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2019 (11) TMI 1349 - HC - Central ExciseCENVAT Credit - input - iron Ore Fines - whether 'exempted item' within the meaning of Rule 2(d) of the CENVAT Credit Rules, 2004 or not - whether by-product or not - non-maintenance of separate records - no detailed analysis carried out - principles of natural justice - HELD THAT - No proper discussion has been made by the CESTAT with regard to the exigibility to duty / correctness of the Input Tax Credit / Services availed or as to the reversal of the Credit already availed to the requisite extent to have sustained the stand. There is no discussion with regard to what is the process of manufacture of 'Sponge Iron', how the 'Iron Ore Fines' are generated and whether the yardsticks mentioned by the Apex Court are available to have it declared as a 'by-product' and such other relevant aspects. The matter requires detailed deliberation with reference to each and every aspect pointed out - the matter is remitted to the CESTAT for fresh consideration with reference to all the relevant aspects - Appeal allowed by way of remand.
Issues Involved:
1. Correctness and sustainability of the CESTAT verdict. 2. Availing and reversal of CENVAT Credit on input services. 3. Classification and treatment of 'Iron Ore Fines' as a by-product. 4. Liability concerning the sale of electricity generated using coal. Detailed Analysis: 1. Correctness and Sustainability of the CESTAT Verdict: The High Court examined the correctness of the CESTAT's decision, which had set aside the order of the Commissioner, Central Excise, Customs & Service Tax, Raipur. The CESTAT had relied on the Supreme Court's judgment in Union of India vs. Hindustan Zinc Ltd. and a similar CESTAT decision in Commissioner of C. EX. & S.T., Raipur vs. Aarti Sponge and Power Ltd., concluding that 'Iron Ore Fines' were by-products and not final products, thus not attracting the liability of maintaining separate accounts under Rule 6 of the CENVAT Credit Rules, 2004. 2. Availing and Reversal of CENVAT Credit on Input Services: The Commissioner found that the Respondent-Company had availed CENVAT Credit on various input services (e.g., Cargo Handling, Manpower Recruitment, Security Services) without maintaining separate accounts for inputs used in the manufacture of dutiable and exempted goods, violating Rule 6(2) of the CENVAT Credit Rules, 2004. The Respondent-Company contended that they had reversed the credit on GTA services used for transporting coal, thus negating the need to pay 10% of the value of electricity sold. However, the Commissioner noted that the credit availed on other services was not reversed, leading to the imposition of a demand of ?3,19,48,674/- with interest and penalty. 3. Classification and Treatment of 'Iron Ore Fines' as a By-product: The CESTAT held that 'Iron Ore Fines' were by-products and not final products, based on the Supreme Court's decision in Hindustan Zinc Ltd. However, the Commissioner had earlier noted that 'Iron Ore Fines' had distinct names, character, use, and marketability, thus classifying them separately from 'Iron Ore' under different tariff headings. The Commissioner also referred to the Apex Court's decision in National Mineral Development Corporation Ltd. vs. State of Madhya Pradesh, which held that ores and fines were distinct items. 4. Liability Concerning the Sale of Electricity Generated Using Coal: The CESTAT observed that the Respondent-Company had reversed the credit taken on GTA services used for transporting coal, which was used in generating electricity. The CESTAT relied on the Supreme Court's decision in Chandrapur Magnet Wires (P) Ltd. vs. Collector of Central Excise, which held that if the credit originally availed is reversed, it is as if no credit had been availed. However, the Department argued that the Respondent-Company had availed credit on other services as well, and reversing only the GTA services credit was insufficient. Conclusion: The High Court found that the CESTAT did not provide adequate reasoning or a detailed discussion on the processes involved in manufacturing 'Sponge Iron,' the generation of 'Iron Ore Fines,' and whether the criteria for classifying 'Iron Ore Fines' as a by-product were met. The High Court emphasized the need for detailed deliberation on these aspects and set aside the CESTAT's verdict, remitting the matter back to the CESTAT for fresh consideration. The appeal was allowed in part, and both parties were given the opportunity to present their legal and factual positions before the CESTAT.
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