2015 (4) TMI 696 - HC - Central Excise

CENVAT credit on oxygen and nitrogen gas - common procurement of gas versus Diversion of gases - integrated steel plant - Strategic Alliance Agreement - Held that - it appears, the companies joined hands to manufacture the final products in terms of the Strategic Alliance Agreement. In the circumstances, we hold that CENVAT cannot be demanded on the ground that credit is being availed by one factory and material inputs are used by three factories, because the CENVAT able input is being used for common share and continuous purpose of manufacturing dutiable goods. Though there are three separate units with separate registrations, the entire raw material is being converted into final dutiable product in continuous, inter connected and integrated process conforming to the definition of a single factory under Section 2 (f) of the Central Excise Act. - Following decision of The Commissioner of Central Excise and Service Tax, Bangalore Versus M/s. Biocon Ltd. 2014 (9) TMI 716 - KARNATAKA HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Appeal against order of Customs, Excise and Service Tax Appellate Tribunal regarding CENVAT credit availed by the respondent.
2. Alleged diversion of gases to another company for manufacturing products.
3. Interpretation of Provisions of Central Excise Act and Rules regarding CENVAT credit.

Analysis:

Issue 1:
The Revenue appealed against the Customs, Excise and Service Tax Appellate Tribunal's order upholding the legality of the CENVAT credit availed by the respondent. The Tribunal remanded the matter for requantification, leading to the Revenue's appeal under Section 35G of the Central Excise Act, 1944, contending a question of law for determination by the Court.

Issue 2:
The case involved allegations of diversion of oxygen and nitrogen by the respondent to another company, potentially violating the Central Excise Act. The Revenue argued that such diversion resulted in the respondent losing the CENVAT benefit and could lead to penal actions. The Court considered whether this diversion and use of gases by two companies while availing CENVAT credit only by the respondent violated the Act.

Issue 3:
The Court analyzed the Strategic Alliance Agreement between the companies to determine the legality of the arrangement. Referring to a similar case, the Court emphasized that a manufacturing unit owning multiple units at one place could use inputs interchangeably for producing final products. The Court concluded that in this case, the companies collaborated under the agreement to manufacture final products, justifying the availing of CENVAT credit by the respondent despite shared use of inputs.

The judgment dismissed the appeal, stating no substantial question of law existed. The Court's decision was based on the understanding that the companies functioned as a single factory under the Central Excise Act, allowing the respondent to avail CENVAT credit despite the shared use of inputs among multiple units.