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TMI Blog2010 (4) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the view that the credit' availed by the appellant may not be admissible." 2. However, the said Bench found that the Tribunal in the case of Bhushan Steel and Strips Ltd. v. Commissioner - 2008 (223) ELT 517 (Tribunal), had taken the following contrary view:- "6.1 It is not the case of Department that the Appellants have taken credit on entire quantity of cement and steel used in factory as dispute relates to credit taken on that much quantity of cement and steel which has been used for providing foundation of machines, structures, tunnels, trenches, cellars and factory building essential for steel rolling mills. 6.2 The issue in dispute also can be looked from different angle. As per Explanation 2 to Rule 2(g) of CCR, 2002 "inputs" includes goods used in the manufacture of capital goods which are further used in the factory of the manufacture. Various plants have been installed for manufacture of CR/GP coils/sheets and tubes such as cold rolling mill, pickling line tube mill, DG sets annealing line, EOT cranes, chimney, storage tanks, pollution control / effluent treatment units, utilities like air, steam gas, water etc. Therefore, the disputed items are in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ams, channels, bars, flats etc, the reference received from the Kolkata Bench in Appeal No. E/633/2007 relating to M/s. Vikram P. Ltd. Vs. CCE , Bhubaneswar deals with cement (Chapter 26) and tor rods (Chapter 72) used in installation/ initial setting up of production machinery. Of the 22 appeals under reference to us, 10 have been filed by the appellant-assessees whereas 12 have been filed by the Department We have heard both sides at length for three days from 16.2.2010 to 18.2.2010. SCOPE OF THE DISPUTE 5. it was pointed out to us in the course of hearing that the disputes of the kind which gave rise to the present reference before this Larger Bench have ended with the amendment to Explanation 2 to Rule 2(k) of the CENVAT Credit Rules. 2004 with effect from 7.7.2009. Before the amendment, the said Explanation 2 read as follows;- "Explantion 2:- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;" The said Explanation 2 was amended by Notification No. 16/2009-CE(NT) dated 7.7.2009 and after the amendment it reads as under:- "Explanation 2:- Input include goods used in the manufacture of capital goods wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 3 of the Act levies a duty of excise on excisable goods and such excise duty has been given a name as CENVAT, The expression 'excisable goods' has been defined under Section 2(d) of the Act as follows:- (d) "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt: 8. The CENVAT Credit Rules, 2004, have been made by the Central Government in exercise of the powers conferred by Section 37 of the Central Excise Act 1944 and Section 94 of the Finance Act, 1994. The enabling provisions under Section 37(2) allow the Central Government to make rules, interalia, for the following:- "(xvia) provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to the manufacture of excisable goods" 9. The definitions of "capital goods" and "input" have changed from time to time. Shri M.P. Singh, learned counsel appearing for M/s. Orissa Concrete & Allied Industries has submitted a compilation of the definitions of capital goods and input in the CENVAT Credit Rules as applicable from time to time in the form of a Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated Bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. [Portion in italics (bold) inserted with effect from 7.7.2009] ARGUMENTS ON BEHALF OF THE APPELLANT / RESPONDENT ASSESSEES 10. Shri V. Lakshmikumaran, learned counsel appearing on behalf of some of the assessees argues that structural supports should be considered as parts of the capital goods. He states that the definition of capital goods under the CENVAT Credit Rules includes goods falling under Chapters 82, 84, 85 and 90 as well as specified goods such as pollution control equipment storage tanks etc. and the only condition laid down in the definition is that these should be used in the factory of the manufacturer of the final products. He states that the definition of capital goods does not stipulate that the same should be in movable condition and there is no bar to avail credit if a plant and machinery item is embedded to earth. The capital goods cannot be made functional unless structural support is provided and such machineries are erected an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vs. CCE -. 2004 (64) RLT 732 14. He also advances an alternative argument that steel satisfies the criteria of inputs used in or in relation to the manufacture of dutiable final products. For this proposition, he relies on the following decisions:- (i) CCE Vs. Zenith Papers - 2002 (146) ELT 518 (P&H) (ii) Sirpur Paper Mills Ltd. Vs. CCE - 2003 (159) ELT 7 (AP) (iii) Shri Ramakrishna Steel Industries Ltd. Vs. CCE - 1996 (82) EL T 575 (Tri-LB) 15. He argues at length that the amendment made to definition of inputs under Rule 2(k) recently vide Notification No. 16/2009 will not apply for the earlier period. He also states that the amendment shows that for the earlier period credit was available for items like steel, cement etc. For these two propositions, he relies on the following decisions:- (i) CCE Vs. Gujarat Ambuja Cement Ltd. - 2008 (230) ELT 221 (H.P.) (ii) CCE Vs. Madras Aluminum Ltd. - 2008 (226) ELT 342 (Mad.) (iii) Oswal Steel Vs. CCE - 2006 (193) ELT 403 (P&H) (iv) CCE Vs. Zenith Papers - 2002 (146) ELT 518 (P&H) (v) CCE Vs. India Glycols Ltd. - 2008 (229) ELT 516 (Utt) (vi) CCE Vs. Prism Cement Ltd. - 2006 (199) ELT 777 (MP) (vii) Grasim Cement r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of amendment, credit was permissible in respect of the impugned goods. 18. Shri Alok Arora, learned counsel appearing for some of the assessees states that the structurals are used as parts and accessory to the machineries and plant. He also states that during April 1995 to March 1997 plant was covered in the definition of capital goods. He cites the decision of the Hon'ble Rajasthan High Court in the case of Aditya Cement Vs Union of India - 2008 (221) ELT 362 (Raj.) in support of his claim. 19. Shri P.K. Sahu, learned counsel, appearing for the assessees in appeal No. E/1754/09 which is not under reference, states that the CENVAT Rules do not require one to one correspondence in utilization. He states that under the present scheme goods and services have been combined for grant of credit. According to him, our country is moving towards a scheme of combined goods and services taxation regime under which goods and services should be treated equivalently. The same structurals under dispute are inputs for installation of plant and machinery and can be included in the value of installation service and credit of the service tax paid on such service can be availed. He argues that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o distinguishes between intermediate goods and capital goods and states that intermediate goods get consumed or converted in the process of manufacture whereas capital goods do not get consumed nor undergo any change in the process of manufacture. Hence he contends that the claim of the assessees that capital goods should be considered as intermediate goods is not tenable. 23 He relies on the decision of the Tribunal in the case of Vikram Cement Vs. CCE, Indore - 2009 (242) ELT 545 and J.K. Cotton, Spinning and Weaving Mills Vs. Sales Tax Officer - 1997 (91) ELT 34 (SC)and states that an input should be used in the process of manufacture of the final product or in a process which is integrally connected to the process of manufacture of final product. The structurals which are used for support of the machines or for erection of the plant do not take part in the process of manufacture of the final goods. The same cannot also be considered to be integrally connected to the process of manufacture of the final product. According to him such structurals cannot be covered under the main definition of input under Rule 2(g) / Rule 2(k) of the CENVAT Credit Rules, 2002/2004. 24 He also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into existence only after being embedded to earth are not goods and hence not capital goods. (ii) Such structurals are also not inputs of the final products as those are not integrally connected, directly or indirectly, with the process of manufacture of the final products," 28. He also relies on the following decisions in support of his arguments:- (i) UOI Vs Hindustan Zinc Ltd. - 2008 (225) ELT 183 (Raj.) (ii) Hindustan Zinc Vs DC Cent. Exc. - 2008 (230) ELT 38 (Raj.) (iii) CCE Vs Daya Sugar - 2005 (192) ELT 656 (iv) Kisan Co-operative Sugar Factory Vs CCE - 2007 (212) ELT 541 (v) CCE Vs Modern Steels Ltd. - 2007 (219) ELT 423 (vi) Commissioner Vs D.S.M. Ltd. - 2003 (162) ELT 987 (vii) Malvika Steel Limited Vs CCE - 1998 (97) ELT 530 (viii) Nava Bharat Ferro Alloys Vs CCE - 2004 (174) ELT 375 (ix) CCE Indore Vs L.G. Hotline CPT Ltd. - 2004 (176) ELT 443 (x) Binani Cement Vs CCE - 2003 (160) ELT 163 (xi) Jaypee Bela Plant Vs CCE - 2003 (161) ELT 422 (xii) CCE Vs. Narmada Sugar - 2003 (155) ELT 362 29. The learned Jt. CDR also argues that the amendment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd other items used for construction of shed, building or structure for support of capital goods, refers]." 32. We further find that the Joint Secretary (TRU-I) had issued a letter dated 6.7.2009 bearing DO F No. 334/13/2009-TRU to the Chief Commissioners and Commissioners which under the heading 'Important Legislative Amendments' stated as follows in page 5:- "1.8 Important Legislative Amendments:- * * * * * * * * * * (ix) Rule (2) of Cenvat Credit Rules, 2004 has been amended to clarify that 'input' should not include cement, angles, channels, CTD/TMT bars etc. used for construction of shed, building or structure for support of capital goods. * * * * * * * * * * Though this letter was addressed to the senior officers of the Central Excise Department, the same was made available to the public as seen from the publicly accessible website of the Department at www.cbec.nic.in 33. The Excise Law Times while reporting the Budget changes in its 13.7.2009 issue (Vol. 238, Part - 2, page A34) also reproduces the Explanatory Note from the Pink Book placed before the Parliament follows - "(2) An explanation is being inserted in Rule 2 of Cenvat Credit Rules. 2004 so as to cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be retrospectively applicable. 36. In any case, going by the Explanatory Memorandum presented to the Parliament along with the amending notification and the contemporaneous exposition of the amendment made available to the departmental officers and the public clearly go to show that the impugned goods namely cement and steel items used for construction of shed, building or structure for support of capital goods were never intended to be included by the rule making authority under the expression 'input' eligible for CENVAT Credit. Hence, the argument that the rule making authority had used the general rule making power under Section 37(1) of the Central Excise Act, 1944 to extend CENVAT credit in respect of the impugned items to carry out the general purpose of the Act must be dispelled. When it is clear from the Explanatory Memorandum etc. that the Government never intended to allow CENVAT credit on the impugned items, it cannot be argued that the Government had used its general powers under Section 37(1), in excess of the specific powers under Section 37(2)(xvia) to grant such credit for the earlier period prior to the amendment. We, therefore, have no hesitation in discardi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(1)(xvia) and Section 2(d) that the reference to credit of duty paid on the goods used can only mean a reference to excisable goods on which duty has been paid. 38. We find from the CENVAT Credit Rules that the same allows credit of duty paid on (i) capital goods used in the factory of the manufacturer of the final products and (ii) inputs used in or in relation to the manufacture of final products. There are provisions in the CENVAT Rules which deny credit of duty paid on inputs and capital goods if the same are used for manufacture of exempted final products. The CENVAT scheme enables a manufacturer to take credit of duty paid on inputs and capital goods and utilize the same for paying duty on excisable goods manufactured by him which are called final products. If the scheme was to be limited to granting credit only on capital goods and inputs, it would be advantageous for a manufacturer to buy capital goods on payment of duty but it would be disadvantageous if he manufactured the capital goods himself by procuring inputs for the same (such as parts, components) on payment of duty as he would not be able to take credit of duty paid on such inputs because these are not inputs u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used for such foundation and structural support should be treated as input for capital goods. (ii) The structural support should be treated as either part or as accessory of the machinery as without such support, the machinery cannot work and hence the impugned goods should be treated as inputs for such parts and accessories. (iii) The impugned goods i.e. cement and steel items should be alternatively considered as inputs for the final product as these are used in relation to the manufacture of the same. (iv) The fact that the impugned goods i.e. cement and steel items are used for laying of foundation or for making structural support which are non-dutiable being embedded to earth cannot be a reason for denying credit because there are a number of precedent decisions which allow credit even if intermediate goods are exempted. (v) Since the value of the cement and steel items used for laying the foundation and building the structural support contributes to the value of the final product, credit of the duty paid on the same should be allowed. We examine below these arguments. 41. Keeping in view the scheme of the Act and the CENVAT Credit Rules, we are of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rolley or the wall should be considered as a part or accessory of the television set. Similarly, the foundation and the supporting structure for a machinery cannot be considered to be part of accessory of the machinery. 42. Additionally it has been argued on behalf of the Department that the capital goods have to be goods first and that the foundation and the supporting structures being embedded to earth are in the nature of immovable property and are not goods or excisable goods. Not only is the departmental contention well supported by a plethora of case laws, but even by the definition of 'capital goods' in the CENVAT Credit Rules which reads as "the following goods" supplemented with a list of goods that follows 43. Since the foundation and the supporting structures cannot be considered as capital goods, nor as parts or accessories of capital goods, nor the same have been specifically listed in the definition of capital goods (as tubes and pipes and storage tank etc. have been specifically listed), the question of treating cement and steel items as inputs for capital goods cannot arise, hence Explanation 2 to Rule 2(k) cannot be held to cover cement and steel items used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be interpreted to include either the capital goods, or foundation and supporting structures for the same, as being argued by some of the Advocates. 45. In this context we also endorse the decision of the Tribunal in the case of Vikram Cement (supra) which is as follows:- "28. If one reads the decision of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. case, it has been clearly held therein that the expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". This clearly disclose that the Apex Court in no uncertain term has ruled that of those goods which form part of the process carried out by the manufacturer for converting the raw material into finished goods would be the products used in the manufacture of the goods, In another words, if the product is not integrally connected with the process of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the final product in or in relation to the process of manufacture. As has been rightly argued by the learned Jt. CDR, cement and the steel items used for laying foundation and for building supporting structures for the capital goods do not have any nexus with the process of manufacture. 47. It has also been argued that the impugned goods which are used for laying foundation and building structural support should be granted credit ignoring the fact that at the intermediary stage non-excisable goods in the nature of immovable property attached to earth come into being. Reliance is placed on several decisions where credit has been allowed even though intermediate goods produced are exempt from payment of duty, in this connection we note that as the learned Jt. CDR has rightly submitted, the erstwhile Rules 57D and 57R of the Central Excise Rules, 1944 provided for non-denial of the credit if any intermediate product came into existence during the manufacture of final product Hence, credit can be allowed if intermediate goods emerge during the process of manufacture of the final product. The immovable capital assets in the form of foundations and structural supports embedded to earth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amed under the rule making powers conferred under Section 37(2) of the Act. The said Section refers to credit of duty paid on goods used in, or in relation to the manufacture of excisable goods. Hence, 'capital goods' defined in the CENVAT Credit Rules in the context of providing credit of duty paid, have to be excisable goods. Whether a particular plant or structure embedded to earth can be considered as excisable goods or not has to be determined in the light of the decisions of the Hon'ble Supreme Court on the issue, which is no longer res integra. (b) Goods like cement and steel items used for laying 'foundation' and for building 'supporting structures' cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules for the impugned period. 50. In respect of one appeal under reference, the learned counsel has argued that the impugned steel items have been used not for building supporting structures but for fabricating parts of machinery. This argument has to be examined by the jurisdictional Bench in the light of the facts of that case. 51. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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