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CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
EAST ZONAL BENCH: KOLKATA
EXCISE APPEAL NO.E/761/2010
(ARISING OUT OF ORDER IN ORIGINAL NO.CCE/BBSR-I/28/2010 dt.28.09.2010 PASSED BY COMMISSIONER OF CENTRAL EXCISE,CUSTOMS & SERVICE TAX, BHUBENESWAR-I)
FOR APPROVAL AND SIGNATURES OF
DR. D.M.MISRA, HONBLE JUDICIAL MEMBER
DR. I.P.LAL, HONBLE TECHNICAL MEMBER
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not ?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
Authorities?
M/S. J.K.PAPER MILLS
APPELLANT (S)
VERSUS
COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX,BHUBENESWAR-I
...RESPONDENT (S)
APPEARANCE:
SHRI A.R.MADHAV RAO, ADV. ASSISTED BY SHRI KRISHNA RAO, ADV.
FOR THE APPELLANT(S);
SHRI S.MISHRA A.R. (ADDL. COMMR.) FOR THE RESPONDENT.
CORAM:
DR. D.M.MISRA, HONBLE JUDICIAL MEMBER:
DR. I.P.LAL, HONBLE TECHNICAL MEMBER Date of Hearing: 12.02.2014 Date of Decision:07.08.2014 ORDER NO.FO/A/75447/2014 Per Dr. D.M.Misra This is an Appeal filed against the Order-in-Original No CCE/BBSR-I/28/2010 dt.28.09.2010 passed by the Commissioner of Central Excise, Customs & Service Tax, Bhubaneswar-I.
2. Briefly stated, the Appellant are engaged in the manufacture of excisable goods viz. Pulp, Paper & Paper Board falling under Chapters 47.25 & 48.02 of CETA, 1985. They had availed CENVAT Credit on various Pollution Control equipments/items as capital goods during the period, 21st August, 2007 to 31st March, 2008 amounting to Rs.2,37,20,987/-. The said capital item were later sold to another Company, M/s JKETL situated in the same premises. A show cause-cum-demand notice was issued to the Appellant on 25.06.2009, alleging that the Appellant had wrongly availed & utilized the said CENVAT Credit of Rs.,2,37,20,987; an amount of Rs.1,89,04,377/- was availed after the sale of the said capital goods and Rs.48,16,610/- was availed before sale but not reversed after sale of such capital goods to M/s JKETL. It was alleged that the Appellant had contravened Rules 3(5B),2(a)(A) and 3(5) of the Central Credit Rules, 2004. On adjudication, the ld. Commissioner has confirmed the demand and imposed equivalent penalty on the Appellant under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Hence, the present Appeal.
2.1. On conclusion of the hearing before this Tribunal, both sides have been directed to file their written submission within four weeks; the Appellant filed it on 07.03.2014 and the Revenue filed their submission on 30.07.2014.
3. Elaborating the facts, the ld. Advocate for the Appellant submits that the Appellant is an unit of M/s. J.K.Paper Mills Ltd. having its manufacturing unit at Rayagada, Orissa, wherein they are engaged in the manufacture of Pulp, paper and paper-board falling under Chapter 47 & 48 of CETA,1985. In the course of manufacture of their finished goods, namely, paper and paper-board, lime sludge, a waste product is generated. Earlier disposal of the said sludge were made to ravines, but after the amendment to Water(Prevention and Control of Pollution) Act,1974, the appellants were required to install lime kiln plant for recycling the lime sludge into lime. Accordingly, the Appellant, adhering to the conditions of Financial Institutions, proposed to set up the lime kiln plant through the special purpose vehicle, in the name and style as JK Enviro-Tech Ltd. (JKETL), in which 34.5% shares are held by the Appellant and the remaining shares by other group company. It was incorporated as a limited company on 19.12.2007.
3.1. The Appellant purchased necessary equipment required for setting up the said lime kiln plant from one M/s. FFE Minerals India Pvt. Ltd. All the equipment, machineries etc. had been received by the Appellant under 265 invoices during the period, August, 2007 to March, 2008 and taken in their books of accounts. The Appellant against bills dated 02.04.2008 and 01.09.2008, sold the said equipment/capital goods required for setting up the lime kiln plant involving a total cenvat credit of Rs.2.37 crore to M/s JKETL. The Appellant had entered into a Conversion Agreement, which was been later changed to Take or Pay Agreement for the conversion of lime sludge into lime in the said premises and the Appellant had agreed to pay Rs.48 lakhs towards conversion charges to M/s JKETL. It is his contention that all infrastructure support and day to day running of the said lime kiln plant had been provided by the appellant to M/s JKETL, and the entire quantity of lime converted from lime sludge by M/s JKETL were returned to the appellant, which in turn, were used in the manufacture of paper and paperboard.
3.2. It is his contention that the demand notice had been issued and confirmed alleging that the CENVAT Credit amount of Rs.1.89 crore had been availed wrongly in violation of Rule 3(5B) of the CENVAT Credit Rules, 2004, on the premise that once the goods are sold, it is to be treated as written-off from the books of accounts, and accordingly, availment of CENVAT Credit on those capital goods becomes incorrect, and consequently, inadmissible. Denying Cenvat credit of Rs.48.16 lakh, it has been alleged that they had violated Rule 3(5) of the CCR, 2004, inasmuch as after the sale and removal of the capital goods from the factory, they failed to reverse the CENVAT Credit availed on the capital goods.
3.3. Ld. Advocate for the Appellant challenging the impugned Order raised two preliminary objections. It is his contention that the impugned Order has gone beyond the scope of the show cause notice in confirming the demand of Rs.1.89 crore under Rule 3(5) of CCR, 2004, when the show cause notice was issued to them alleging, contravention of Rule 3(5B) of CCR,2004. In support, he has referred to the decision of the Honble Supreme Court in the case of Sacci Allied Products Ltd. Vs. Commissioner of C.Ex.,Meerut 2005(183)ELT 225. Secondly, he has submitted, no penalty could be imposable on the Appellant, as the Appellant had disclosed all the facts to the Department, right from 10.03.2008, much before taking credit in their books and after such disclosure of facts, the Department had not changed the Ground Plant of the factory, accepting that the capital goods are within the factory.
3.4. Further he has submitted that Rule 3(5) of the CCR, 2004,on the basis of which the demand has been confirmed, is not applicable to the facts of the present case, as the installed capital goods had not been removed from the factory premises of the Appellant, even though the same were sold to another company, M/s JKETL. He has submitted that neither the Ground Plant nor the Registration Certificate of the Appellant has been changed/modified by the Department, in spite of full disclosure to the Department on 10.03.2008. Thus, the manufacture of the lime from the lime sludge continues to be in the premises of the Appellant, and hence, the use of the capital goods ought to be considered as within the factory of the Appellant. Besides, the Appellant be treated as the manufacturer of the lime from the lime sludge for the simple reason that the entire JKETL Plant is managed and run by the Appellant on deputing its supervisory, financial, technical staff for day-to-day running of the said factory. He has submitted that a Memorandum of Understanding has been executed on between Appellant and M/s JKETL in this regard. In support, he has referred to the judgments of the Honble Supreme Court in (i)Grauer & Weil India Ltd. vs. CCE, Baroda, 1994(74)ELT 481(SC); (ii)Shree Agency vs. SK Bhattacharjee, 1977(1)ELT J 168(SC); (iii)Bee Pee Coating Ltd. vs. CCE, Vadodara, 2000(115)ELT 765 affirmed at 2000(118)ELT A241(SC). Further, he has submitted that conversion of lime form lime sludge is an integral process in the manufacture of paper and paperboard, hence, one factory registration would be necessary, in view of the judgements in the following cases: Dhamapur Sugar Mills Vs. CCE Meerut 2001 (129) ELT 73(Tri. Del.), Amaravathy Co.-Op Sugar Mills Vs. CCE,Coimbatore 2002 (150) ELT449(Tri.-Chennai).
3.5. Further, he has submitted that credit cannot be denied on the ground that the capital goods are sold and owned by JKETL and not by the Appellant, since ownership of the capital goods, is not a relevant factor in availing the CENVAT Credit. In support, he has referred to the judgments, namely, HIS Automotives vs. CCE, Chennai 2004(163)ELT 116(Tri-Chennai); CCE, Ludhiana vs. Pepsi Foods, 2010(254)ELT 284(Guj.); CCE, Chennai vs. Sunrise Chemicals Industries, 2010(262)ELT 110(Guj.); CCE vs. ILGIN Automotive Pvt. Ltd., 2014(299)ELT 129(Mad.).
3.6. He has further submitted that to bring into the fold of Rule 3(5) of CCR, 2004, physical removal of the capital goods from the factory of the Appellant is necessary and since there was no physical removal of the capital goods from their factory, accordingy, the denial of credit on the capital goods, is incorrect. In support, he has referred to the judgment of this Tribunal in the case of Dalmia Cements (Bharat) Ltd. vs. CCE, Tiruchirapalli, 2008(224)ELT 484(Tri.-Chennai). The meaning of removal, as employed in the said Rule 3(5) of CCR,2004 ought to be understood, as physical removal from the factory. In understanding the meaning of removal he has referred to the ratio in the case of J.K. Spinning and Weaving Mills Ltd. & Another vs. UOI and Others, 1987(32)ELT 234(SC).
3.7. Further, he has submitted that if there is any omission in enacting the CENVAT Credit Rules for circumstance on the issue of retention of the credit after sale of the capital goods, without its physical removal, such an eventuality is caususomissus which cannot be supplied by the courts. In support, he has referred to the decision of the Honble Supreme Court in Singareni Collieries Co. Ltd. vs. Vemuganti Ramakrishnan Rao & Others reported as JT 2013(11)SC 539.
3.8. Further, he has submitted that even assuming that the capital goods are used outside the factory premises for manufacturing intermediate products that are captively consumed, the credit on such capital goods are allowable, in view of the Honble Supreme Courts judgment in the case of Vikram Cement Vs. Commissoner of Central Excise,Indore 2006 (194) ELT 3(SC). He has also referred to the decision of the Tribunal in the case of SAIL vs. CCE, Bhubaneswar-II reported at 2007 (219) ELT 960.
3.9. Answering the arguments of the Departmental Representative that even though in the Conversion Agreement dated 28.03.2008 as amended by Agreement dated 21.05.2008, the relation between the Appellant and JKETL has been shown as independent contracting parties and the Agreement does not create any agency, joint venture, partnership employment, relationship or franchisee etc. between them, and such recitals are standard form of conveyancing i.e. drafting of documents, and form the introduction to the subsequent clauses representing the understanding between the parties; the understanding as set out thereafter, clearly renders the Appellant as a manufacturer. Distinguishing the judgment of the Honble Karnataka High Court in the case of Commissioner of Central Excise, Belgaum Vs. Associated Cement Company Ltd. 2009(236)ELT 240(Kar.), the ld. Advocate submitted that the said judgment would not be applicable to the present case, in as much as the land has not been leased to M/s JKETL and the control of running the lime kiln plant is fully with the Appellant. Further, he has submitted that the said judgment of the Honble Karnataka High Court is per incuriam, as it has not considered the meaning of removal laid down by the Honble Supreme Court in the case of JK Spinning and Weaving Mills (supra); hence cannot be considered as a binding precedent.
4. Per Contra, the Ld. A.R for the Revenue has submitted that the Ld. Commissioner has not travelled beyond the scope of the show cause notice, in the sense that even though he did not agree with the contention of the Department that that recovery of CENVAT credit could be made under Rule 3(5B) of CCR,2004 but he has held that since the capital goods were not used in the factory of the appellant after being sold to M/s JKTL, therefore, the same is inadmissible. He has submitted that in the show cause notice along with the contravention of rule 3(5B) of CCR,2004 it is also alleged that the appellant had contravened rule 2(a)(A) of the CCR,2004 by not using the capital goods in their factory. He has submitted that after receipt of the capital goods in the factory, the appellant sold the capital goods for due consideration to JKETL, which is a separate legal entity, engaged in the manufacture of 'Lime' out of the 'Lime Sludge'. Referring to the conversion Agreement the Ld. A.R. Submitted:
"Para 6.1 JK ENVIRO shall build and install a Lime Recovery Plant including a rotary lime sludge re-burning kiln along with production gas generation plant for burning of lime sludge based on modern and efficient design for the land situated at Jaykaypur, District Rayagada, in Orissa and for the land situated at Songarh Gujarat for the sum of approximately Rs. 36.83 crores and Rs. 31.85 crores respectively, for JKPL ("lime extraction process" or "Conversion")".
"Para 6.2 For the purposes of Conversion and rendering its services, expertise and advise to JKPL, JKPL shall pay to JK ENVIRO conversion charges/ consideration at minimum of Rs. 48 lac per month plus interest, charges, expenses etc. as set out in JK ENVIRO Loan Agreement ("Conversion Charges/Fees")".
4.1. It is the contention of the Department that despite the claim of operationalization of the Lime Sludge Plant by the Appellant, Para 4.1 of the Conversion Agreement clearly demonstrates that the Plant was being allowed to run on the land belonging to JKPL for a 'consideration' as under:
"Para 4.1 In consideration of JK ENVIRO setting up the Lime Recovery Plant for JKPL, JKPL has allowed JK ENVIRO to set up the Lime Recovery Plant on the said land."
4.2. It is the submission of the Ld. A.R. for the Revenue that thus there exists a clear consideration by JKPL for conversion of Lime Sludge into lime by the plant belonging to JKETL. The Department's further contention is that the Capital Goods have been sold to JKPL which was a separate entity. Although JKETL was not required to take Central Excise Registration against the manufacture of Lime which was exempted from duty, it cannot be considered that the plant still belonged to the Appellant. It is submitted that a similar view was taken by Honble High Court of Karnataka in Commissioner of Central Excise, Belgaum Vs. Associated Cement Co. Ltd., 2009(236) E.L.T. 240 (Kar.) in which it was held that once the sale transaction between the assesse and buyer is accomplished the assesse-company had lost its ownership and control and was nothing short of physical-removal of cenvatted unit.
4.3. Referring to judgment of Honble Gujrat High Court in the case Sintex Industries Ltd. Vs. Commissioner of Central Excise, 2013 (287) E.L.T. 261 (Guj.), it is submitted that once the assessee has a separate Registration the assessee is stopped from contending that their manufacturing facility is also a factory within factory simply because both are situated within the common boundary wall. In the instant this principle would hold goods for JKETL even when they manufacture lime which is nevertheless exempted but on which exemption may be removed at a later date 4.4. The Ld. A.R. argued that in case such a device/method is accepted as legal then every manufacturer of exempted final products(viz. JKETL) would make available the non-cenvattable credit of capital goods to the buyers (viz. JKPL) who allowed them to set up the plant within the factory premises, which would completely go against the sprit of the CENVAT Credit Scheme.
5. Heard both sides and perused the record. The issue for determination is: whether after receipt of various capital equipments of Lime Klin Plant in the factory, on which CENVAT Credit has been availed before/after sale by the Appellant, to another unit, namely, M/s JKETL, situated within the same premises, the appellant are entitled to avail/retain the CENVAT credit in their books and utilize it towards payment of duty on their finished products or otherwise.
5.1. Advancing the preliminary objection, the Ld. Advocate submitted that the demand Notice was issued for recovery of Credit of Rs.1.89 crore being availed after sale of the Capital equipments, machineries, etc. in violation of Rule 3(5B) of CCR,2004; Rs.48.16 lakhs before sale of the said capital items in violation of Rule 3(5) of CCR,2004. Whereas, in the impugned , the adjudicating authority has confirmed the entire amount of CENVAT credit of Rs.2.37 Crore for violation of Rule 3(5) of CCR,2004.The contention of the Revenue, on the other hand, is that while issuing the demand Notice, the Department had not only alleged violation of Rule 3(5B), but also alleged violation of Rule 2(a)(A), and also Rule 3(5) of the CENVAT Credit Rules, 2004 contending that the capital equipments, machineries received in the factory, were not used by the Appellant, even though CENVAT Credit had been availed on the same, but sold/ transferred to M/s JKETL, hence availment/retention of the credit become contrary to the provisions and recoverable from them. It is the submission of the Revenue that considering the facts cumulatively, the ld. Adjudicating Authority had confirmed the entire amount of CENVAT Credit availed on the capital goods received and then sold by the Appellant to M/s. JKETL. We find force in the submission of the ld.AR for the Revenue that the show cause notice has to be read as a whole; the demand notice has been issued for recovery of the CENVAT Credit under Rule 14 of the CCR,1944 read with Section 11A of CEA,1944 alleged to have been availed and utilized wrongly in contravention to various provisions of CENVAT Credit Rules, 2004. Therefore, in our opinion, the ld. Adjudicating Authority has not travelled beyond the scope of Show Cause Notice, as no new facts had been considered, nor extraneous matters were taken into account in confirming the demand.
5.2. Now, coming to the merit of the case, we find that the Appellant had assailed the impugned Order on various grounds. It is contended that on sale of the capital equipments, machineries, no doubt, there has been change/transfer of ownership from the Appellant to M/s. JKETL; but, since the criterion of ownership being not relevant to the eligibility of CENVAT Credit on inputs/capital goods under the CENVAT Credit Rules,2004, therefore, CENVAT Credit cannot be demanded from them being correctly taken and utilized. In support they have referred to the judgments of the Tribunal and High Court, which are discussed as below.
5.3. In His Automotives Ltd.s case(supra), the question arose was whether CENVAT Credit availed on capital goods, namely, Checking Fixtures and Jigs & Fixtures, cleared by M/s Hyundai Motors to the Appellant, for the manufacture of auto parts, would be admissible to the Appellant, since M/s. Hyundai Motors continued to be the owner of the said capital goods. It is an admitted fact that while clearing the said Checking Fixtures and Jigs & Fixtures M/s Hyundai Motors had reversed the credit under Rule 57S of the erstwhile Central Excise Rules,1944. The Tribunal, following the principle laid down in Sharda Motors Industries Ltd. vs. CCE, Chennai-II, 2002(150)ELT 159(Tri.-Del.), observed that the ownership is not relevant in availing the credit on such Jigs & Fixtures in the hands of the Appellant, who was entrusted the job of manufacture of auto parts using the said Jigs and fixtures.
5.4. In CCE, Ludhiana vs. Pepsi Foods (supra), the appellant had received capital goods viz. moulds from M/s. Pepsico Ltd. against an endorsed bill of entry and invoice which were not in the name of the respondent, M/s. Pepsi Foods Ltd., but were in the name of M/s. Frito Lay India. In this context, it was held, following Sharda Motors case (supra), that ownership of Moulds cannot be the criterion for not allowing MODVAT Credit on such capital gods received & used by the Appellant, M/s. Pepsico Ltd.
5.5. In the case of ILGIN Automotive Pvt. Ltd. (supra), the question of law raised before the Honble Madras High Court, was whether MODVAT Credit in respect of capital goods received from M/s. Hyundai Motors India Ltd. and not owned and acquired by the respondent, as required under Rule 57Q of the Central Excise Rules, 1944, was admissible to CENVAT Credit? The assessee in that case was engaged in the manufacture of automobile components. They had availed the MODVAT Credit in respect of machineries falling under Chapter Headings 84 and 85 of CETA, 1985, which were lent by M/s. Hyundai Motors to them. M/s. Hyundai Motors had removed the said capital goods, by way of reversal of applicable excise duties, as per the provisions of Rule 57-S(I)(ii) of the Central Excise Rules, 1944. These machineries were received under a leave and license agreement with M/s. Hyundai Motors; as per the said agreement, the ownership of capital goods vested with M/s. Hyundai Motors India Ltd. and the assessee was not the owner of the said capital goods. In that context, the Honble High Court had held that even though ownership of capital goods remained with M/s. Hyundai Motors India Ltd., but the assessee is eligible to avail the CENVAT Credit on the duty paid on the capital goods by M/s Hyundai Motors India Ltd., which were used by them in the manufacture of auto parts.
5.6. In the case of Sharda Motors case (supra), the assessee was the manufacturer of automobile components for M/s. Hyundai Motors who had supplied them certain jigs and fixtures. The Tribunal had observed that even though the ownership of such moulds and dyes vested with M/s. Hyundai Motors, MODVAT Credit was held admissible to the Appellant. In this case also while clearing the capital goods M/s Hyundai Motors reversed/paid the credit/duty on the said Jigs & fixtures under Rule 57S of the erstwhile Central Excise Rules, and the Appellant had availed the credit.
5.7. We find that in all these cases the issue of ownership was held not relevant, when the supplier/owner had removed the moulds/capital goods, to the job-worker, on reversal of credit/payment of duty under erstwhile Rule 57S, and the job-worker even though not the owner of the said goods used the same in the manufacture of finished goods and accordingly, availed the credit. But, the circumstances in the present case are totally different, in as much as, the Appellant even after sale of the capital items, without reversal of the credit availed, utilized itself in the clearance of the finished goods, hence, the principle of law laid down in the above cases, in our humble view, not applicable to the facts of the present case.
5.8. The next argument vehemently advanced by the ld. Advocate is on the criterion of the removal of the capital goods, from the premises of the Appellant, for recovery/reversal of credit under Rule 3(5) of the CCR,2004 from the Appellant. It is the contention of the ld. Advocate that even though the equipments, machineries etc. had been sold by the Appellant to M/s. JKETL, since these capital goods continued to remain within the registered premises of the Appellant, and as there was no physical removal, nor there is any change in the ground plan, the CENVAT Credit availed on such capital equipments, machineries, cannot be recovered from the Appellant. To buttress his argument, the ld. Advocate has referred to the judgment of the Honble Supreme Court in J.K.Spinning and Weaving Mills case (supra).
5.9. Before reading the said judgment in understanding the meaning of removal, and applying the same to the facts of the present case, it is necessary to understand that what is the ratio of a judgment which could be applied as a precedent to other cases.
5.10. The Honble Supreme Court in the case of Commissioner of C.Ex.,Delhi Vs. Allied Air-conditioning Corporation(Regd.) 2006(202) ELT 209(SC), explaining the necessity of reading the judgment as precedent in the context of case observed as:
10.?A bare reading of the CEGATs order makes the position clear that it has not analysed each item individually. It has also not indicated how the ratio in PSIs case (supra) has any relevance. The same was rendered in entirely different factual scenario. A judgment should be understood in the light of facts of the case and no more should be read into it than what it actually says. It is neither desirable nor permissible to pick out a word or a sentence from the judgment divorced from the context of the question under consideration and treat it to be complete law decided by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. [See Mehboob Dawood Shaikh v. State of Maharashtra, 2004 (2) SCC 362]. .(emphasis supplied) in a recent case in Arasmeta Captive Power Company Pvt. Ltd. vs. Lafarge India Pvt. Ltd.,2014 AIR SCW 39, at paras 35 and 36, held as follows:
35. At this stage, we may also profitably refer to another principle which is o assistance to understand and appreciate the ratio decidendi of a judgment. The judgments rendered by a court are not to be read as statutes. In Union of India v. Amrit Lal Manchanda and another, it has been stated that observations of courts are neither to be read as Euclid's Theorems nor as provisions of the statute and that too taken out of their context. The observations must be read in the context in which they appear to have been stated. To interpret words, phrases and provisions of a statute, it may become necessary for Judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes. 36. In Som Mittal v. Government of Karnataka, it has been observed that judgments are not to be construed as statutes. Nor words or phrases in judgments to be interpreted like provisions of a statute. Some words used in a judgment should be read and understood contextually and are not intended to be taken literally. Many a time a Judge uses a phrase or expression with the intention of emphasizing a point or accentuating a principle or even by way of a flourish of writing style. Ratio decidendi of a judgment is not to be discerned from a stray word or phrase read in isolation(emphasis supplied). 5.11. From the aforesaid observations of the Honble Supreme Court it is crystal clear that in a judgment the word, phrase or expression employed therein be understood in the context in which it has been used.
5.12. In J.K.Spinning and Weaving Mills case (supra), the issue before the Honble Supreme Court, was the validity of Rules 9 and 49 of the erstwhile Central Excise Rules,1944, after its amendment by Notification No.29/82-CE dated 22.09.1982. The Honble Supreme Court while recording its observation considered the meaning of removal at para 38, which was used in the amended Rule 49 of the said Central Excise Rule. However, the context of its elucidation, it is relevant to refer to the observations at para 37,38 & 39 which read as:
37. The appellants have also challenged the prospective operation of the Explanation to Rules 9 and 49 introduced by amendments of the same. It is strenuously urged by Mr. Sorabjee, learned Counsel for the appellants, that even after amendment there must be removal of the goods from one place to another for the purpose of collection of Excise duty. Our attention has been drawn on behalf of the appellants to Clause (b) of sub-section (4) of Section 4 of the Act, which defines place of removal as follows :-
Sub-section (4). - For the purpose of this section, -
(a)..................................................................................
?? (b) place of removal means -
(i) a factory or any other place or premises of production or manufacture of the excisable goods; or
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed;
38.?It is submitted on behalf of the appellants that the Explanations to Rule 9 and Rule 49 are ultra vires the provision of Clause (b) of sub-section (4) of Section 4 of the Act inasmuch as place of removal as defined therein, does not contemplate any deemed removal, but a physical and actual removal of the goods from a factory or any other place or premises of production or manufacture or a whatehouse etc. This contention is unsound and also does not follow from the definition of place of removal. Under the definition place of removal may be a factory or any other place or premises of production or manufacture of the excisable goods etc. The Explanations to Rules 9 and 49 do not contain any definition of place of removal, but provide that excisable goods produced or manufactured in any place or premises at an intermediate stage and consumed or utilised for the manufacture of another commodity in a continuous process, shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation. Clause (b) of sub-section (4) of Section 4 has defined place of removal, but it has not defined removal. There can be no doubt that the word removal contemplates shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another.
39.?It is well settled that a deeming provision is an admission of the non-existence of the fact deemed. Therefore, in view of the deeming provisions under Explanations to Rules 9 and 49, although the goods which are produced or manufactured at an intermediate stage and, thereafter, consumed or utilised in the integrated process for the manufacture of another commodity is not actually removed, shall be construed and regarded as removed. The Legislature is quite competent to enact a deeming provision for the purpose of assuming the existence of a fact which does not really exist. It has been already noticed that the taxing event under Section 3 of the Act is the production or manufacture of goods and not removal. The Explanations to Rules 9 and 49 contemplate the collection of duty levied on the production of a commodity at an intermediate stage of an integrated process of manufacture of another commodity by deeming such production or manufacture of the commodity at an intermediate stage to be removal from such place or premises of manufacture. The deeming provisions are quite consistent with Section 3 of the Act. As observed by the Federal Court in Megh Rajs case (supra) there is in theory nothing to prevent the central legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed or destroyed or given away. It is for the convenience of the taxing authority that duty is collected at the time of removal of the commodity. There is, therefore, nothing unreasonable in the deeming provision and, as discussed above, it is quite in conformity with the provision of Section 3 of the Act. The contention that the amendments to Rules 9 and 49 are ultra vires Clause (b) of sub-section (4) of Section 4 of the Act, is without substance and is overruled.
5.13. Needless to emphasize, the meaning of the word removal in the aforesaid judgment has been considered in the context of deemed removal as employed in the said Rule 49, to test its validity. Their Lordships had observed that the concept of deemed removal is valid and Rule 49 within the Rule making power of the legislature. Applying the principle laid down in Allied Air-Conditioning and Arasmeta Captive Power Company s case(Supra), we do not find merit in the submission of the ld. Advocate that wherever the word, removal occurs under the excise provisions , irrespective of its context, to be understood as mentioned in the said para 39 of the judgment as physical removal only .
5.14. On the other hand, under similar facts and circumstances, the issue had been considered by the Honble Karnataka High Court in Associated Cements case (supra). In that case, the Respondent/assessee therein, namely Associated Cements Company Ltd. was engaged in the manufacture of cement at their factory at Wadi. They had installed a captive power plant and availed the MODVAT Credit on the said capital goods under Rule 57Q of the erstwhile Central Excise Rules,1944. The said captive power plant, thereafter, was sold to M/s. Tata Electric Company for a total consideration of Rs.90.00 crore. The power generated in the said captive power plant had been sold to the Appellant by M/s Tata Power. While selling the power unit, the assessee had also leased the portion of land, on which the power unit was installed in the factory premises, for a period of twenty years, in favour of the said purchaser. The following question of law formulated before the Honble High Court, on a reference taken by the Revenue , which reads as:-
Whether the Tribunal was justified in holding that the capital goods in respect whereof MODVAT credit was availed by the assessee company were not removed by it from the premises of its factory even though it sold the entire power unit to M/s. Tata Electric Company for a consideration of Rs. 90 crores and leased to the said purchaser for 20 years the premises wherein the unit was installed and thus it did not contravene any provisions of Central Excise Act/Central Excise Rules/Central Excise Rules ? 5.15. Analyzing the issue raised under the facts and circumstances of the case and considering the provisions of law, their Lordships observed as:
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 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. 5.16. The above judgment of Karnataka High Court has been followed by the Honble Delhi High Court in the case of Pure Drinks Ltd. Vs. UOI, 2012(281)ELT 51(Del.) & by the Tribunal in Commissioner of Central Excise Vs. krypton Outsourcing Ltd. 2010 (256) ELT768(Tri.-Del.) 5.17. Drawing analogy from the facts and circumstances referred to in the said case, we find more or less similar situations involved in the present case also. Here, the Appellant had sold lime kiln plant situated inside the factory premises for a consideration and the lime manufactured out of the lime sludge by M/s. JKETL, had been supplied to the Appellant who in turn consumed in the manufacture of their finished goods. Therefore, we do not have any hesitation to apply the principle laid down by the Honble Karnataka High Court in the said judgment to the facts of the present case.
5.18. The ld. Advocate for the Appellant argued that the judgment of the Honble Karnataka High Court in Associated Cements case (supra) is per incuriam, as it has not taken into consideration the meaning of removal observed by the Honble Supreme Court in J.K.Spinning and Weaving Mills (supra). In our above discussion, we have inferred that the observation on the meaning of removal by the Honble Supreme Court, cannot be considered as a precedent in relation to the present circumstance as the observation of the meaning of removal has been in different context. Thus, in our opinion, the Associated Cements case (supra), cannot be considered as a judgment per incuriam; on the contrary it is a binding precedent applicable to the facts and circumstance of the present case .
5.19. The ld. Advocate for the Appellant had also argued that the Honble Karnataka High Court in Associated Cements case has reached the conclusion on the basis of the facts of that case , that is, after sale of the power plant to M/s. Tata Electric Company, the land was leased to M/s. Tata Electric Company for a period of 20 years and also the control of the said power plant, after sale, had been vested with M/s. Tata Electric Company. He submits that in the present case, neither the land was given on lease by the Appellant to M/s. JKETL nor JKETL had exercised absolute control over the said Lime Kiln Plant. The Appellant all along have been claiming that the day-to-day control of the plant including the provisions for infrastructure facilities, supply of man-power, supervision etc., continued to remain with the Appellant only. Thus, the tests laid down in the aforesaid case are not satisfied in the present case.
5.20. In contrast, we find from the impugned Order that the ld. Commissioner has observed that the land was given on lease. During the course of argument, the ld. AR for the Revenue has submitted that consideration is being paid towards the use of the land, which has been included in the Conversion Charges. Also, we find that there is no finding in the impugned Order, on the aspect of exercise of control on the lime kiln plant by the Appellant, as claimed by them,. These facts necessarily to be ascertained and vital for arriving at a conclusion as to whether the principle laid down in Associated Cements case (supra), would be applicable to the facts of the present case.
5.21. The ld. Advocate also argued that even assuming that the said installations were outside the factory premises of the plant, CENVAT Credit would still be admissible to the Appellant in view of the ratio laid down by the Honble Supreme Court in Vikram Cements case (supra). We do not find force in the said argument, as in the said case, the assessee had not divested with the ownership or control of the said capital goods, used outside the factory i.e. in captive mines, in favour of any third party, like the present case, hence, the principle in the said case would not come to the rescue of the Appellant.
5.22. The ld. Advocate further argued that there was no provision under the CENVAT Credit Rules to meet the circumstances of the present case and it is a caususomissus which cannot be supplied by the courts. We do not agree with the contention of the ld. Advocate for the Appellant. The admissibility of CENVAT Credit on capital goods, inputs & input services rests on compliance of various provisions enumerated under the CENVAT Credit Rules, 2004. Merely the goods or service satisfy the definition of Capital Goods or Inputs or Input Services, ipso facto, would not make the duty/tax paid on such Capital Goods, Inputs and Input Services eligible to CENVAT Credit, unless other conditions prescribed under various Rules are complied with. It is absurd to argue that whatever conditions not specified under the said CENVAT Credit Rules, cannot be insisted upon for availing the CENVAT Credit on the Capital Goods, Inputs or Input Services. On the contrary, we are of the view that to avail the CENVAT Credit, one has to comply with the conditions laid down under the CENVAT Credit Rules, and if there is no provision applicable to any particular situation, CENVAT Credit in such circumstances, would not be admissible as the legislature have not intended to extend the benefit of Credit to such circumstances. Needless to emphasize, Rule 10 of the CENVAT Credit Rules deals with transfer of CENVAT Credit, in the event there is a transfer of ownership of Capital Goods and/or Inputs; necessary procedure and conditions for availing the CENVAT Credit by the transferee is laid down therein.
5.23. Another objection raised by the Ld. Advocate for the Appellant is that since all facts were disclosed to the department through their letter dated 10.03.2008 and the department have been aware of all the facts about sale of line kiln plant to M/s.JKETL, accordingly imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC is unwarranted. We find force in the said argument of the Ld. Advocate. We find that the present demand notice had been issued within the normal period of limitation. In the finding the Ld. Commissioner has categorically observed the capital goods being pollution control equipments would be eligible to credit in the hands of the Appellant; also he has not recorded any reasoning in support of imposition of penalty equivalent to credit under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 11AC of CEA,1944. We are of the view that in absence of suppression of facts or any mis-declaration, penalty is not imposable, where the issue involved, is an interpretation of law.
5.24. In view of the above analysis, we are firmly of the view that the ratio laid down by the Honble Karnataka High Court in Associated Cements(Case), is applicable to the present case and accordingly we have no hesitation to hold that once the ownership and control of the equipments, machineries are transferred to another legal entity, even if it is situated in the same factory premises, it would be construed as removal within the meaning of Rule 3(4) of the CENVAT Credit Rules,2004 and CENVAT Credit on the capital goods availed by the transferor is liable to be recovered. For the above reason, the other issue raised, that is, that CENVAT credit on capital goods not to be denied if the intermediate product is exempted, becomes academic and accordingly the same are not deliberated in the present Order. We are of the view that the conclusion reached by the Tribunal in the case of M/s Dalmia Cements case(Supra) delivered earlier to the decisions of the Honble Karnataka High Court in Associated Cements case and Honble Delhi High Court, in Pure Drinks Case(supra) and also being contrary to these judgments, no more could be considered as good law.
5.25. However, it is difficult to hold at this stage, without ascertaining the disputed facts that after sale of the capital equipments, machinery etc. by the Appellant to M/s. JKETL, the control has also been divested in favour of M/s. JKETL on the face of a stiff argument in this regard by the Ld. Adv. for the Appellant. It is not is dispute that the Appellant have all along been claiming that they are the de facto manufacturer of the Lime from the Lime sludge. We observe that there is no detailed finding recorded on this aspect by the Ld. Commissioner. Also, there is a dispute about transfer/use of the land in favour of the Appellant. The Ld. Commissioner recorded in the Order it as lease, whereas, the Appellant denied the same before us. Therefore, in the interest of justice, to ascertain these facts and to examine the claim of the appellant that they continue to exercise their control on the said Lime Kiln plant sold to M/s JKETL, even after sale of the said plant, it needs to be remanded to the Ld. Adjudicating Authority for the said purpose. Accordingly, we set aside the impugned order and remand the case to the Ld. Commissioner for ascertaining the above facts and to apply the ratio of Associated Cements case, in arriving at the conclusion whether there have been transfer & removal of the Capital equipments, machineries etc. by the Appellant to M/s JKETL and consequently to record the finding whether the CENVAT Credit on the capital goods transferred to M/s. JKETL, be recoverable from the Appellant or otherwise. We have observed above that penalty under Rule 15 of CCR,2004 read with Sec.11AC is not imposable on the Appellant, in the facts and circumstance of the case. Appeal is disposed on the above terms.
(Pronounced on 07.08.2014)
SD/-07.08.14 SD/-07.08.14
(I.P.LAL) (D.M.MISRA)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
DUTTA/
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E/761/2010
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