrastructure, facilities, utilities which are not specifically 24 E/526,1101/2008 mentioned under this agreement on mutually accepted terms."
5.3.8 Commissioner has examined the Power Purchase Agreement in his order in para 06.10.01 and 06.10.02 stating as follows:
"06.10.01 A perusal of the power purchase agreement indicates that the Noticee No 2 has entered into an agreement with Noticee No 1, for sale of electricity generated in its power plant on negotiable basis. At Article 5 of the said agreement it is clearly mentioned that in case the parties do not arrive at a mutual agreement on the tariff, the Noticee no 2 would be free to sell power to third parties. In the Article 8 of the said agreement a provision has been made to allow the Noticee no 2 to sell power to third parties in the event of payment default by the Noticee no. 1 for a continuous period of three months. It is seen from the letter dated 17.10.005 issued by the Notice No 2 to the Director, Steam Boiler Maharashtra State, 3rd Floor, Tardeo Road Mumbai that the Noticee no 2 has requested for permission to install boiler for erection of power plant at Butibori Nagpur. From the copy of letters from the Banks cited in para 02.08 supra it is observed that the Noticee no 2 had taken loans from the banks for setting up power plant at Butibori.
6.10.01 Thus it is seen that the noticee No 2 is separate legal entity with liberty to sell the power generated in power plant to third parties and has erected the power plant on leased out land of Noticee No 1." 5.3.9 To all the statutory authorities for seeking the clearances the owner and operator of the power plant is shown as 2nd Party and not the Appellant as is evident from following correspondences:
25 E/526,1101/2008 26 E/526,1101/2008 27 E/526,1101/2008 28 E/526,1101/2008 29 E/526,1101/2008 30 E/526,1101/2008 5.3.10 One question that needs to be answered is whether the entire plot covered by A-31, MIDC Industrial Area, Butibori Nagpur on which the factory of Appellants is located needs to be considered as factory for manufacture 31 E/526,1101/2008 of finished goods. The ground plan of the plot A-31, MIDC Industrial Area, Butibori Nagpur is reproduced below:
From perusal of the ground plan it is quite evident that on the said plot marked as A-31 MIDC Industrial Area, Butibori Nagpur, apart from factory of Appellant, quite a good number of other things including the leased out land to 2nd Party, Plot identified as Indo Rama Textiles Ltd., residential complex, temple etc are located. Just because these facilities are located on the same plot they cannot be called the factory premises of the Appellant. The contention that what so ever is located on the said plot needs to be considered as part of their factory of manufacture has been rejected by the Tribunal in appellants own case reported at [2006 (199) ELT 0175 (T)] and affirmed by the Hon'ble Bombay High Court in [2007 (219) ELT 122 (Bom)]. Hon'ble Bombay High Court held-
"21. The fact that the residential complexes are situated within the licensed premises would not entitle the assessee to avail credit of duty paid on furnace oil used in the manufacture of electricity supplied to the residential complexes. It is necessary to establish that the electricity 32 E/526,1101/2008 is used for any purpose connected with or related to the production of final products. In our opinion, supply of electricity to the residential complexes situated within the factory premises are neither connected with or related to the production of the final products. In this view of the matter, we hold that the finding recorded by the Tribunal that the assessee is not entitled to the credit of duty paid on the furnace oil used in the generation of electricity supplied to the residential complexes cannot be faulted.
22. The decision of the Apex Court in the case of Grauer and Weil (I) Ltd. v. CCT (supra) and the case of South Eastern Coalfields Limited v. CCE (supra) relied upon by the assessee do not support their case. What is held in those cases is that the words "any premises including the precincts thereof" in Section 2(m) of the Central Excise Act are wide enough to cover any activity carried on within the licensed premises. In both the above cases, the Apex Court was not called upon to consider the issue which is raised in this appeal. In any event, it is pertinent to note that in both the above cases, the activity in question related to the production of excisable goods or an activity connected with or related to the production of the final products. In the present case, supply of electricity to the residential complexes is wholly unconnected with or related to the final products produced in the factory of the assessee. Therefore, reliance placed on the above decisions of the Apex Court is wholly misplaced."
5.3.12 Further Hon'ble Supreme Court has in case of South Eastern Coalfields Ltd. [2006 (200) ELT 357 (SC)] held as follows:
"11.The question, therefore, in this case is that "whether the workshop in question can be said to be situated within the precincts of the mine".
12.Before the Tribunal reliance was placed by the learned counsel for the assessee on an earlier order of the Tribunal in Central Coalfields Ltd. v. CCE, Jamshedpur 33 E/526,1101/2008 dated 16-9-1997, in which it was held that the word "precincts" cannot be restricted to an area of four Kms. In that case the Tribunal held that the workshop in question was situated within the precincts of the mines to which it was catering, even though it was situated at a distance of 50 Kms. from the said mine.
13.In the present case the Tribunal rejected the assessee's claim for exemption on the ground that since the mine was registered under the Factories Act, it cannot have the benefit of exemption in the Notification No. 63/95-C.E. since as per Section 2(m) of the Factories Act a factory means any premises including the precincts thereof but does not include a mine subject to the operation of the Mines Act, 1952.
14.In our opinion the registration of a mine under the Factories Act has nothing to do with the assessee's claim for exemption under the Central Excise Act. In fact the reference to the Factories Act itself was wholly irrelevant and we fail to see what the Factories Act has to do with the present case. The present case is covered by the Central Excise Act and has nothing to do with the Factories Act. Hence the view taken by the Tribunal is, with due respect to it, clearly erroneous.
15.It has to be considered in the present case whether the workshop in question is said to be a workshop within the precincts of a mine.
16.The word 'precincts' is not a word of clear import which has a single, clear-cut meaning. Collin's English Dictionary defines 'precincts' to mean "the surrounding region or area".
17.In the New Shorter Oxford English Dictionary, the word 'precinct' is shown to have several meanings among which are the following :
"The area within the boundaries (real or imaginary) of a building or place; the grounds; the interior; esp. an enclosed or clearly defined 34 E/526,1101/2008 area around a cathedral, college, etc. Also, the surroundings or environs of a place."
18.In the Advanced Law Lexicon, 3rd Edition, by P. Ramanatha Aiyar, the word 'precinct' has been shown to have several meanings including a space enclosed by walls or other boundaries.
19.In Black's Law Dictionary, 7th Edition, the word 'precinct' is defined as follows :
"A geographical unit of government, such as an election district, a police district, or a judicial district."
20.From a perusal of the above definitions, it appears that the word "precincts" does not have a single meaning, rather it has several meanings.
21.One word can have several meanings, and one meaning can have several words (synonyms). For instance, the word 'ball' can mean a round object for playing games like cricket, football, etc.; it can also mean a dance; it can also mean having a nice time, etc. Similarly, in Sanskrit the words "kamal", "pankaj", "rajeev", "neeraj", "jalaj", "saroj", etc. have the same meaning i.e. Lotus.
22.According to the literal rule of interpretation, if the meaning of a word or expression is clear, there is no scope for interpretation and we have to follow the plain and grammatical meaning.
23.However, where the meaning of a word or expression is not clear, obviously the literal rule of interpretation cannot be applied, and hence we have to take resort to other rules of interpretation e.g. the Heydon's mischief rule, the purposive rule, etc. In our opinion in the present case the purposive rule should be applied. Under this rule, we have to see the purpose for which the provision was made. Looking at it from this angle, we are of the opinion 35 E/526,1101/2008 that the word 'precincts' has to be given the broader meaning and not the narrower meaning.
24.In other words, we have to interpret the word 'precinct' in the exemption notification to mean the surrounding region or area, as defined in Collins English Dictionary or the surroundings or environs of a place as defined in the New Shorter Oxford English Dictionary. This is because the purpose of the exemption notification is to grant exemption from excise duty to goods produced in a mine so as to encourage the mining industry. A workshop which is in an area in the environs of a mine and is existing solely for the purpose connected with the mine and under the same management, is obviously directly serving the mining operations. Hence, we have to interpret the notification so as to include such a workshop within the definition of a mine for the purpose of grant of exemption, as that would encourage the mining industry."
Even in the above referred decision benefit after adopting the principle of purposive interpretation was given only after noting that the workshop was under the same management. In our view since the thermal power plant at material time at least before the merger of 2nd Party with Appellant was under a distinct management and was owned by the distinct company, even if located on the same plot cannot be said to part of the manufacturing operations of Appellant.
5.3.13 From the above it is quite evident that the- i. Thermal power plant erected at A-31 MIDC Industrial Area, Butibori District Nagpur, has been erected on the plot which do not form the part of factory premises of the Appellant.
ii. Appellant neither owns that thermal power plant nor operates and maintains the same.
iii. All the statutory permissions required for setting up and operating the Thermal Power Plant at the aid premises have been obtained by and granted to 2nd Party.
36 E/526,1101/2008 iv. 2nd Party has constructed, erected, owns, operates
and maintains the thermal power plant strictly in a commercial manner and is free to sell the power generated on acceptable and agreeable commercial terms. v. Appellant purchase the power generated in the power plant. They have priority in purchase and only after fulfilling their needs can 2nd Party sell the surplus power to third party. The thermal power plant at A-31 MIDC Industrial Area, Butibori District Nagpur is not the captive power plant of the appellant.
5.4. Whether the CENVAT Credit in respect of Capital Goods, receive by the 2nd Party on the leased plot and used by them for erection/ installation of thermal power plant will be admissible to appellant for the reason that invoices showed them as consignee.
5.4.1 2nd Party had procured loans from various banks namely Yes Bank and State Bank of India. They have independently placed the orders for procurement of capital goods on the vendors. Against these orders vendors have supplied the goods to them at the premises located at A-31, MIDC Industrial Area Butibori Nagpur. Copies of the letter dated 16.10.2006 of M/s Yes Bank and letters dated 12.04.2005 & 07.05.2005 of State Bank of India are reproduced below:
37 E/526,1101/2008 38 E/526,1101/2008 39 E/526,1101/2008 40 E/526,1101/2008 41 E/526,1101/2008 42 E/526,1101/2008 43 E/526,1101/2008 44 E/526,1101/2008 5.4.3 From the balance sheet of 2nd Party relevant extracts are reproduced below:
45 E/526,1101/2008
46 E/526,1101/2008
5.4.5 From the Note appearing in Schedule 2, it is
stated " 1. Term Loan from Banks are secured/ to be secured by way of first charge over entire fixed assets both present and future of the Company situated at Butibori, said loan is further secured by second charge on entire current assets of the Company situated at Butibori". Further in Schedule 6: Notes on Accounts, it is stated:
"1 Significant Accounting Policies
b) Expenditure During Construction Period
Expenditure incurred during construction period on Projects is carried forward under Pre-operative expenses pending allocation/ capitalization and is allocated to Fixed Assets on the completion/ commissioning of the Projects.
d) Borrowing Cost
Interest and other cost in connection with the
borrowing of the funds to the extent related/ attributed to the acquisition/ construction of qualifying fixed assets are capitalized upto the date when such assets are ready for its intended use.
2) The Company's is presently implementing 30 MW (2 X 15 MW) Thermal Power Plant at Butibori and has incurred Rs 6427.6 Lacs (previous Year Rs 905 lacs) for the said purpose. The proposed Power Plant would supply power to the Indo Rama Synthetic (India) Limited (IRSL) and other Group Companies at mutually agreed tariff and terms.
5) Certain expenses amounting to Rs.3181806/- (Previous Year) have been debited by IRSL according to the arrangement entered between the companies for the use of common utilities and facilities, the same has been charged to respective heads of accounts.
10) Capital Work in progress (CWIP) includes
construction/ capital material at site, building under
47 E/526,1101/2008
construction, site development expenses, plant and
machinery under erection etc."
From the above facts as mentioned in the balance sheet of the 2nd Party it is quite evident that the Thermal Power Plant Project at Butibori was being implemented by them and all the expenditure towards the procurement of the goods etc was incurred by them on their own account and not on the account of Appellants. It is also evident that these expenses were being met by them through the funds mobilized by them through bank loans etc. Also they were the fixed assets of their and were used to secure the loans taken by the banks. In view of above we do not have any hesitation in holding that capital goods in question were being procured by the 2nd Party for use by themselves for erection of the Thermal Power Plant at Butibori. Thus mention of consignee as "M/s Indo Rama Synthetics Limited, A-31 MIDC Industrial Area Butibori Nagpur" on invoices was nothing but an attempt to create entitlement to CENVAT Credit for the Appellant, without passing the actual ownership/ possession or right to use the said goods in their favour.
5.4.6 Further these capital goods were capitalized in the books of accounts of 2nd Party as has been stated by Shri Ramesh Deshpande, Sr Manager (Excise) with the Appellants in his statement dated 27.10.2006 as follows:
"On being asked I state that the power plant will be capitalized in the accounts of M/s Indo Rama Petrochemicals (I) Ltd. the fixed asset comprising of Plant and Machinery, Electrical installation, Office equipment, furniture and fixtures of the power plant will capitalize in the accounts of M/s Indo Rama Petrochemicals Ltd. Further the depreciation of the fixed assets comprising of Plant and Machinery, Electrical Installation, Office Equipment, furniture and fixtures will be charged to the account of M/s Indo Rama Petrochemical Ltd."
48 E/526,1101/2008 5.4.7 In his statement recorded on 30/10/006, Shri Debdutta Chatterjee, Chartered Accountant, General
Manager (Finance & Accounts) with Appellants and Power of Attorney holder for 2nd Party, agreed with the statement dated 27.10.2006 of Shri Ramesh Deshpande, Sr Manager (Excise). He has further in his statement dated 08.12.2006 stated-
'Q. When neither you are an employee of Indo Rama Petro Chemicals Ltd., nor holding any post in the company what is the reason for having power of attorney of M/s Indo Rama Petrochemicals Ltd.
Ans. M/s Indo Rama Petrochemicals Ltd and Indo Rama Synthetics Ltd are group companies and are related companies, further, M/s Indo Rama Petrochemicals Ltd is installing a power plant at MIDC Butibori on a piece of land sub-leased by M/s Indo Rama Synthetics Ltd., Butibori situated within plot no A-31, MIDC Industrial Area Butibori and there is no office of M/s Indo Rama Petrochemicals Ltd., at Butibori and hence they have given me the power of attorney to deal with day to day activities of Indo Rama Petrochemicals Ltd. and deal with various Central and State government departments.
Q. What are the activities of Indo Rama Synthetics Ltd., Butibori?
Ans. M/s Indo Rama Synthetics Ltd. is a manufacturer of of Yarn of Polyesters and is selling the same.
Q. What are the activities of Indo Rama Petrochemicals Ltd.?
Ans.- Indo Rama Petrochemicals Ltd. is at present installing Power Generating Plant. Till date they have not started generating electricity. It is their first power project which is yet to commence generating electricity.
Q What is the purpose for installing power generating plant by Indo Rama Petrochemicals Ltd.?
49 E/526,1101/2008 Ans.- The purpose for setting up power generating plant at IDC, Butibori is to supply the power to Indo Rama Synthetics Ltd at mutually agreed tariff and terms.
Q. Whether the power so generated by Indo Rama Petrochemicals Ltd. is given to the group companies at specific rate?
Ans.- Yes. The Power that would be generated will be given to the group companies at mutually agreed rates.
Q. Whether the balance sheets of both the companies Indo Rama Synthetics Ltd. and Indo Rama Petrochemicals Ltd. are same or separate.
Ans.- Accounts and balance sheets of both the companies are separate.
Q. Whether Indo Rama Petrochemicals Ltd. is installing the present power project at their own or at the instance of Indo Rama Synthetics Ltd.?
Ans.- M/s Indo Rama Petrochemicals Ltd. is installing the present power project at the instance of Indo Rama Synthetics Ltd. for supply of electricity Indo Rama Synthetics Ltd. and the payment for electricity purchased from Indo Rama Petrochemicals Ltd. would be made by Indo Rama Synthetics Ltd.
Q. For obtaining the land on lease for power plant whether any application was filed with MIDC Butibori?
Ans.- Yes. An application for lasing out the piece of land in the plot no A-31 MIDC, Industrial Area, Butibori was filed with MIDC, Butibori and the same was approved by the MIDC, Butibori Nagpur. I will submit copies of the application and approval granted by MIDC by Tuesday i.e. on 12-12-2006.
Q. When you are independently installing the power plant why the invoices of the capital goods etc. are being received from the vendors in the name of Indo Rama Synthetics Ltd. and a/c of Indo Rama Petrochemicals Ltd.?
50 E/526,1101/2008 Ans.- It is because the power plant is located in the premises of Indo Rama Synthetics Ltd which have been leased to Indo Rama Petrochemicals Ltd. and the power that will be generated will be sold to Indo Rama Synthetics Ltd. and group companies and that will be used in the manufacture of their excisable goods Q. When the power project is being installed by Indo Rama Petrochemicals Ltd. and Indo Rama Petrochemicals Ltd. is also incurring expenditure for the setting up of the same for commercial purpose the invoices for the project should have been in your name. Only for allowing Indo Rama Synthetics Ltd. to take CENVAT Credit because Indo Rama Petrochemicals Ltd. cannot utilize the same, the whole system is generated, please explain.
Ans.- We reiterate that the sole purpose of power project is to supply power to Indo Rama Synthetics Ltd and group companies for manufacture of excisable goods and hence name of Indo Rama Synthetics Ltd is appearing as consignee in the invoices.
Q. Whether Indo Rama Petrochemicals Ltd. has directed the suppliers of capital goods of power plant to specifically mention the name of Indo Rama Synthetics Ltd., as consignee and account/ customer's name as Indo Rama Petrochemicals Ltd. on the invoices at the instance of Indo Rama Synthetics Ltd.?
Ans. Indo Rama Petrochemicals Ltd. being the company setting up the power plant within the premises of Indo Rama Synthetics Ltd. and the power generated is solely for consumption by Indo Rama Synthetics Ltd and group companies the documents were drawn as consignee as Indo Rama Synthetics Ltd. and the buyer as Indo Rama Petrochemicals Ltd.
Q. Whether the power plant is the property of Indo Rama Synthetics Ltd.?
Ans.- No. It is the property of Indo Rama Petrochemicals Ltd. only.
51 E/526,1101/2008 Q. Whether Indo Rama Synthetics Ltd has shared any
amount towards installation of power project?
Ans.- No. Q. Whether you are paying Service tax on Goods Transport Agency for the goods received in to Indo Rama Petrochemicals Ltd. by your vendors in their name or in the name of M/s Indo Rama Synthetics Ltd. for installation of power plant?
Ans.- No. We have not paid any Service Tax on the goods received for power plant. It is the sole responsibility of the vendor."
5.4.8 The fact that the capital goods received for installation in of the power plant, will be/ have been capitalized in the book of accounts of M/s Indo Rama Petrochemicals Ltd. and depreciation claimed is evident from the Profitability Statement and Projected Balance Sheet submitted by them to Yes Bank for seeking certain loans for execution of this project. The said statements are reproduced below:
52 E/526,1101/2008
53 E/526,1101/2008
54 E/526,1101/2008
5.4.9 From the facts as discussed above it is quite
evident that 2nd Party was constructing, installing erecting, owning, operating and maintaining the said Thermal Power Plant as its own business asset for generating profits for itself by way of sale of power. Appellant had no role, authority over the 2nd Party or over the Thermal Power Plant. They were purchasing the power generated in the Thermal Power Plant on commercially and mutually agreeable terms and conditions from the 2nd Party. Thus the goods covered by the invoices on which they were shown as consignee were never received by them in their factory premises but were but were received by the 2nd Party on the plot leased out to them by Appellants. 2nd Party has not only received the said goods but have reflected the same in their book of accounts as capital/ fixed assets.
5.4.10. Since the goods were never received by the Appellant's in their premises the and were not installed, operated or used in any process of manufacture of final products, these mention of their name as consignee on the invoices is nothing but to create the instrument/ document for passing on the inadmissible credit to them.
5.5 Whether the CENVAT Credit on Capital Goods is admissible in respect of those Capital Goods which are reflected as Capital Assets in book of accounts of the other legal entity and have been capitalized therein.
5.5.1 Provisions of CENVAT Credit Rules,2004 as it existed then, and relevant for further discussions are reproduced below:
RULE 2. Definitions. -- In these rules, unless the context otherwise requires, -
(a) "capital goods" means:-
(A) the following goods, namely :-
55 E/526,1101/2008
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No 6802 and sub heading No 6801.10 of the First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank, used -
(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (2) for providing output service;
RULE 3. CENVAT credit. --
(1) A manufacturer or producer of final products or a [provider of output service] shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -
(i) to (x) ..........
paid on -
(i) any input or capital goods received in the factory of manufacture of final product or the provider of output service on or after the 10th day of September, 2004; and
(ii) ...........
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 output service.
(2)(a) The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider 56 E/526,1101/2008 of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year :
.........
(b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading No 68.02 and sub heading No 6801.10 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.
Illustration. - A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit up to a maximum of one lakh rupees in the financial year 2002-2003, and the balance in subsequent years.
(3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company.
(4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961 (43 of 1961).
(5) ...................
5.5.2 From the provisions as stated above it is quite evident that CENVAT Credit on the Capital Goods can be 57 E/526,1101/2008 availed only if the same are received in the factory of manufacturer of final product and is used the factory of manufacture. In the present case when the goods have not been received by the manufacturer in his factory the credit would not be admissible to him.
5.5.3 Appellants have relying on various case laws specifically in case of JSW Steel [2014 (307) ELT 929 (T)] argued that the CENVAT Credit cannot be denied to them as Goods on which the credit has been taken by the appellants were all used in their factory since thermal power plant (TTP) is situated within the factory premises of the appellants and there is no boundary wall fence/ demarcating TTP from the factory premises. We do not find the merits in submission of the Appellants and the facts of case relied upon by the appellant are clearly distinguishable. Facts as recorded by the tribunal in its order are as follows:
"8. Earlier, the main appellants were known as M/s. Southern Iron and Steel Company Ltd. ('SISCOL' - in short), which was established in 1996 and was in working condition till 2002. M/s. SISCOL was also brought under 'Restructuring Scheme' under Corporate Debt Restructuring ('CDR' - in short). Thereafter, M/s. SISCOL was declared a sick company and was brought under BIFR. Therefore, in order to enable them to get the finance for 'CPP', M/s. SISCOL leased out a portion of their factory premises of 50.14 acres to M/s. JSWPL for the purpose of setting up of 'CPP' on 17-1-2005, for a nominal amount of Rs. 10,000/- p.a. M/s. JSWPL pledged the land with the UTI Bank Ltd., to raise fund to the tune of Rs. 62 crores, for the purpose of setting up of the 'CPP' in the leased factory land for captive use of M/s. SISCOL in the manufacture of their final product i.e., iron and steel. M/s. JSWPL also used the funds to procure capital goods for the purpose of setting up the 'CPP'. They had instructed their suppliers to indicate in the invoice as "M/s. JSWPL, Consignee of M/s. SISCOL" and on the strength of these 58 E/526,1101/2008 invoices, M/s. SISCOL took the Cenvat credit on the capital goods. As per CDR proceedings during August, 2004, M/s. SISCOL merged with M/s. JSWSL with effect from 1-4- 2007. On 31-8-2006, M/s. SISCOL terminated the lease agreement with M/s. JSWSL and (M/s. JSWPL merged with M/s. JSWPL with effect from 1-4-2005) took over the 'CPP'. The loan of UTI Bank was also taken over by M/s. SISCOL."
Further in para 13, the contentions of appellant are recorded stating:-
"13. The learned counsel Shri Shiva Dass for the appellants submitted that -
(a) The 'CPP' is an integral part of steel plant;
(b) The leased out land was not for alienating the land by M/s. SISCOL but only for the loan purposes;
(c) M/s. SISCOL, M/s. JSWSL and M/s. JSWPL are all one and the same;
(d) Ownership of the land or capital goods is not relevant to decide the eligibility of capital goods credit;
(e) Without prejudice, no demand of excise duty can once again be made; and
(f) Subsequent event should also be taken into account to decide the eligibility of the CENVAT credit"
In para 32 and 33 distinguishing the facts of that case from the case of Majestic Auto, it has been recorded "32. The case law relied upon by the learned JCDR in the case of M/s. Majestic Auto Ltd. (supra) is also not relevant to the facts of this case. As in that case, M/s. Hero Briggs & Stratton Auto Pvt. Ltd., had taken on lease a part of the factory premises of M/s. Majestic Auto Ltd., who have also sold the machines and equipments on which they have availed MODVAT credit and M/s. Majestic Auto Ltd., have got manufactured the parts on job work basis from M/s. Hero Briggs & Stratton Auto Pvt. Ltd. In this case, the facts are that a part of the land has been leased out to M/s.
59 E/526,1101/2008 JSWPL for installation of 'CPP' which is being used by the appellants for manufacturing of their final products. There is no contract between the appellants and M/s. JSWPL for generation of electricity in the 'CPP' by M/s. JSWPL and was to be sold to the appellants. In fact, M/s. JSWPL was leased out land for installation of 'CPP' only. Therefore, the decision in the case of M/s. Majestic Auto Ltd., cannot be relied on in the facts of this case and the decision of M/s. Majestic Auto Ltd. (supra) was also dealt with by that Tribunal in the case of M/s. Steel Authority of India Ltd. - 2007 (219) E.L.T. 960 (Tri.-Del). Further, we find that the learned JCDR also relied on the decision of M/s. Chemplast Sanmar Ltd. - 2004 (177) E.L.T. 446 (Tri.-Chennai), this Tribunal hold that although M/s. Chemplast Sanmar Ltd., is not the manufacturer of power plant but finally credit on the capital goods was allowed. Therefore, as in this case also the final product is iron and steel. For manufacturing of that final product, 'CPP' was to be installed. Therefore, following the decision of M/s. Chemplast Sanmar Ltd. (supra), the appellants are entitled to Cenvat credit on capital goods used in the manufacture of 'CPP' by M/s. JSWPL.
33. In view of the above discussions, we find that the land has been leased to M/s. JSWPL only to set up a 'CPP' to take care of the power requirements of M/s. SISCOL on payment of annual rent of Rs. 10,000/- only. The said lease deed has been executed for raising the finance for setting up the 'CPP' as per CDR scheme. Further, M/s. JSWPL and M/s. SISCOL merged with M/s. JSWSL, therefore, and relying on the case laws of M/s. Steel Authority of India Ltd. - 2007 (219) E.L.T. 960 (Tri.-Del.), M/s. Chemplast Sanmar Ltd. - 2004 (177) E.L.T. 446 (Tri.- Chennai) and M/s. Vikram Cement - 2006 (197) E.L.T. 145 (S.C.), we find that the appellants are entitled to Cenvat credit on the capital goods which were being used for manufacturing of 'CPP' by M/s. JSWPL, which is being used 60 E/526,1101/2008 by the appellants to manufacture their final product i.e., iron and steel."
From the facts as recorded by the Tribunal in case of JSW Steel, it is evident that the portion of the land was leased out by M/s SISCOL to M/s JSWPL, not on any commercial terms but for the purpose of getting the loan. Further the CPP which was to be set up, was not to operate on commercial basis as an entity selling the power to M/s SISOL but was setup as captive power plant, integral part of the manufacturing unit. This fact is further strengthen by the fact that invoices were made stating "M/s. JSWPL, Consignee of M/s. SISCOL", which clearly showed that the goods were procured by M/s SISCOL, but were consigned in the name of M/s JSWPL. These facts clearly distinguish the case in hand from the case under consideration by the tribunal in case of M/s JSWPL.
5.5.4 Counsel for appellants in his written submissions in respect of the decision of Majestic Auto Limited [[1999 (107) ELT 133 (T)] mentioned wrongly should have been [2004 (173) ELT 145 (T-Del) relied upon by the Commissioner in para 6.14.02 has been over ruled by the Allahabad High Court. Para 6.14.02 of the impugned order is reproduced below:
"6.14.02 Where any premises in which the capital goods are installed has been leased out to another company, say "X" by "Y company, who are now in possession of the said premises, it cannot be claimed by "Y" company that the capital good are used in their factory. The capital goods are no more installed in the factory of the "Y". In this regard I place reliance on the decision of the Hon'ble Tribunal in the case of Majestic Auto Ltd vs CCE Ghaziabad reported in 2004 (173) ELT 145 (tri-Del)], wherein it has been held in para 6.1 to 6.3 as under;-
"6.1 We have considered the submissions of both the sides. It is not disputed by the learned Advocate that both the appellants are separate limited companies and as such 61 E/526,1101/2008 they are two different legal entity, though they may belong to same group. It is also not in dispute that the Appellant No. 1 have taken the Modvat credit of the duty paid on the capital goods in question and the premises in which the said goods are installed had been given on lease to the Appellant No. 2. This is also very clear from the Lease Agreement that the Lessee i.e. Appellants No. 2 shall enjoy the Demised Premises during the lease period without interruption by the lessor (i.e. Appellant No. 1). In terms of the Lease Agreement, the Appellants No. 2 enjoy the said premises and therefore it cannot be claimed to be the part of factory premises of the Appellants No. 1.
6.2 Rule 57Q of the Central Excise Rules empower a manufacturer to take the credit of the duty paid on the capital goods used in the factory of the manufacturer of final products. Rule 57S deals with the "manner of utilization of the capital goods." As per sub-rule (1) of Rule 57S, the capital goods "may be (i) used in the factory of the manufacturer of the final products; or (ii) removed, after intimating the Assistant Commissioner of Central Excise having jurisdiction over the factory and after obtaining dated acknowledgement of the same, from the factory for home consumption or for export on payment of appropriate duty of excise leviable thereon or for export under bond, as if the capital goods have been manufactured in the said factory."
6.3 As the premises in which the capital goods are installed has now been leased to the Appellants No. 2 who are now in possession of the said premises, it cannot be claimed by the Appellants No. 1 that the capital goods are used in their factory. The capital goods are no more installed in the factory of the Appellants No. 1........"
06.14.03 Thus the irresistible conclusion based on the above decisions is that as soon as a factory premises are leased to another person, the lessor cannot claim the legal premises to be within the lessor's factory. Hence the contention of Noticee No 1, that the leased premises are 62 E/526,1101/2008 still with their factory does not hold water."
Hon'ble Allahabad High Court has in case of Hero Motors [2014 (310) ELT 729 (ALL)] stated as follows:
22. In the present case we find substance in the contention of Shri Bharat Ji Agarwal that at the time of obtaining registration HBSA Pvt. Ltd. had submitted a ground lay out plan, which was approved by the Superintendent, Customs and Central Excise, Range- 6, Division-III, Ghaziabad on 21-8-1998 and in which the engine assembly on ground floor in the premises of Majestic Auto Limited was clearly demarcated. The plant and machinery was installed and was never removed from the premises. The I.C. Engines manufactured by HBSA Pvt. Ltd. in the same premises were used by the appellant. Once it was admitted that the capital goods, on which Modvat Credit was taken by the appellant remained installed in the same premises, which was leased out and continued to be engaged in the manufacture of I.C. Engine, which was further used in the manufacture of two wheelers and that a separate registration certificate was obtained by HBSA Pvt. Ltd., there was no removal of goods. The capital goods remained installed in the same premises and thus even if the premises were transferred on lease, the capital goods even if they were deemed to be installed in the premises of HBSA Pvt. Ltd., Rule 57-S, would not be attracted."
We do not find merits in submissions of the Counsel. It is not disputed that the decision of tribunal in case of Majestic Auto has been set aside by the Allahabad High Court, however the issue of relationship of lessor and lessee has not been set aside. It is seen that in the premises of leased out, when registration was granted the plant and machinery which was owned and installed by the Lessor was clearly demarcated, and never removed from that premises, for that reason High Court has set aside the order of tribunal stating that since machinery continued to 63 E/526,1101/2008 be installed within the factory premises provisions of Rule 57S shall not be applicable. However High Court was not dealing with the case where the plant and machinery was procured by the person on his own account, to whom the plot of land was leased for setting up a thermal power plant to be operated on commercial basis. When the ownership of the said plant and machinery was vested throughout with the 2nd Party, how can the Appellant claim the CENVAT Credit of duty paid on Capital Goods, installed on the leased out land on the basis of this decision of Allahabad High Court.
5.5.5 Similarly the reliance placed by the appellants on the decision of Madras High Court in case of Dalmia Cement [2015 (323) ELT 290 (Mad)], Steel Authority of India Limited [2016 (332) ELT 825 (T)] and Bhilai Steel Plant [2017 (1) TMI 293 (T)], cannot justify their stand. The issue under the consideration was in respect of removal of goods. The question that was being addressed was whether the goods which were already there on which credit has been taken, stood removed when they were handed over to another entity in terms of lease agreement. On contrary issue in the present case is vis a vis the admissibility of credit in respect of the goods procured by the lessee [person to whom a plot of land has been leased out] on his own account for commercial exploitation, to the lessor. We find the decisions to be clearly distinguishable. Just because the Thermal Power Plant has been set up on the plot leased out by the Appellant, it would not entitle them to the CENVAT Credit in respect of the inputs and capital goods procured by the lessor.
5.5.6 We find that the decision of the Karnataka High Court in case of Associated Cement Limited [209 (236) ELT 240 (Kar) to be squarely applicable in the present case. Relevant excerpts from these decisions are reproduced below:
Associated Cement Limited [209 (236) ELT 240 (Kar) 64 E/526,1101/2008 "5. Having heard the learned counsel for the parties and on perusal of the agreement dated 14-3-1999 entered into between the assessee and M/s. Tata Electric Company we have no hesitation to hold that the transaction thereunder between them was an absolute sale of the power unit for a valid sale consideration of Rs. 90 crores and that the entire unit came to be handed over to the purchaser and since then the purchaser has been running the power unit at the same premises of the assessee by taking the premises in which the power unit was installed on long term lease and generating the power. Therefore, it is clear that the said purchaser, after purchasing the power unit from the assessee, has been enjoying the same as its absolute owner and has been supplying to the assessee the power generated from the said power unit on payment basis. This being so it is quite evident that the assessee-company lost its ownership and also control over the said power unit by selling it to the said purchaser for valid consideration and by giving to the purchaser on long term lease the premises in which the said unit is installed so as to enable the purchaser to run the unit at the same premises of the assessee as its absolute owner, generate power and sell the power so generated to the assessee-company itself.
6. Therefore, in our considered view though there had been no physical removal of power unit the above transactions between the assessee-company and M/s. Tata Electric Company certainly amount to nothing short of physical removal of the power unit of the assessee in respect whereof MODVAT credit was availed by the assessee so as to attract the penal provisions of the said Act and the Rules. The said transactions of sale of power unit and simultaneous lease of premises are wisely resorted to by the assessee as a device to avoid the tax liability on it on the ground that the power unit was not physically removed from the premises of the assessee. Therefore, we are of the considered opinion that the Tribunal without application of mind and without proper 65 E/526,1101/2008 appreciation of the said transactions in the light of the relevant provisions of the Central Excise Act and the Rules has allowed the appeal of the assessee-company and set aside the Order-in-Original passed by the Commissioner of Central Excise, Belgaum. In the circumstances, we answer the above question of law in the 'negative' and against the assessee."
5.5.7 Appellants have relied upon various decisions as stated at para 4.2 (i), supra to argue that ownership of the capital goods is not relevant for determining the eligibility to CENVAT Credit. We have no dispute with the said preposition. However the issue under consideration is not vis a vis the ownership, but one of receipt and usage. When we hold that the said Capital Goods were not received in the manufactory of the manufacturer nor used by him for the manufacture of finished goods, the issue of ownership is irrelevant. CENVAT credit in present case is sought to be denied on account of non receipt of the goods within the factory premises and their usage in the process of production of the said goods. In case of KCP Ltd. [2013 (295) ELT 353 (SC)} Hon'ble Apex Court held as follows:
24. ......... Thus, the appellant did not use the purchased machinery in its premises or in its factory and therefore, necessary condition incorporated in the Rules for availing credit of the MODVAT had not been complied with. To avail the MODVAT credit, the input on which excise duty is paid must be used in the manufacture of the final product in the factory of the assessee. ....."
5.5.8 We also do not find merits in the submissions of the appellant that subsequently 2nd Party and Appellants were merged with effect from 1.02.2007. It is now settled law that admissibility of CENVAT Credit is to be determined at the time when the Capital Goods were received by the appellant and subsequent events and restructuring or changes in law cannot change the admissibility of credit. In case Spenta International [2007 (216) ELT 9Tri-LB)] it has been held 66 E/526,1101/2008 "7. In the case of Binani Cement Ltd. v. CCE, 2002 (143) E.L.T. 577, the Tribunal held that vested right of taking credit arises on the date of receipt of the goods and that the date of installation of capital goods being only a deferred date of taking credit, for administrative reasons, credit is eligible on the date of receipt of the goods. In CCE v. Sengunthar Spinning Mills, 1998 (99) E.L.T. 409, it was held that the availability of Modvat credit on capital goods has to be determined at the time of receipt of capital goods in the factory and if no modvat credit was available at that time, the question of subsequently making available any Modvat credit would not arise.
8. The recent decision of the Tribunal in CCE v. Precot Mills Ltd., 2007 (212) E.L.T. 483 follows the Surya Roshni decision and the Grasim Industries decision as well as the Sengunthar decision, to hold that the relevant date for determination of availability of Modvat credit is the date of receipt of capital goods in the factory and if on that date no credit was available, it cannot be allowed subsequently. It was held that when the machinery in respect of which the capital goods had been taken, were not used for manufacture of dutiable goods on the date of receipt in the factory, capital goods credit is not available on such machinery.
9. The ACE Timez decision reported in 2004 (170) E.L.T. 371, which takes a contrary view from those set out above, considers Rules 4(2)(a) & (b) of the Cenvat Credit Rules, 2002 and holds that these rules do not provide for denial of credit on the ground that it is not taken in the same financial year in which capital goods were received, and only restricts credit to 50% of the duty paid, in the financial year of receipt of capital goods, and do not provide for lapsing of credit if the balance 50% is not taken in the same financial year in which the capital goods were received. The above judgment does not consider Rule 6(4) of the Cenvat Credit Rules, which clearly stipulates that no credit shall be allowed on capital goods used 67 E/526,1101/2008 exclusively in the manufacture of exempted goods. In other words, the ACE Timez decision discusses the manner in which credit to be availed as per Rule 4(2)(a) & (b) and does not discuss eligibility in terms of Rule 6(4). Moreover, the ACE Timez decision does not consider the Tribunal's earlier decisions in Surya Roshni and Grasim Industries.
10. In the light of the above discussion, we answer the reference by holding that Cenvat credit eligibility is to be determined with reference to the dutiability of the final product on the date of receipt of capital goods."
5.5.6 Further when the capital goods are capitalized in the account books of 2nd Party, then by adopting this device Appellants could not have claimed the credit in respect of the same goods in view of Rule 4(4) of the CENVAT Credit Rules, 2004.
5.5.7 Further appellants have submitted that credit of Rs 1,70, 55,003/- has been denied to them in respect of the Capital Goods received in their premises after the merger of Appellants and 2nd Party with effect from 01.02.2007. We find force in the arguments of the appellant that after merger both the entities have become one and the credit cannot be denied on the ground that they were distinct earlier at time of placement of order. After merger the goods received were received by the appellants only in their premises and used by them. Hence we have to set aside the order dated 21.08.208 and remand the matter back to Commissioner for determination of CENVAT Credit to be disallowed after merger of the two entities.
5.6 Whether CENVAT Credit in respect of those goods which are not identifiable but classified under Chapter 84 of First Schedule to Central Excise Tariff Act, 1985.
5.6.1 The next issue is with regards the admissibility of credit in respect of supporting structures used for 68 E/526,1101/2008 installation of boiler etc, bunkers for storage of coal, ash handling system, system and other miscellaneous goods.
5.6.2 We are in agreement with the submissions made by the appellant that decision of the larger bench of Tribunal in case of Vandana Global Ltd [2010 (253) ELT 440 (Tri- LB)] has been set aside by the Hon'ble Chhattisgarh High Court as reported at [2018 (16) GSTL 462 (Chhattisgarh)]. Similar view has been expressed by the Gujarat High Court in the case Mundra Port [2015 (39) STR 726 (Guj)]. However since the credit has been sought to be denied for the reason of that the goods were not received by the appellants and were used by them for the process of production of finished goods we do not dwell into this issue much.
5.6.3 Similarly with regards to credit in respect of miscellaneous goods classified by the supplier under Chapter 84, relying on the decision of Apex Court in case of Madras Cement [2010 (254 0 ELT 3 (SC)] we hold that the credit would not be admissible without identification of goods. However this question to becomes irrelevant as the issue has been decided on the fact that these goods were not received and used by the appellants for the process of production of finished goods.
5.7.3 Since we are not adjudicating the case in relation to excisablity of the thermal power plant we do not dwell into submissions made by both the sides on this issue and various case laws relied upon by the revenue.
5.7.4 However in the remand proceedings in respect of the goods received after the date of effect of merger of two units, Commissioner should consider these issues afresh while considering the case for allowing or disallowing the credit in respect of the goods received after date of merger.
5.8 Whether demand is hit by limitation and penalty under Rule 15 of CEVAT Credit Rules, 2004 69 E/526,1101/2008 read Section 11AC justified in the present case on the Appellant.
5.8.1 Since both the show cause notices have been issued within normal period of limitation from date of taking the CENVAT Credit sought to be denied we hold that demand is no hit by limitation as provided for by Section 11A(1) of Central Excise Act, 1944. However we also note that charge of suppression is well established against the appellants. Commissioner has in para 08.01 and 08.02 held as follows "08.01 The noticee No 1, has contended that the credit on some of the items were taken as in April 205 based on invoices which showed the Noticee No as consignee and capital goods were received and used in their factory. Therefore it cannot be alleged that the Noticee No 1, has suppressed the facts with intent to evade payment of duty and hence the proposal to deny the credit for the period beyond one year prior to show cause notice is not sustainable.
"08.02. I do not find merits in the argument of the Noticee No.1. After introduction of 'self assessment scheme' in Central Excise, there is no need to submit invoices pertaining to clearance of final products and purchase of capital goods, inputs. No description of goods purchased by the assessee is reflected in the prescribed ER1 returns. Only the figures of duty paid and Cenvat credit taken are reflected in the returns. The responsibility of assessing the correct duty liability on the clearance of final products and taking of credit on eligible goods lies only with the assessee. It is specifically provided in Rule 9 Cenvat Credit Rules 2004 that the assessee should take reasonable steps to take eligible credit with proper documents. The contention of Noticee No.1 is that "the notices were under the bona fide belief that the items in question were covered under the definition of capital goods since they have been used in the factory of the notice even though they were not the owners of the 70 E/526,1101/2008 capital goods so long as they satisfy the definition of capital goods and hence they cannot be alleged that they suppressed the facts with intent to evade duty". It is not sufficient to satisfy the definition of capital goods alone which gives the right of availing credit on ineligible credit to the assessee but they should satisfy other equally binding, mandatory and substantial conditions of the provisions of Rules."
Therefrom he quotes as series of case laws and by applying the ratio decidendi of the said decisions he holds "that extended period could very well be invoked in this case in as much as the Noticee No 1, has failed to take reasonable steps before taking eligible credit as responsibility of assessing the correct duty liability on the clearance of final products and taking of Cenvat credit on eligible capital goods lies only with the assessee.":
i. TISCO [1988 (330 ELT 297 (Pat);
ii. Peterplast Synthetics Pvt Ltd [2005 (192) ELT 842 (T)] iii. Tamilnadu Coop Textiles Processing Mills Ltd [2007 (207) ELT 593 (T)] iv. Bajaj Tempo Ltd [2001 (133) ELT 749 (T)] v. Unshine Tube Pvt Ltd [2002 (136) ELT 231 (T)] vi. Khushal Fertilizer (P) Ltd [2005 (186) ELT 114 (T)] vii. Faridabad Metal Udyog (P) Ltd [2001 (138) ELT 1021 (T)] viii. Kores India Ltd [2003 (152) ELT 395 (T)] ix. Amco Batteries Ltd. [1999 (112) ELT 665 (T)] x. Central Coalfields Ltd {1999 (106) ELT 476 (T)] 5.8.2 We do not any reason to differ with the findings of the Commissioner. We would like to add the fact that piece of land has been leased out to 2nd Party and Thermal Power Plant was being erected there by the 2nd Party on their own account to commercially exploit the same was never brought to the knowledge of the department. These 71 E/526,1101/2008 facts came to knowledge of department only when Appellant came for revision of the ground plan on 16.10.2006. Further the invoices in this case against which the credit has been taken show them as consignee, whereas the goods were actually never destined to them. It was nothing but a well planned documentation to hoodwink the department for availing the inadmissible credit. The idea was that the same goods would be capitalized in the book of accounts of 2nd Party and the CENVAT credit claimed by them. Just on sample basis one of the invoices is reproduced below which show the quantum of layering in built therein to hide the real transaction.
The first invoice is issued showing consignee as "M/s Indo Rama Synthetics Ltd, A-31 MIDC Industrial Area Butibori Nagpur, A/c M/s Indo Rama Petrochemicals Ltd., A/c M/s Indure Pvt Ltd Sahibabad, A/c M/s Chethar Vessels Pvt Ltd Trichy."; and The second invoice is showing consignee as "M/s Indo Rama Synthetics (I) Ltd. A-31 MIDC Industrial Area Butibori Nagpur Maharashtra, A/c M/s Indo Rama Petrochemicals Ltd." and buyer is shown as "M/s Indure Pvt Ltd, M/s Indo Rama Synthetics (I) Ltd. A-31 MIDC Industrial Area Butibori Nagpur Maharashtra."
The invoice itself speaks volume as to why the identity of actual purchaser and user of the said goods have been layered so as to make identification difficult.
72 E/526,1101/2008
73 E/526,1101/2008
5.8.3 In our view the charge of suppression,
misstatement etc. with the intent to evade payment of duty/ take inadmissible credit is well established against the appellants.
5.8.4 Since we find that appellants have availed the inadmissible credit by suppressing the relevant and complete information from the department we also uphold the penalties imposed under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944.
5.8.5 Since the appellants have taken the inadmissible credit the demand for interest too is sustained.
6.1 In view of discussions above:-
74 E/526,1101/2008
i. Appeal No E/526/2008 is dismissed and the Order in Original No 4/2008/C dated 27.02.2008 is upheld.
Appeal No E/1101/2008 is partly allowed to the extent of remanding the matter to determine the quantum of inadmissible credit post merger of 2nd Party and Appellant. Remaining part of order in original No 12/2008/C dated 21.08.2008 for the period prior to merger is upheld in toto.
(Order pronounced in the open court on 14.05.2019) (Dr. D.M. Misra) Member (Judicial) (Sanjiv Srivastava) Member (Technical) tvu