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2020 (2) TMI 690 - HC - Central ExciseCENVAT Credit - capital units - lifting of Corporate Veil - all units have been merged at a later date, though at the time of receipt of capital goods, all the three units were separate entities and the goods were received and owned by M/s. JSWPL - HELD THAT - The legal position is that, the ownership of the goods cannot be the criteria for denying the CENVAT credit assuming that the capital goods were purchased by JSWPL. However, the fact remains that, the capital goods were purchased in the name of JSWPL with Consignee SISCOL. The place where the CPP was set up is part and parcel of the factory premises of SISCOL originally and it has never been separated as a separate unit or entity as the water was supplied by SISCOL to CPP and the power being generated by CPP would be fully supplied and would be utilised by the SISCOL alone. The major funds for setting up of CPP also was generated only from the sources of SISCOL. Even before setting up of CPP, permission was sought for by JSWPL from the Deputy Chief Inspector of Factories, Salem on the pretext that, the SISCOL was taken over by Jindal. Further, even under the condition of Rule 2(a)(1) and (1A), the capital goods purchased for the purpose of setting up CPP were fully used only in the factory premises of the SISCOL and therefore, the said contention of the Revenue by the learned counsel that, under definition Clause in Rule 2(a)(1) and (1A) of the CENVAT Credit Rules, the SISCOL was not entitled to take the CENVAT credit does not hold any water, therefore it is liable to be rejected. Even if the CPP is located well away from the main factory of the manufacturer of final product, the capital goods purchased and utilised for such CPP even though not in the same factory premises, even then the manufacturer can take CENVAT credit. This has been explained and amplified by the subsequently amended Rule i.e., 2(a)(1A) of the CENVAT Credit Rules, 2004. Therefore, it has been explained or clarified in Rule (1A) which is in the aid of 2(a)(1). The case of the Revenue that the Assessee i.e., original SISCOL who got merged with JSW Steel Limited and JSW Power Limited, did not have the authority or right to take the CENVAT credit during the relevant point of time for the capital goods used in the CPP set up in the factory premises or vicinity of the SISCOL cannot be accepted, as such stand taken by the Revenue, is unsustainable - there is no hesitation to hold that the order of the CESTAT, which is impugned herein, is fully justifiable and sustainable - appeal dismissed.
Issues Involved:
1. Eligibility of CENVAT credit by SISCOL for capital goods used by JSWPL. 2. Compliance with CENVAT Credit Rules, 2004. 3. Interpretation of Rule 2(a)(1) and 2(a)(1A) of CENVAT Credit Rules. 4. Validity of the lease agreement between SISCOL and JSWPL. 5. Merger and its impact on CENVAT credit eligibility. 6. Factual determination of the factory premises. Detailed Analysis: 1. Eligibility of CENVAT Credit by SISCOL for Capital Goods Used by JSWPL: The primary issue is whether SISCOL is entitled to avail CENVAT credit for capital goods used by JSWPL in setting up a Captive Power Plant (CPP). The Tribunal, by majority decision, allowed the credit, emphasizing that the CPP was established for the exclusive use of SISCOL, thus integrating it into SISCOL's manufacturing process. The Tribunal relied on the principle that the ownership of goods is not the sole criterion for CENVAT credit eligibility, especially when the goods are used for the benefit of the manufacturer. 2. Compliance with CENVAT Credit Rules, 2004: The Revenue argued that SISCOL did not comply with the mandatory conditions under Rule 2(a)(1) and (1A) of the CENVAT Credit Rules, which require capital goods to be used in the factory of the manufacturer of the final product. The Tribunal, however, found that the CPP was effectively part of SISCOL's factory premises and used exclusively for its manufacturing activities, thus satisfying the conditions for availing CENVAT credit. 3. Interpretation of Rule 2(a)(1) and 2(a)(1A) of CENVAT Credit Rules: The Tribunal interpreted Rule 2(a)(1) to mean that capital goods must be used in the factory of the manufacturer. Rule 2(a)(1A) extends this to include capital goods used outside the factory for generating electricity for captive use within the factory. The Tribunal concluded that the CPP, though set up by JSWPL, was located within SISCOL's premises and used exclusively for SISCOL's manufacturing, thus meeting the criteria under both rules. 4. Validity of the Lease Agreement Between SISCOL and JSWPL: The lease agreement between SISCOL and JSWPL was scrutinized to determine if it affected the eligibility for CENVAT credit. The Tribunal noted that the lease was a financial arrangement to facilitate the setting up of the CPP, with the ultimate aim of benefiting SISCOL. The lease did not alter the fact that the CPP was part of SISCOL's manufacturing infrastructure. 5. Merger and Its Impact on CENVAT Credit Eligibility: The merger of SISCOL with JSW Steel Limited (JSWSL) and JSW Power Limited (JSWPL) was a significant factor. The Tribunal observed that the merger was part of a broader restructuring plan, and the CPP was always intended to serve SISCOL's needs. The merger, effective from 01.04.2007, further integrated the entities, reinforcing the view that the CPP was part of SISCOL's manufacturing setup. 6. Factual Determination of the Factory Premises: The Tribunal's decision was influenced by the factual determination that the CPP was within SISCOL's factory premises. The Tribunal relied on maps, certificates, and other documents showing that the CPP was physically and functionally integrated with SISCOL's manufacturing operations. The supply of water by SISCOL to the CPP and the exclusive use of generated electricity by SISCOL were critical factors in this determination. Conclusion: The Tribunal's majority decision, supported by a detailed analysis of the facts and relevant legal provisions, concluded that SISCOL was entitled to avail CENVAT credit for the capital goods used in the CPP set up by JSWPL. The Tribunal found that the CPP was effectively part of SISCOL's factory premises and used exclusively for its manufacturing activities, thus meeting the conditions under the CENVAT Credit Rules. The High Court upheld this decision, dismissing the Revenue's appeals and affirming the Tribunal's interpretation and application of the relevant rules. The questions of law were answered in favor of the Assessee, SISCOL, and against the Revenue.
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