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2019 (5) TMI 913 - AT - Central ExciseCENVAT Credit - wrongly availed CENVAT Credit - capital goods used for construction of power plant - period from April 2005 to September 2006 - Rule 14 of CENVAT Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 - Whether the plot of land leased out by the appellant to 2nd party formed the part of factory premises of the Appellant? - Who owns, operates and maintains the Thermal Power Plant erected on that plot of land? - HELD THAT - It is quite evident that on the said plot marked as A-31 MIDC Industrial Area, Butibori Nagpur, apart from factory of Appellant, quite a good number of other things including the leased out land to 2nd Party, Plot identified as Indo Rama Textiles Ltd., residential complex, temple etc are located. Just because these facilities are located on the same plot they cannot be called the factory premises of the Appellant - since the thermal power plant at material time at least before the merger of 2nd Party with Appellant was under a distinct management and was owned by the distinct company, even if located on the same plot cannot be said to part of the manufacturing operations of Appellant. Thermal power plant erected at A-31 MIDC Industrial Area, Butibori District Nagpur, has been erected on the plot which do not form the part of factory premises of the Appellant - All the statutory permissions required for setting up and operating the Thermal Power Plant at the aid premises have been obtained by and granted to 2nd Party - 2nd Party has constructed, erected, owns, operates and maintains the thermal power plant strictly in a commercial manner and is free to sell the power generated on acceptable and agreeable commercial terms - Appellant purchase the power generated in the power plant. They have priority in purchase and only after fulfilling their needs can 2nd Party sell the surplus power to third party. The thermal power plant at A-31 MIDC Industrial Area, Butibori District Nagpur is not the captive power plant of the appellant. Whether the CENVAT Credit in respect of Capital Goods, receive by the 2nd Party on the leased plot and used by them for erection/ installation of thermal power plant will be admissible to appellant for the reason that invoices showed them as consignee? - HELD THAT - Capital goods in question were being procured by the 2nd Party for use by themselves for erection of the Thermal Power Plant at Butibori. Thus mention of consignee as M/s Indo Rama Synthetics Limited, A-31 MIDC Industrial Area Butibori Nagpur on invoices was nothing but an attempt to create entitlement to CENVAT Credit for the Appellant, without passing the actual ownership/ possession or right to use the said goods in their favour. It is quite evident that 2nd Party was constructing, installing erecting, owning, operating and maintaining the said Thermal Power Plant as its own business asset for generating profits for itself by way of sale of power. Appellant had no role, authority over the 2nd Party or over the Thermal Power Plant. They were purchasing the power generated in the Thermal Power Plant on commercially and mutually agreeable terms and conditions from the 2nd Party. Thus the goods covered by the invoices on which they were shown as consignee were never received by them in their factory premises but were but were received by the 2nd Party on the plot leased out to them by Appellants. 2nd Party has not only received the said goods but have reflected the same in their book of accounts as capital/ fixed assets - Since the goods were never received by the Appellant s in their premises the and were not installed, operated or used in any process of manufacture of final products, these mention of their name as consignee on the invoices is nothing but to create the instrument/ document for passing on the inadmissible credit to them. Just because the Thermal Power Plant has been set up on the plot leased out by the Appellant, it would not entitle them to the CENVAT Credit in respect of the inputs and capital goods procured by the lessor. Whether the CENVAT Credit on Capital Goods is admissible in respect of those Capital Goods which are reflected as Capital Assets in book of accounts of the other legal entity and have been capitalized therein? - HELD THAT - It is quite evident that CENVAT Credit on the Capital Goods can be availed only if the same are received in the factory of manufacturer of final product and is used the factory of manufacture. In the present case when the goods have not been received by the manufacturer in his factory the credit would not be admissible to him - when the capital goods are capitalized in the account books of 2nd Party, then by adopting this device Appellants could not have claimed the credit in respect of the same goods in view of Rule 4(4) of the CENVAT Credit Rules, 2004. Further appellants have submitted that credit of ₹ 1,70, 55,003/- has been denied to them in respect of the Capital Goods received in their premises after the merger of Appellants and 2nd Party with effect from 01.02.2007. We find force in the arguments of the appellant that after merger both the entities have become one and the credit cannot be denied on the ground that they were distinct earlier at time of placement of order. After merger the goods received were received by the appellants only in their premises and used by them. Hence we have to set aside the order dated 21.08.208 and remand the matter back to Commissioner for determination of CENVAT Credit to be disallowed after merger of the two entities. Whether CENVAT Credit in respect of those goods which are not identifiable but classified under Chapter 84 of First Schedule to Central Excise Tariff Act, 1985? - HELD THAT - Since we are not adjudicating the case in relation to excisablity of the thermal power plant we do not dwell into submissions made by both the sides on this issue and various case laws relied upon by the revenue - However in the remand proceedings in respect of the goods received after the date of effect of merger of two units, Commissioner should consider these issues afresh while considering the case for allowing or disallowing the credit in respect of the goods received after date of merger. Whether demand is hit by limitation and penalty under Rule 15 of CEVAT Credit Rules, 2004 read Section 11AC justified in the present case on the Appellant? - HELD THAT - Since both the show cause notices have been issued within normal period of limitation from date of taking the CENVAT Credit sought to be denied we hold that demand is no hit by limitation as provided for by Section 11A(1) of Central Excise Act, 1944 - Also charge of suppression is well established against the appellants. Since we find that appellants have availed the inadmissible credit by suppressing the relevant and complete information from the department we also uphold the penalties imposed under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 - Since the appellants have taken the inadmissible credit the demand for interest too is sustained. Appeal allowed in part and part matter on remand.
Issues Involved:
1. Whether the plot of land leased out by the appellant to the second party formed part of the factory premises of the appellant, and who owns, operates, and maintains the Thermal Power Plant erected on that plot of land. 2. Whether the CENVAT Credit in respect of Capital Goods received by the second party on the leased plot and used by them for erection/installation of the thermal power plant will be admissible to the appellant because invoices showed them as consignee. 3. Whether the CENVAT Credit on Capital Goods is admissible in respect of those Capital Goods which are reflected as Capital Assets in the book of accounts of another legal entity and have been capitalized therein. 4. Whether CENVAT Credit is admissible in respect of goods not identifiable but classified under Chapter 84 of the First Schedule to the Central Excise Tariff Act, 1985. 5. Whether the demand is hit by limitation and if penalties under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC are justified. Detailed Analysis: 1. Whether the plot of land leased out by the appellant to the second party formed part of the factory premises of the appellant, and who owns, operates, and maintains the Thermal Power Plant erected on that plot of land: The Tribunal held that the plot of land leased out by the appellant to the second party did not form part of the factory premises of the appellant. The appellant and the second party are separate legal entities with distinct PAN, CST, and MST/BST numbers. The land was sub-leased to the second party for erecting a Thermal Power Plant, and the appellant had no right to use that plot for any production activities. The second party obtained all statutory permissions, constructed, erected, owned, operated, and maintained the Thermal Power Plant. Therefore, the Thermal Power Plant was not the captive power plant of the appellant. 2. Whether the CENVAT Credit in respect of Capital Goods received by the second party on the leased plot and used by them for erection/installation of the thermal power plant will be admissible to the appellant because invoices showed them as consignee: The Tribunal found that the capital goods were procured by the second party for their own use in erecting the Thermal Power Plant. The mention of the appellant as consignee on the invoices was an attempt to create entitlement to CENVAT Credit for the appellant without passing actual ownership or possession of the goods to them. The capital goods were capitalized in the books of accounts of the second party, and the appellant had no role or authority over the Thermal Power Plant. Therefore, the CENVAT Credit was not admissible to the appellant. 3. Whether the CENVAT Credit on Capital Goods is admissible in respect of those Capital Goods which are reflected as Capital Assets in the book of accounts of another legal entity and have been capitalized therein: The Tribunal held that CENVAT Credit on Capital Goods can only be availed if the goods are received in the factory of the manufacturer and used in the factory for the manufacture of final products. Since the goods were not received by the appellant in their factory premises and were not used by them in the process of production, the credit was not admissible. The goods were capitalized in the books of the second party, and the subsequent merger of the two entities did not change the admissibility of the credit. However, the Tribunal remanded the matter to the Commissioner to determine the quantum of inadmissible credit post-merger. 4. Whether CENVAT Credit is admissible in respect of goods not identifiable but classified under Chapter 84 of the First Schedule to the Central Excise Tariff Act, 1985: The Tribunal agreed with the appellant that the decision of the larger bench in Vandana Global Ltd was set aside, and similar views were expressed by the Gujarat High Court in Mundra Port. However, since the credit was denied on the ground that the goods were not received by the appellant and were not used by them in the process of production, the issue became irrelevant. The Tribunal held that credit would not be admissible without identification of goods. 5. Whether the demand is hit by limitation and if penalties under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC are justified: The Tribunal held that the demand was not hit by limitation as both show cause notices were issued within the normal period of limitation. The charge of suppression was well established against the appellant. The appellant had taken inadmissible credit by suppressing relevant facts from the department. The Tribunal upheld the penalties imposed under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944, and sustained the demand for interest. Conclusion: - Appeal No. E/526/2008 was dismissed, and the Order in Original No. 4/2008/C dated 27.02.2008 was upheld. - Appeal No. E/1101/2008 was partly allowed to the extent of remanding the matter to determine the quantum of inadmissible credit post-merger. The remaining part of the Order in Original No. 12/2008/C dated 21.08.2008 for the period prior to the merger was upheld in toto.
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