2014 (2) TMI 278 - AT - Central Excise

Availment of CENVAT Credit - CENVAT Credit on furnace oil/ lubricants etc. where job work formalities was not followed - cenvat credit with respect to angles, channels, CTD bars etc. used in the construction inside the factory is admissible or not - Held that - Cenvat Credit of inputs will be admissible to an assessee when the inputs are sent to a job worker and after undertaking the required manufacturing processes the final products can also be cleared on payment of duty from the premises of the job worker subject to imposition of certain conditions. The only irregularity committed by the appellant was that they did not follow the prescribed procedures. It has been a settled position of law now that a substantial benefit of cenvat credit cannot be denied for not following the prescribed procedures when it is not disputed that inputs on which credit is taken have been utilized for manufacture of final product on which Central Excise Duty has been paid/payable. Cenvat credit with respect to inputs, sent to the power plant by the clinker unit for generation of electricity sent to grinding unit, can not be denied to the appellant for not following the prescribed procedures of Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rules 2004 which allowed the appellant to send the clinker to grinding unit under job work and then clear the finished goods from the job worker s factory premises when diversion of inputs/electricity is not alleged by the Revenue. Appeal filed by the appellants with respect to cenvat credit taken on structural items, electricity supplied to DMW plant used for supplying de-mineralized water to Gujarat Water Board and electricity supplied to residential colonies of the appellant is rejected. Appeal of the appellant with respect to Credit of inputs used for generating and supplying electricity to the grinding unit of the same group companies is allowed. As the issue of admissibility of cenvat credit on this inputs in the present proceedings was highly contentious and debatable this case is not fit for imposing penalties upon the appellant where credit is disallowed and are accordingly set aside - Decided in favour of assessee.

Issues Involved:
1. Admissibility of CENVAT credit on structural items like angles, channels, CTD bars, etc.
2. Admissibility of CENVAT credit on inputs/fuels/oils sent by the clinker unit to the captive power plant for generating electricity supplied to:
a. DMW plant and administrative block within the clinker unit.
b. Residential colony of the clinker unit.
c. Grinding unit and jetty situated 14 km from the clinker unit.

Detailed Analysis:

1. Admissibility of CENVAT credit on structural items:
The appellant availed CENVAT credit of Rs. 9,87,045/- on structural items like angles, channels, CTD bars, etc. used in construction inside the factory. The Larger Bench in the case of M/s Vandana Global Ltd vs. CCE, Raipur held that such credit is inadmissible. Thus, the credit was correctly denied to the appellant.

2. Admissibility of CENVAT credit on inputs/fuels/oils:

a. DMW plant and administrative block:
The DMW plant and administrative block are situated within the clinker unit. The use of electricity in these units is considered as use in connection with the manufacture of clinker. Therefore, proportionate credit of inputs sent by the clinker unit to the power plant under Rule 4(5)(a) corresponding to electricity used in the DMW plant and administrative block is eligible as CENVAT credit. However, credit is not available for inputs used to supply electricity to the DMW plant for making de-mineralized water for the Gujarat Water Board.

b. Residential colony:
CENVAT credit of inputs used at the power plant for generating and supplying electricity to residential colonies within the clinker unit is not admissible, as per the Supreme Court decision in Collector Vs. Solaris Chemtech Limited.

c. Grinding unit and jetty:
The grinding unit and jetty, situated 14 km from the clinker unit, cannot be treated as part of the same factory. Despite the appellant's argument that all units should be treated as one factory due to common possession and control, the Supreme Court in M/s Rollatainers Ltd vs. CCE Delhi III held that separate registrations and separate management indicate separate factories. Thus, electricity supplied to the grinding unit and jetty does not qualify for CENVAT credit.

Procedural Irregularities:
The appellant argued that procedural irregularities should not deny admissible CENVAT credit, citing that the clinker unit could have sent clinker under job work to the grinding unit and cleared final goods on payment of duty. Rule 4(5)(a) and Rule 4(6) of the CENVAT Credit Rules 2004 allow credit for inputs sent to a job worker. The power plant was accepted as a job worker for the clinker unit. Similarly, the grinding unit could act as a job worker for the clinker unit, treating clinker and electricity as inputs supplied to the job worker. The appellant did not follow the prescribed procedures properly, but substantial benefits of CENVAT credit cannot be denied for procedural lapses when inputs are used to manufacture final products on which duty is payable. This is a case of revenue neutrality as the electricity was used within the group companies.

Conclusion:
The appeal regarding CENVAT credit on structural items, electricity supplied to the DMW plant for the Gujarat Water Board, and electricity supplied to residential colonies is rejected. The appeal concerning credit of inputs used for generating and supplying electricity to the grinding unit is allowed. No penalties are imposed on the appellant due to the contentious and debatable nature of the issues.

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