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2014 (11) TMI 782 - AT - Central ExciseCenvat Credit - Capital goods - capital goods were used to set up power plant for generation of electricity - allegation that concerned power plant is not an integral part of the manufacturing unit - allegation that there is no relation between M/s. SISCOL and M/s. JSWPL and it would lead to neighbour taking the credit on capital goods. - Effective date of allowance of CENVAT Credit - Difference of opinion - Majority order - Held 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. - 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. 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 toward 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 dated 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. Rule 4(3) of CCR, 2004 provides that the Cenvat credit in respect of the capital goods shall be allowed to a manufacturer, even if the capital goods are acquired by him on lease, hire-purchase or loan agreement, from a financing company. Rule 4(3) has a wide amplitude in so far as it would cover the cases of various types of financial arrangements for availing credit on the capital goods. It is contemplated that under this sub-rule (3) of Rule 4 would cover the cases where the ownership of the capital goods does not vest in the manufacturer until the loan is repaid. There must be an agreement for the purpose of acquiring the capital goods. The Tribunal in the case of Iljin Automotive India Ltd. v. CCE, Chennai - 2004 (2) TMI 561 - CESTAT, CHENNAI observed that variations/unusual features in the agreement covering the lease arrangement were not relevant for determining the eligibility of credit. It is clear that title of the property is not relevant for availing Cenvat credit on capital goods. 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/- on account of denial of Cenvat credit availed on capital goods. 2. Demand of Rs. 6,79,61,303/- utilized wrongly for payment of duty on final products. 3. Penalty of Rs. 6,79,61,303/- under Rule 15(2) of the Cenvat Credit Rules, 2004. 4. Penalty of Rs. 5,00,00,000/- on M/s. JSW Power Ltd. under Rule 26 of the Central Excise Rules, 2002. Issue-wise Detailed Analysis: 1. Demand of Rs. 6,79,61,303/- on account of denial of Cenvat credit availed on capital goods: The appellants, M/s. JSW Steel Ltd. (JSWSL), challenged the demand for denial of Cenvat credit availed on capital goods used for constructing a Captive Power Plant (CPP) on leased land. The main contention was whether the capital goods received on leased premises could be eligible for Cenvat credit under Rule 4 of the Cenvat Credit Rules, 2004. The Tribunal examined the facts, including the lease agreement, the purpose of the CPP, and the merger of JSWSL and JSW Power Ltd. (JSWPL). It was noted that the CPP was integral to the manufacturing process of JSWSL, and the credit was taken on invoices indicating "M/s. JSWPL, Consignee of M/s. SISCOL." The Tribunal referred to several case laws, including Vikram Cement and Steel Authority of India Ltd., supporting the view that credit should be allowed if the CPP is used for captive consumption in manufacturing. 2. Demand of Rs. 6,79,61,303/- utilized wrongly for payment of duty on final products: The Tribunal found that the credit was utilized for payment of duty on final products, and the denial of credit would result in a demand for the same amount. The Tribunal considered the arguments and evidence presented, including the fact that the CPP was set up for captive use by JSWSL. The Tribunal concluded that the credit was rightly availed and utilized, as the CPP was an integral part of the manufacturing process. 3. Penalty of Rs. 6,79,61,303/- under Rule 15(2) of the Cenvat Credit Rules, 2004: The Tribunal examined whether the penalty under Rule 15(2) read with Section 11AC of the Central Excise Act was justified. It was argued that there was no suppression of facts or intent to evade duty, as the credit was disclosed in returns filed with the department. The Tribunal found that the issue was a matter of legal interpretation rather than willful misstatement or suppression. Therefore, the imposition of an equivalent penalty was not warranted. 4. Penalty of Rs. 5,00,00,000/- on M/s. JSW Power Ltd. under Rule 26 of the Central Excise Rules, 2002: The penalty on JSWPL was imposed for facilitating JSWSL to avail Cenvat credit. The Tribunal considered the role of JSWPL in setting up the CPP and the financial arrangements made for the same. It was noted that JSWPL was merged with JSWSL, and the CPP was used for captive consumption by JSWSL. The Tribunal concluded that the penalty on JSWPL was not justified, as the arrangement was for restructuring and financing purposes, and there was no intent to evade duty. Separate Judgments Delivered: The Judicial Member allowed the appeals, setting aside the impugned order and granting consequential relief. The Technical Member, however, opined that credit should be allowed from the date of merger (31-8-2006) and imposed a nominal penalty and interest for the period prior to the merger. The matter was referred to a third member, who agreed with the Judicial Member, allowing the credit from October 2005 and setting aside the penalties. Final Decision: In view of the majority decision, the impugned orders were set aside, and the appeals were allowed with consequential reliefs.
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