2023 (6) TMI 298 - AT - Central Excise

Recovery of inadmissible Cenvat Credit - Input Services - Capital Goods - denial on the premise that factory and COB Plant are having separate registration numbers and one cannot take credit of another - whether the CENVAT credit on services availed at the mines and capital goods installed at the COB Plant would be an eligible credit in the hands of the factory? HELD THAT - The mines and COB Plant at Sukinda and factory at Balgopalpur are integral part of the same captive arrangement which is evident from Government of Odisha Order dated 22.05.2000, whereby mining lease was granted with a condition that it shall be exclusively used for captive purpose to ensure steady supply of Chrome Ore to the Ferro Chrome Plant. As it is seen from the submission of the Appellant that the services of mining, cargo handing etc. were used for excavation and transportation of ores to the factory. While the high grade Ores were directly transferred to the factory for use in manufacture of HCFC, the low grade Ores were first transferred to the COB Plant and after its beneficiation transferred to the factory. We find that low grade Ores cannot be used in the blast furnace directly and it needs to be beneficiated before it can be used in manufacture of HCFC. In both the cases, the services were used in relation to manufacture of dutiable final product on which appropriate excise duty was paid at the time of clearance of final product from the factory. Since, a clear nexus has been established between the services availed and goods manufactured at the factory, CENVAT credit on input services cannot be denied. Eligibility to avail CENVAT credit under captive arrangement with different registered factory - HELD THAT - Karnataka High Court in the case of THE COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S. MUKUND LTD. 2015 (4) TMI 696 - KARNATAKA HIGH COURT held Cenvat cannot be deemed on the ground that credit is being availed by one factory and material inputs are used by three factories, because the Cenvatable input is being used for common share and continuous purpose of manufacturing dutiable goods. Though there are three separate units with separate registrations, the entire raw material is being converted into final dutiable product in continuous, interconnected and integrated process conforming to the definition of a single factory under Section 2(f) of the Central Excise Act - CENVAT credit of input service would be admissible in the hands of the factory. CENVAT Credit on capital goods - HELD THAT - The department has not disputed the duty-paid nature of the capital goods, discharge of duty by the appellant, usage of capital goods for generation of electricity and consumption of such electricity by the appellant in the manufacture of dutiable final products. In these factual matrix, there are no justification to deny the credit on the capital goods availed by the appellant. Accordingly, the impugned order is set aside, the appeal is allowed. COB Plant is an integral part of the factory and it has no separate legal identity. We also observe that the invoices were issued in the name of the Appellant and credit was availed only once after payment of duty by the factory. Further, the department has not disputed the nature of goods being capital goods, its use in manufacture of concentrated Ores which are ultimately used in manufacture of dutiable final products i.e. HCFC - there are no justification to disallow the credit on capital goods availed by the Appellant. Denial of CENVAT credit on input services and capital goods is not sustainable - Appeal allowed.

Issues Involved:
1. Eligibility of CENVAT credit on services availed at the mines.
2. Eligibility of CENVAT credit on capital goods installed at the Chrome Ore Beneficiation (COB) Plant.
3. Separate registration of factory and COB Plant and its impact on CENVAT credit.
4. Invocation of the extended period of limitation and imposition of penalty.

Summary:

1. Eligibility of CENVAT Credit on Services Availed at the Mines:
The Tribunal examined whether the CENVAT credit on services availed at the mines would be eligible in the hands of the factory. The Appellant argued that the mines and COB Plant are part of an integrated unit with the factory, and the services received at the mines have a direct nexus with the manufacturing activity. The Tribunal found that the services of mining and cargo handling were used for excavation and transportation of ores to the factory, establishing a clear nexus with the manufacture of dutiable final products. Citing previous judgments, including National Aluminium Co. Ltd, the Tribunal concluded that CENVAT credit on input services cannot be denied.

2. Eligibility of CENVAT Credit on Capital Goods Installed at the COB Plant:
The Appellant contended that the COB Plant is an integral part of the factory, and capital goods installed there have a direct connection with the manufacturing process. The Tribunal referred to the Supreme Court's decision in Vikram Cement, which allows CENVAT credit on capital goods if the mines are captive and constitute an integrated unit with the factory. The Tribunal also cited OPG Metals Pvt. Ltd., emphasizing that the location of capital goods outside the factory is not a valid reason for denying credit if their use is inextricably connected with the manufacturing process. The Tribunal found no justification to disallow the credit on capital goods availed by the Appellant.

3. Separate Registration of Factory and COB Plant:
The Revenue argued that since the factory and COB Plant are separately registered, CENVAT credit should be admissible only in the hands of the COB Plant. The Tribunal, however, found that the mines, COB Plant, and factory are part of a captive arrangement, and the separate registration does not affect the eligibility of CENVAT credit. The Tribunal referred to the Karnataka High Court's decision in CCE v. Mukund Ltd., which held that separate registrations do not preclude the availability of CENVAT credit if the units are part of an integrated manufacturing process.

4. Invocation of Extended Period of Limitation and Imposition of Penalty:
The Appellant argued that the extended period of limitation cannot be invoked as there was no suppression with the intention to evade duty, and the entire exercise was revenue neutral. The Tribunal agreed, noting that the credit was availed based on judicial precedents, and there was no loss of revenue to the government. Consequently, the Tribunal found no grounds for imposing a penalty.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal filed by the Appellant and granting consequential relief as per law. The decision emphasized the integrated nature of the Appellant's operations and upheld the eligibility of CENVAT credit on input services and capital goods used in the manufacturing process.

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