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2014 (6) TMI 272 - AT - Central ExciseCenvat Credit - excise duty paid on excisable capital goods - Merger of two companies - availing credit by the second company after merger where capital assets were procured by the first company - Difference of opinion - Majority order - Held that - On perusal of the lease agreement, it is seen that the Lessor (SISCOL) requested to the Lessee (JSWPL) to set up a power plant in the premises of the Lessor (SISCOL) to take care of the power generation of the Lessor to which Lessee has agreed. The lease of the immovable property is determined for a limited period conditionally on the happenings of some events. The tenure of the lease agreement depends upon the happenings of the future events. In the instant case, it is a conditional transfer of the property with an interest created on a transfer of the property and dependent upon the fulfillment of the condition. Thus, it is clearly evident that M/s.SISCOL had provided their land to M/s.JSWPL with a condition to set up a power plant and the electricity generated would be consumed in manufacturing activities of M/s.SISCOL. An agreement should also be examined with actual state of affairs and its implementation from the records. In the present case, it may be seen from the documents and records that in 2004, M/s.SISCOL was declared as sick unit under SICA, 1985. CDR Cell report would show that SJG came forward for financing the sick unit M/s.SISCOL, as finance acts as an engine of growth. It appears from the Show Cause Notices that M/s.JSWPL, one of the companies of SJG, have expertise in constructing and operating Power Plants and M/s.JSW Steel Ltd. another company of SJG, is one of the purchasers of the final product of M/s.SISCOL. It is recorded in the CDR Cell report that there was proposal of merger of M/s.SISCOL with SJG, which is corroborated by Director s report dt. 26.4.2005 of JSWPL balance sheet. It is mentioned in Unit III Debentures Trust Deed dated 22.9.2005 of M/s.JSWPL that with a view to finance its 2 x 30 MW plant at SISCOL, the company has approached the Debenture holders. JSWPL declared to TNEB by letter dated 6.1.2005 that Captive Power Plant is installed inside the SISCOL premises to meet the present and future power requirements of SISCOL. Further, TNEB approved as SISCOL Captive Power Plant located in the company s premises. Even prior to 31.8.2006, it was a Captive Power Plant of M/s.SISCOL as approved by TNEB under the Electricity Act. SISCOL was a sick unit. They entered into lease agreement with M/s.JSWPL, a relationship had already been developed prior to October 2005, as evident from CDR Cell report, JSWPL balance sheet etc., for financial accommodation to get loan from UTI Bank Ltd. for setting up C.P.P. and one of the considerations is that electricity would be supplied to M/s.SISCOL, which is an integral part of manufacturing activities of M/s.SISCOL - it is proper to allow cenvat credit to M/s.SISCOL from October 2005 on capital goods used in setting up Power Plant for generation of electricity, which was captively consumed within the factory of M/s.SISCOL for manufacturing of their final product - Decided in favour of assessee.
Issues Involved:
1. Demand of Rs. 6,79,61,303/- due to denial of CENVAT credit on capital goods used for the construction of a power plant. 2. Demand of the same amount utilized wrongly for payment of duty on the clearance of final products. 3. Penalty of Rs. 6,79,61,303/- under Rule 15(2) of the CENVAT Credit Rules, 2004. 4. Additional evidence admission under Rule 23 of the CESTAT Procedure Rules, 1982. 5. Penalty of Rs. 5,00,00,000/- on M/s. JSW Power Ltd. under Rule 26 of the Central Excise Rules, 2002. Detailed Analysis: 1. Demand of Rs. 6,79,61,303/- Due to Denial of CENVAT Credit: The primary issue revolves around the denial of CENVAT credit on capital goods used for constructing a Captive Power Plant (CPP) set up on land leased to M/s. JSW Power Ltd. (JSWPL) by M/s. Southern Iron and Steel Company Ltd. (SISCOL), which later merged with M/s. JSW Steel Ltd. (JSWSL). The adjudicating authority confirmed the demand on the grounds that the capital goods were not received within the factory premises of SISCOL, and thus, they were not eligible for CENVAT credit as per Rule 4 of the CENVAT Credit Rules, 2004. The appellants argued that the CPP was an integral part of the steel plant and that the lease was only for loan purposes. They contended that the ownership of the land or capital goods was irrelevant for deciding the eligibility of capital goods credit. The learned counsel for the appellants relied on several case laws to support their argument that MODVAT/CENVAT credit is available if the capital goods are used in a captive power plant integral to the manufacturing unit. 2. Demand of the Same Amount Utilized Wrongly for Payment of Duty: The adjudicating authority also demanded Rs. 6,79,61,303/- utilized wrongly for payment of duty on the clearance of final products. The appellants contended that no demand of excise duty could be made again, and subsequent events should be considered to decide the eligibility of the CENVAT credit. 3. Penalty of Rs. 6,79,61,303/-: A penalty of Rs. 6,79,61,303/- was imposed under Rule 15(2) of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944, on the grounds that SISCOL suppressed the fact of the lease agreement and the non-receipt and non-possession of the capital goods. The appellants argued that there was no fraud, collusion, or willful misstatement, and the credit taken was disclosed to the department in returns filed. 4. Additional Evidence Admission: The application for bringing additional evidence on record was admitted as the evidence produced by the appellants was available at the time of adjudication and was relevant for arriving at the correct conclusion. 5. Penalty of Rs. 5,00,00,000/- on JSWPL: A penalty of Rs. 5,00,00,000/- was imposed on JSWPL under Rule 26 of the Central Excise Rules, 2002, read with Rule 15 of the CENVAT Credit Rules, 2004, on the grounds that JSWPL facilitated SISCOL to avail of CENVAT credit on capital goods which were not available to them. Separate Judgments: Judicial Member's View: The Judicial Member allowed the appeals, setting aside the impugned order and granting consequential reliefs. The Judicial Member held that the appellants were entitled to CENVAT credit on the capital goods used for manufacturing the CPP by JSWPL, which was used by the appellants to manufacture their final products. The decision was based on the interpretation that the CPP was an integral part of the manufacturing unit, and the lease agreement was for raising finance for setting up the CPP. Technical Member's View: The Technical Member disagreed, stating that credit could not have been taken prior to 31-08-2006. The Technical Member held that credit would be eligible from 31-08-2006, subject to the condition that the duty element was not capitalized in the accounts of the company, which incurred expenditure for claiming depreciation. The Technical Member also imposed a nominal penalty of Rs. 25 lakhs under Rule 15 of the CENVAT Credit Rules. Majority Decision: The majority decision, based on the Third Member's opinion, allowed the appeals with consequential reliefs, if any. The Third Member agreed with the Judicial Member, holding that it was proper to allow CENVAT credit to SISCOL from October 2005 on capital goods used in setting up the power plant for generating electricity, which was captively consumed within the factory of SISCOL for manufacturing their final product. Conclusion: The impugned orders were set aside, and the appeals were allowed with consequential reliefs, if any, based on the majority decision favoring the Judicial Member's view.
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