WHETHER CABLE UNDER CHAPTER 85 IS ACCEPTED AS CAPITAL GOODS BY CE DEPARTMENT, Central Excise

[PRADEEP GARG]

Dear Sir,

We are SHIS Scrip holder granted by DGFT, for procurement of any capital goods under chapter 82, 84, 85 & 90 of CE Tariff Act without payment of duty but to be debited from the scrip as per procedure laid under Notification No. 33/2012-CE dated 09.07.2012. We intend to procure huge cable under chapter 8544 for installation 33KVA station inside our factory. When we approached one of the manufacturer of these cables located at Rajasthan, covered under LTU, denied to supply the cable without payment of duty under SHIS scrip with the reason that their jurisdictional Excise Department has different view on cable i.e. they do not consider cable as capital goods and since as per Notification No. 33/2012-CE dated 09.07.12, only capital goods can be procured under the scrip, this material can be supplied on payment of duty.

When Rule 2(a) of CCR, 2004, specifically says :

1. Capital Goods means “ All goods falling under chapter 82, 84, 85, 90 of the first schedule to the Excise Tariff Act.
2. …………..
3. Components, spares and Accessories of the goods specified at (i) and (ii)

From the above, it is quite clear that if any item having any nature falls under above said tariff chapters, they are by default covered under the definition of CG. As far as explanation (A) for the purpose of Notification No. 33/2012-CE, “capital goods” means any plant, machinery……………….., there is no where specifically mentioned that any goods having specific nature like wire (Chapter-8544) does not qualify the definition of capital goods for this notification then how the cable cannot be considered as capital goods.

Awaiting valuable advise in the matter.

Regards,

PRADEEP GARG

08979000859

Posts / Replies

[KASTURI SETHI]

As per the function and usage of cable (explained in your query) i.e. for installation of 33 KVA station inside the factory, cable qualifies for the definition of 'Capital Goods' under Rule 2 of CCR, 2004 as well as Notification No.33/12-CE dated 09.7.2012 inasmuch as KVA station cannot operate without cable. It also conforms to the condition of being inside the factory.Thus there is not even an iota of doubt about its (cable's) eligibility as capital goods. In case the department thinks otherwise, there is no other option but to face litigation. I am of the view that ultimately you will get success i.e. natural justice. In case you do not fight for substantive right,then chapter will be closed. . If you search on various sites i.e. TMI, TIOL, Taxmann, Indiankanoon.org. etc. you will find case laws in your support.When issue becomes debatable, we will have to resort to the court for justice. This is my personal view.

[KASTURI SETHI]

Sh.Pradeep Garg Ji,

It appears to me that you are highly qualified. There is no doubt that 33 KVA station is an integral part of the factory and it cannot run without cable. You are to search case laws proving that 33 KVA station is an integral part of the factory. Hence capital goods. Cable attached to KVA station is covered under Rule 2 (a) (iii) of CC Rules. Hence cable also capital goods.

[PAWAN KUMAR]

Dear Sir,

Rule 2(a) of CCR, 2004 provides definition of capital goods which also covers chapter of 85.

Now the question is LTU Range Officials are not considering the chapter wise goods viz. cable the chapter of which is 85. IT is eligible capital goods. If the superintendent is not convincing, Meet the superior officer i.e. DC/AC.

As per my view These are capital goods i.e. cables of chapter 85 and it can be procured under SHIS Scrips. you may approach the Divisional AC/DC if the lower authorities are denying.

[KASTURI SETHI]

In case there is a difference of opinion, you may get in writing from the concerned officer that, "cable connected to KVA station is not capital goods under relevant notification as well as Cenvat Credit Rules." Thereafter, you can file appeal with the Commissioner (Appeals). You can file appeal even against a simple from the concerned officer.

[PRADEEP GARG]

Dear Sir,

In fact as of now we are just in process of discussion with the supplier that whether they are ready to supply the cables under chapter 85 under SHIS Scrip without excise duty treating it as CG since their juris......Exc...department is not treating it as CG. If they are ready to supply us it as CG, issue will be resolved otherwise we are planning to meet their Excise Department's officers (Supdt/AC/D/ADC or even Commr.) to understand their different view on this item under chapter 85 but we will not leave this matter without any fruitful result since as per chapter 85, cable is CG.

Thanks for your valuable advise.

Thanks & Regards,

PRADEEP GARG

[YAGAY AND SUN]

Dear Pradeep,

Following judgment may be of your use. In our opinion you cannot procure 33KVA Cable against SHIS Scrips. Please refer the SHIS Scheme and the definition of Capital Goods as mentioned in the Chapter 9 of the FTP 2009-2015 and 2015-2020 in this regard to get the clarification.

Regards,

YAGAY and SUN

TMI ID= 266252 2015 (10) TMI 1527 - CESTAT CHENNAI Sree Rayalaseema Hi-Strength Hypo Ltd. Versus Commissioner of Customs (Exports) , Chennai Benefit of Status Holders Incentive Scrip scheme - Appellants imported goods under Status Holders Incentive Scrip scheme and claimed benefit of Notification No.104/09 – Adjudicating authority and commissioner denied benefit of notification as goods were not covered under SHIS scheme as goods are not related to chemical industry and is only for generation of electricity – Held that:- evident that SHIS Scrip is issued to manufacturer of specific sector for import of capital goods for up-gradation of technology – It is also evident that import of capital goods under SHIS scrip, under Notification 104/09 is for purpose of up-gradation of technology and also it is sector specific – What is imported by appellants are accessories of Steam Turbine Generator used in generation of steam which in turn used for generating electricity whereas SHIS is applicable only for import of capital goods for Basic Chemical Industry – Import of accessories for Steam Turbine Generator cannot be considered as up-gradation of technology of capital goods of chemical industry – Therefore, appellants are not eligible for benefit of SHIS scrip under Notf no 104/09 – Impugned order upheld – Decided against Appellant. No.- Appeal No. C/40822/2014 Order No.- Final Order No.40667/2015 Dated.- June 12, 2015 Shri R. Periasami, Technical Member and Shri P.K. Choudhary, Judicial Member, JJ. For the Petitioner : Shri Hari Radhakrishnan, Advocate For the Respondent : Shri M.Rammohan Rao, DC (AR) ORDER Per R. Periasami The appellants filed appeal against the impugned order dt.24.1.2014 passed by Commissioner (Appeals). 2. The brief facts of the case are that appellants have imported accessories for 10 MW Steam Turbine Generator Set under Bill of Entry No.8250437 dt.18.10.2012. The goods were imported under Status Holders Incentive Scrip (SHIS) scheme and claimed benefit of Notification No.104/09 dt.14.9.2009. The adjudicating authority denied the benefit of notification as the goods were not covered under SHIS scheme as the goods are not related to chemical industry and it is only for generation of electricity. The Commissioner (Appeals) has upheld the impugned order and rejected their appeal. Hence the present appeal. 2. Ld. Advocate on behalf of the appellant submits that the goods imported are accessories of steam turbine generator. He submits that import of parts and accessories are covered under SHIS scheme. The definition of capital goods, Explanation to the notification is inclusive definition and the definition is wide and covers Refractory Lining materials etc. He also submits that definition in the notification for
capital goods allows goods which are directly and indirectly used in the manufacture of the goods. Since generation of electricity is essential steam and the turbine is used for generation of steam which in turn used for generation of electricity and the electricity so generated is consumed in their factory. Therefore, the accessories of steam turbine are covered under the definition of capital goods. 3. On the other hand, Ld. AR submits that objective of the scheme as per para 3.16.1 is to promote investment in up-gradation of technology to a specified sector as listed in para 3.16.4 of FTP Policy. Import of capital goods under SHIS scheme is sector specific and on actual user condition. By going by object of the scheme specified under para 3.16.3 and 3.16.4 the imported goods is not related to chemical industry. As per para 3.16.4 import of capital goods are permissible under SHIS scheme or basic chemical industry as per Sl.no.6 of para 3.16.4 of FTP. Further he submits that goods imported are accessories of steam turbine not capital goods, generator and these are parts and accessories of capital goods for up-gradation of chemical industry. He submits that notification benefit is rightly denied and goods are not related to either up-gradation of the capital goods of the chemical industry or these are parts or accessories of capital goods. 4. After hearing the submissions of both sides, we find that the short issue in this case relates to whether benefit of SHIS scheme is eligible in respect of various accessories imported by the appellants for 10 MW Steam Turbine Generator Set. It is relevant to reproduce para 3.16 of the notification as under :- "3.16 Status Holders Incentive Scrip 3.16.1 With an objective to promote investment in up-gradation of technology of some specified sectors as listed in para 3.16.4 below, Status Holders shall be entitled to incentive scrip @ 1% of FOB value of exports made during 2009-10 and during 2010-11, of these specified sectors, in the form of duty credit. This shall be over and above any duty credit scrip claimed / availed under this Chapter. 3.16.2 Status Holders availing Technology Up-gradation Fund Scheme (TUFS) benefits (Under Ministry of Textiles during a particular year shall not be eligible or the Status Holder Incentive Scrip for exports of that year. 3.16.3 The Status Holder Incentive Scrip shall be with Actual User Condition and shall be used for imports of capital goods (as defined in FTP) relating to the sectors specified in Para 3.16.4 below. 3.16.4 The status Holders of the following Sectors shall be eligible for this Status Holders Incentive scrip: 1. Leather Sector (excluding finished leather) 2. Textiles and jute sector; 3. Handicrafts 4. Engineering Sector (excluding Iron & Steel, Nonferrous Metals in primary or intermediate forms, Automobiles & two wheelers, nuclear reactors & parts and Ships, Boats and Floating Structures : 5. Plastics ; and 6. Basic chemicals (excluding pharma products)" 5. It is evident from the above FTP, the SHIS Scrip is issued to the manufacturer of specific sector for import of capital goods for up-gradation of technology. Para 3.16.4 at Sl.No.6 Basic chemical industry (excluding pharmaceutical industry) is listed as specified sector. It is evident that the import of capital goods under SHIS scrip, under Notfn. 104/09 dt.14.9.2009 is for the purpose for up-gradation of
technology and also it is sector specific. In the present case, what is imported by the appellants are accessories of Steam Turbine Generator used in generation of steam which in turn used for generating electricity whereas the SHIS is applicable only for import of capital goods for Basic Chemical Industry. Both the adjudicating authority as well as the L.A.A. has dealt the issue in detail. The appellants plea that the definition of the capital goods as per the notification covers capital goods which are used directly or indirectly in the chemical factory is beyond justifiable for the reasons that SHIS scrip not admissible for capital goods which are not related chemical industry. It is clearly stipulated in para 3.16.4 of FTP the sectors to which SHIS is extended and the main objective of the scheme is to upgrade the technology of chemical industry. In the present case, the SHIS scheme is eligible for import of any parts and accessories or capital goods or up-gradation of their technology in so far as it relates to plant and machinery pertaining to chemical plant. Import of accessories for Steam Turbine Generator cannot be considered as up-gradation of technology of capital goods of chemical industry. Therefore, we are of the considered view that appellants are not eligible for the benefit of SHIS scrip under Notfn 104/09 on the impugned goods. We uphold the impugned order and reject the appeal.

[KASTURI SETHI]

Sh.Pradeep Garg Ji,

Further views are as under:

1. Definition of ‘Capital Goods’ remains the same whether it is under Para No.9.08 of FTP for 2009-14 or Para No.9.12 of FTP for 2015-20 or Notification No.33/12-CE dated 09.7.2012 or 104/2009-Customs dated 14.9.2009. There has been no change at all.
2. Facts and circumstances of each case are NOT always the same. Hence the judgement dated 12.6.2015 of CESTAT Chennai may not be applicable in your case.
3. The judgement talks of Notification No.104/2009-Customs and NOT of Notification No.33/2012-CE dated 09.7.2012. This notification is not subject to Notification No.104/2009-Customs though it finds mention in para no. 2(h) which is just for accountal of benefit of customs duty if already availed in SHIS credit scrip. Both the notifications are subject to FTP for 2015-20.
4. Technological up-gradation is one of the parameters to conform to the definition of ‘Capital Goods’ under FTP and notifications mentioned supra. It is not the sole parameter to avail the benefits of SHIS credit scrip.

 

5. Power generating sets are included in the definition of ‘Capital Goods’ for the purpose of benefits of SHIS Credit Scrip.
6. In case any holder (manufacturer) of SHIS scrip is to fulfill the condition of ‘Technological up-gradation’ in pursuance of the above mentioned judgement of CESTAT, Chennai, that is not feasible without power generating set (33 KVA station in your case) inasmuch as factories engaged in the manufacture of chemicals, electronic goods, textile etc. function 24 hours without any break. Therefore, first aim is to start the factory and commence the production and, thereafter, to achieve the target of technological up-gradation of the product. So 33 KVA station is not only integral part of the factory but also plays a vital role in technology up-gradation. 33 KVA station is very much basis of the factory. If factory cannot operate, how will any manufacturer achieve target of technological up-gradation ? First let the factory be allowed to function with 33 KVA station by availing the substantive benefit of SHIS scrip, only thereafter the issue of ‘Technological up-gradation’ arises. The words, ‘directly or indirectly’ mentioned in the definition of ‘Capital Goods’ are also very much meaningful. De facto, 33 KVA station lays the foundation for technological up-gradation of the product.
7. You are not seeking exemption from Central Excise duty; you are seeking the route to debit duty via scrip. Hence Govt. revenue is not at stake at all.
8. Last but not the least, needless to say conditions laid down in SHIS credit scrip are to be fulfilled.

 

For ready reference definition of ‘Capital Goods’ for both period is extracted below:-

 

Definition of ‘Capital goods’ as per FTP 2009-14

 

9.12 “Capital Goods” means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernisation, technological upgradation or expansion. It also includes packaging machinery and equipment, refractories for initial lining, refrigeration equipment, power generating sets, machine tools, catalysts for initial charge, equipment and instruments for testing, research and development, quality and pollution control. Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services sector.

 

Definition of ‘Capital goods’ as per FTP 2015-20

 

9.08 "Capital Goods" means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernisation, technological upgradation or expansion. It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality and pollution control. Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services sector.

Hence in my views cable should be eligible as capital goods for availing benefit under SHIS Credit Scrip.

 

[PRADEEP GARG]

Dear Mr. Sethi,

I am really thankful to you and all other learned persons who gracefully and specifically defined and guided me. However, it all depends on the supplier of Cable whether they want to fight with the department as it is CG to be covered under SHIS Scrip or want to supply the material without treating it as CG.

Thanks & Regards once again.

PRADEEP GARG