2013 (12) TMI 111 - AT - Central Excise

Denial of capital goods credit - Norms of Pollution Control Board and direction of Ministry of Environment Revenue was of the view that the plant which has reduced the sulphur content of the diesel is not a plant installed which should get capital goods credit Held that - There is nothing material found to hold that the sulphur recovery plant is not integrally connected plant with the DHDS plant - Revenue could not prove that there is no integral connection between DHDS plant and low sulphur recovery plant - The Sulphur Recovery Unit & Standby Sulphur Recovery Unit have to be treated as the capital goods used in the manufacture of marketable HSD meeting the ISI specifications and which is a dutiable final product Decided in favour of Assessee.

Summary

Issues:
1. Denial of capital goods credit by Revenue.
2. Eligibility for Cenvat credit of capital goods - Sulphur Recovery Unit (SRU) and Standby Sulphur Recovery Unit (SSRU).

Issue 1: Denial of Capital Goods Credit
The appellant argued that denial of capital goods credit defeats the norms of the Pollution Control Board and Ministry of Environment. The appellant proposed the installation of a diesel Hydrogen-sulphurisation (DHDS) Project at Panipat Refinery, with permission from the Ministry of Environment and Pollution Control Board of Haryana. Conditions included enhancing Effluent Treatment Plant (ETP) capacity and maintaining sulphur recovery plant efficiency at 99%. The appellant contended that the denial of capital goods credit would be unjustified. Revenue argued that the plant reducing sulphur content in diesel does not qualify for capital goods credit. The Tribunal found that the Revenue failed to prove the lack of integral connection between the DHDS plant and the sulphur recovery plant. Consequently, the appeal was allowed, emphasizing the importance of not defeating the purpose of environmental regulations.

Issue 2: Eligibility for Cenvat Credit of Capital Goods
The appellant, a refinery, availed Cenvat credit for capital goods, namely Sulphur Recovery Unit (SRU) and Standby Sulphur Recovery Unit (SSRU). The Revenue contended that these capital goods were not eligible for credit as they were used exclusively for manufacturing exempted final product - Sulphur. The Commissioner confirmed the demand for Cenvat credit recovery, interest, and imposed a penalty. The Tribunal noted that the SRU and SSRU were installed to comply with Pollution Control Authorities' directives to prevent release of harmful gases. These units were considered pollution control equipment rather than exclusively used for manufacturing sulphur. The Tribunal disagreed with the Commissioner's finding, stating that the SRU and SSRU were used for manufacturing marketable High-Speed Diesel (HSD), a dutiable final product meeting ISI specifications. Therefore, the order demanding Cenvat credit recovery was set aside, and the appeal was allowed.

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