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2018 (11) TMI 302 - HC - Central ExciseMODVAT/CENVAT Credit - inputs/capital goods - machines/ equipments of a sugar plant - Scope of SCN - reliability on precedent decisions - Held that - On plain reading of the Rule 2(b) and 3 of the Credit Rules, 2002, it is clear that the capital goods in the present facts had been received in the Respondent s factory and used in the factory. Thus, the duty paid on this capital goods is available to the Respondent, to be taken as CENVAT Credit as it is duly supported by appropriate cenventable invoices. It is not the case of the Revenue that the machines/ equipments are not relating to manufacture of final products. The only case of the Revenue is that these machines/ equipments loose their identity as they became a part of the set up plant and have to work along with other machines / equipments to manufacture final products. The submission of the subject equipment/ machines loosing its identity in the sugar plant is contrary to the show cause notice as it proceeds on the basis that it is capital goods, as it restricts the allowance only to 50% of the credit for each year of use. Rule 3 of the CENVAT Credit Rules, 2002 requires the receipt of the capital goods in the factory for use in or in relation to manufacture of final products. The subject equipments / machines are undoubtedly used in or in relation to the manufacture of final products. Thus, the literal rule of interpretation when applied to the CENVAT Credit Rules, 2002 would entitle the Respondent to the benefit of CENVAT Credit on the duty paid equipment / machines (capital goods). On an identical issue arose before the Tribunal in JSW Ispat , the machines/ equipments were used to set up/ assemble an oxygen plant i.e. immovable property in the factory of the assessee. This oxygen plant was issued to manufacture the excisable goods i.e. manufacture ingots falling under Chapter 72 of the Excise and Tariff Act, 1985. Nevertheless, the Tribunal allowed of CENVAT Credit of duty paid on machines / equipments used in setting up a plant, to be utilised on payments of duty on the final products viz iron and steel ingots cleared by the assessee, therein - no distinction in facts and law, is pointed out by the Revenue, which would justify the inapplicability of this case to the present facts. We are unable to understand why the Revenue is agitating this issue before us when in another case, decided by the Tribunal, raising an identical issue, the decision of the Tribunal has been accepted - Rule of law prevailing in this country is one of the key elements to determine ease of doing business. The Rule of law inter alia ensures absence of arbitraries in taking decisions, which would mean equal applicability of law to all concerned. Therefore, an issue as raised herein (being a pure question of law), would have all India implication not only before the Court but at various levels of adjudication under the Act. Therefore, where at the highest level i.e. at the level of the Central Board of Indirect Taxes and Customs, the Revenue has accepted a particular view on a pure question of law, then in all such cases, the Revenue should withdraw the show cause notices and / or pending proceedings. Appeal dismissed - decided against Revenue.
Issues Involved:
1. Whether the Tribunal was justified in allowing CENVAT Credit on the machines/equipments of a sugar plant. 2. Interpretation and application of Rule 2(b) and Rule 3 of the CENVAT Credit Rules, 2002. 3. Applicability of previous judicial decisions and their relevance to the current case. 4. Consistency in the application of law by the Central Board of Indirect Taxes and Customs (CBIC). Detailed Analysis: 1. Justification of CENVAT Credit on Sugar Plant Machines/Equipments: The core issue was whether the Tribunal was justified in allowing CENVAT Credit on the machines/equipments used in setting up a sugar plant. The Respondent, engaged in manufacturing sugar and molasses, entered into agreements with M/s. S.S. Engineers for purchasing and setting up machinery for a sugar plant. The Respondent availed CENVAT Credit on these machines, which was disclosed in their statutory returns. The Appellant issued a show cause notice denying this credit, arguing that the machines were inputs used by M/s. S.S. Engineers and not capital goods for the Respondent. 2. Interpretation and Application of CENVAT Credit Rules, 2002: The Tribunal ruled in favor of the Respondent, interpreting Rule 2(b) and Rule 3 of the CENVAT Credit Rules, 2002. The Tribunal held that the machines/equipments received at the Respondent's factory were capital goods under Rule 2(b) and were used in the factory for manufacturing final products. The Tribunal emphasized that the purpose of the CENVAT Credit Rules is to avoid the cascading effect of taxes and should be interpreted to achieve this purpose without violating the plain language of the statute. 3. Applicability of Previous Judicial Decisions: The Appellant relied on decisions in S.S. Engineers and Triveni Engineering & Industries Ltd., which held that a sugar plant, being immovable property, is not excisable. However, the Tribunal distinguished these cases, stating that they did not address whether duty paid on capital goods used to set up a plant could be availed as CENVAT Credit. The Tribunal also referenced the case of Bharti Airtel, where no CENVAT Credit was allowed on immovable property, but clarified that the facts differed as the items in Bharti Airtel did not fall under the definition of capital goods. 4. Consistency in Application of Law by CBIC: The Tribunal noted that a similar issue was decided in favor of the assessee in JSW Ispat Steel Ltd., where CENVAT Credit was allowed for machines/equipments used to set up an oxygen plant. This decision was accepted by the CBIC, indicating a consistent legal interpretation. The Tribunal criticized the Revenue for pursuing the current case despite the CBIC's acceptance of the JSW Ispat decision, stressing the importance of consistency and certainty in legal interpretations to reduce litigation and support the ease of doing business. Conclusion: The Tribunal concluded that the Respondent was entitled to avail CENVAT Credit on the duty paid for machines/equipments used in setting up the sugar plant, as they were capital goods received and used in the factory. The substantial question of law was answered in favor of the Respondent, and the appeal was dismissed. The Tribunal directed the Counsel for the Revenue to forward the order to the CBIC to ensure consistent application of the law and reduce unnecessary litigation.
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