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TMI Blog2017 (7) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... and after applying a strict rule of construction, came to the conclusion that unless it is demonstrated that iron and steel structures, (which were claimed as component parts, within the meaning of sub-rule (5) of Rule 57Q), were essential in the manufacture of the sugar manufacturing unit or in the composition of the sugar manufacturing unit, they would not come within the ambit of the aforementioned exemption notification. MS structurals, which support the plant and machinery, which are, in turn, used in the manufacture of sugar and molasses are an integral part of such plant and machinery. The Assessee has clearly demonstrated that structurals as well as foundations, which are erected by using steel and cement are integral part of the capital goods (i.e., plant and machinery), as they hold in position the plant and machinery, which manufactures the final product. Therefore, in our opinion, whether the "user test" is applied, or the test that they are the integral part of the capital goods is applied, the Assessees, in these cases, should get the benefit of Cenvat Credit, as they fall within the scope and ambit of both Rule 2(a)(A) and 2k of the 2004 Rules. Appeal allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the fact that it has lost its value as a precedent in view of the contrary view expressed by the Supreme Court in CENTRAL EXCISE, JAIPUR vs. M/s.RAJASTHAN SPINNING WEAVING MILLS LTD.? 3. Whether the Tribunal is right in disallowing credit on M.S.Plates, M.S.Joint and M.S.Angles on the ground that they do not qualify as capital goods inasmuch as it is contrary to the decision of the Supreme Court in CENTRAL EXCISE, JAIPUR vs. M/s.RAJASTHAN SPINNING WEAVING MILLS LTD.? 4. Whether M.S.Angles, M.S.Joint and beams which are used for construction of foundation and supporting structure would qualify as Capital Goods? 5. As would be evident from the above, the first question of law is common to all three (3) appeals. 5.1. In so far as the other questions of law are concerned, they arise for consideration, in all three appeals and, therefore, we would be passing a common order. 6. We may also note that the counsels have submitted that the issues, which arise for consideration are identical in all the three (3) cases. The only difference being, with regard to the nature of components/accessories and/or inputs, used by the appellants. 6.1. For the sake o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as inputs for manufacture of capital goods. 7.6. In this regard, reference was made to Rule 2a (A) of the 2004 rules. Accordingly, TAS was asked to respond as to why ineligible Cenvat Credit, amounting to ₹ 1,01,929/-, should not be demanded from it under Section 11 A of the Central Excise Act (in short 1944 Act). 7.7. Furthermore, demand with regard to interest under Section 11AB of the 1944 Act and penalty under Rule 15 of the 2004 Rules, was also made. TAS was given a period of 30 days to respond to the show cause notice. 8. It appears, thereafter, TAS furnished a reply dated 18.03.2009, wherein, it took the following stand on facts. i) The stated items are used to strengthen and position sugar vessels and operating columns without which manufacturing machines cannot be positioned and the vessels cannot function and hence they are fully integrated into the machinery; ii) Mere mention of the word structures does not mean Cenvat credit would not be admissible as such structures is part and parcel of the machinery itself. The items are not structural items used in civil constructions. The fact of usage of inputs is primary evidence in admissibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, installed/erected them in the subject cement plant. In addition thereto, as a part of its expansion plan, DCBL also established a captive power plant within its factory premises for production of electricity to be used for manufacture of cement. 13.1. To give effect to the aforesaid purpose, DCBL had to construct foundations which required use of cement and steel. Furthermore, DCBL also used MS Plates, MS Angles and MS Channels. Since, there were duty paid inputs, DCBL availed of Cenvat Credit, qua not only cement and steel, but also vis-a-vis the aforementioned structurals. 13.2. This was found fault with by the Revenue and, accordingly, six (6) show cause notices (SCNs) were issued for various purposes. The, broad, details of these SCNs are as follows: S.No. Show Cause NOtice No. and Date Period Covered Cenvat ED Cess Total 1. C.No.V/Ch25/15/47/2005-Cx Adj dt.21.09.2005 April 2004 to July 2005 1,02,55,982/- 1,53,005/- 1,04,08,987/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er they could be treated as components, spares and/or accessories of the capital goods, referred to in Rule 2(a)(A)(i) of the 2004 Rules. In the alternative, it is submitted by both the Assessees, i.e., TAS and DCBL, that the said structurals, cement, and iron and steel, would fall within the definition of Rule 2(k), read with Explanation 2 of the 2004 Rules; which, therefore, is the other issue, that is, required to be considered by us. 14.2. In addition to the aforesaid, and in support of their arguments, both parties have relied upon Notification dated 16/2009, dated 07.07.2009, whereby, Explanation 2 to Rule 2(k) of the 2004 Rules stood amended. 15. In the context of the aforesaid issues, submissions were advanced on behalf of TAS and DCBL by Mr.J.Shankarraman, while on behalf of the Revenue, arguments were put forth by Ms.Hemalatha. 16. The submission of Mr.Shankarraman, in brief, was that, the structurals that were used to support the plant and machinery, which, in turn, was used in the manufacture of the final product, were, components and/or accessories of capital goods, and would, therefore fall within the ambit of Rule 2(a)(A)(iii) of the 2004 Rules. 16.1. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 TIOL 1734 -HC-Mad. (vii)Mundra Ports Special Economic Zone Ltd. V. CCE Cus 2015 (39) STR 726 (Guj.) 17. As against this, Ms.Hemalatha relied upon the orders of the Authorities below and, in particular, adopted the line of reasoning taken in the orders-in-original. 17.1. Learned counsel submitted that since, the structurals came within the ambit and scope of Chapter 72, they could not be considered as components or accessories of capital goods, which fell under different Chapters, as could be seen on a bare perusal of Rule 2(a)(A)(iii) of the 2004 Rules. The argument being that, unless the components and accessories fall within the same Chapter, as the capital goods, the Assessees were not entitled to avail of Cenvat Credit qua them. 17.2. Learned counsel submitted that the argument that the structurals, which were used to support and position plant and machinery would fall within the definition of input provided in Rule 2 (k) was based on the user test principle enunciated in the case of CCE V. Rajasthan Spinning and Weaving Mills 2010 (255) ELT 481 SC. It was contended that Rajasthan Spinning and Weaving Mills' case, in turn, relied upon the judgment ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough this judgment was delivered in the context of Rule 57Q of the Central Excise Rules, 1944 (in short, the '1944 Rules'), the provisions being pari materia, the judgment rendered in the said case would be applicable to the instant matters as well. Reasons : 18. We have heard learned counsel for the parties and perused the record. 19. The facts in the three (3) appeals, are not in dispute. All three matters pertain to a period, prior to 07.07.2009. Therefore, apart from the fact that we have been called upon to decide as to whether the 2009 Notification would have retrospective effect, we are also called upon to rule on as to whether or not structurals and cement, as also, iron and steel would fall within the scope and ambit of Rule 2(a)(A)(iii) and Rule 2 (k) of the 2004 Rules. Therefore, in order to decide upon these issues, we may, in the first instance, set out the relevant extract of the said Rules: Rule 2. Definitions. - In these rules, unless the context otherwise requires,- (a) capital goods means:- (A) the following goods, namely:- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 gri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on like goods under section 3 of the Customs Tariff Act, 1975 (51 of 1975) equivalent to the duty of excise paid on such capital goods. Explanation - For the purposes of this section, - (1) capital goods means - (a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products; (b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and (c) moulds and dies, generating sets and weigh-bridges used in the factory of the manufacturer. (d) following goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer - (i) all goods falling under heading Nos.84.02, 84.05, 84.06, 84.11, 84.12, 84.16, 84.17, 84.19, 84.23, 84.25 to 84.28, 84.80, 85.05, 83.35, 90.11, 90.12, 90.13, 90.16, 90.17 and 90.24 to 90.31; (ii) auxiliary plants falling under heading No.84.04 for use with boilers of heading No.84.02; (iii) I.C. engines (other than engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red under the said chapters. 3. The matter has been examined. With effect from 23.7.1996, capital goods eligible for credit under rule 57Q have been specified either by their classification or by their description. Clause (a) to (c) of Explanation (1) of the said rule cover capital goods by their classification whereas clause (d) covers goods by their description viz. components, spares and accessories of the said capital goods. It may be noted that there is a separate entry for components, spares and accessories and no reference has been made about their classification. As such, scope of this entry is not restricted only to the components, spares and accessories falling under Chapters 82, 84, 85 or 90 but covers all components, spares and accessories of the specified goods irrespective in rule 57Q (i.e. prior to 23.7.1996) when credit was available on components, spares and accessories of the specified capital goods irrespective of their classification. 4. Accordingly, it is clarified that all parts, components, accessories, which are to be used with capital goods of clauses (a) to (c) of Explanation (1) of rule 57Q and classifiable under any Chapter heading are eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Rule 57Q. The observations made by the court in paragraph 7 and 8, being apposite, for the sake of convenience, are extracted hereafter: 7. As far as the Crane with accessories and Loader are concerned, there cannot be any difficulty in holding that they will come within the items of machinery or equipment used for production or processing of any goods for the manufacture of final products. As has been held by the Apex Court in Jawahar Mills Limited's case, the Rule makes it explicitly clear that the order of the Tribunal in dismissing the appeal preferred by the Revenue in respect of these two items and remitting the matter for fresh consideration in regard of the Bulldozer requires no consideration. As far as the other items, namely, Rebar Coils, CTD Bars, TOR Steel and Cement are concerned, as to whether they are capital goods or not, the Tribunal having regard to the law laid down by the Apex Court in Jawahar Mills's case, has liberally construed the above Rule and factually found that these are the items, which are used for the purpose of construction of the plant comprising of concrete foundations, concrete silos for storing raw materials, clinker and cement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the machineries were complete and having regard to the meaning of the expression components/parts , with reference to the particular industry in question, the Apex Court rejected the appeal filed by the assessee. 11. Thus going by the factual finding, which are distinguishable from the facts found by the Authorities below in the case on hand, we have no hesitation in rejecting the Revenue's appeal, thereby confirming the order of the Tribunal. 12. Learned standing counsel appearing for the Revenue pointed out that the Tribunal had merely passed a cryptic order by referring to the earlier decisions. We do not think that this would in any manner prejudice the case of the Revenue, given the fact that on the identical set of facts, the assessee's own case was considered by this Court and by following the decision reported in 2010 (255) E.L.T.481 (Commissioner of Central Excise Jaipur V. Rajasthan Spinning Weaving Mills Ltd.) , the Revenue's appeal was also rejected. In the circumstances, this Civil Miscellaneous Appeal is dismissed. No costs. Consequently, C.M.P. No.16107 of 2005 is also dismissed. (Emphasis is ours) 25. To be noted, cases perta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2009 overlooking the fact that the same is made expressly effective only from the aforesaid date? 28. The Division Bench allowed the appeal and, set aside the order of the Tribunal. In effect, the Court held that the 2009 Notification would not come in the way of TAS, in that case, in claiming that the structurals, which were purchased and utilised for keeping in position the plant and machinery could be treated as inputs, within the meaning of Rule 2 (k) of the 2004 Rules, for the period prior to its issuance, i.e., 07.07.2009. 29. Therefore, besides anything else, what clearly comes to fore is that the various Division Bench of this Court have consistently ruled in favour of different Assessees in holding that structurals, which are used to keep in position plant and machinery and, cement, as also, iron and steel, which are used to erect foundations, which, in turn, hold the plant and machinery could, not only be treated as 'capital goods', but could also be treated as 'inputs'. 29.1. Having regard to this position, there is no good reason for us to take a different view, especially, as the Revenue has not laid a challenge to any of these judgments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;, which come within the ambit and scope of Rule 2(k) read with Explanation 2; the only limiting condition being that these inputs should be used within the factory of the manufacturer. 31.5. Therefore, according to us, structurals, cement, as also, iron and steel, which are used to erect foundations, would come within the definition of 'input' as they form part of the capital goods, which, in turn, are used in the manufacture of final product. The manner in which the Revenue seeks to read the provisions of Explanation 2 is flawed for the reason that the said Explanation cannot restrict the scope and ambit of the main provision, i.e., Rule 2k(i). Explanation 2 cannot be read in a manner that it constricts, the scope and ambit of the main provision, i.e., Rule 2k(i). 31.. To our minds, if, there was any ambiguity, the same stands clarified with the issuance of the 2009 Notification. As correctly argued on behalf of the TAS and DCBL, the Notification does not indicate that it is either declaratory or retrospective. 32. Ms.Hemalatha, as noticed by us above, relied upon two (2) judgments, to contend that the amendment to Explanation 2 to Rule 2(k) should be read as cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1957, exempted tax payable under the said Act, in respect of goods manufactured and sold by a new industrial unit, located in zones specified in column 3 of the said notification, albeit, for a particular period. The said notification also exempted tax payable under the said Act by an industrial unit making investment for expansion or diversification or modernisation on or after 12.07.1993, qua units located in the zone, once again, specified in column 3 of the very same notification. The notification carried two Explanations i.e., Explanation (I) and Explanation (II). While Explanation (I) defined the meaning of the expression tiny industrial unit , small-scale Industrial Unit , medium Scale industrial unit or large scale industrial unit and new industrial unit , Explanation (II) provided the method of quantification and extent of tax exemption under the notification. Clause (iii) to Explanation (II), which read as under, was sought to be substituted by a subsequent notification dated 11.10.1995. The unamended clause (iii) read as follows: (iii) tax exemption to an industrial unit undertaking investment in expansion/diversification /modernisation shall be availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 2009. (2) They shall come into force on the date of their publication in the Official Gazette. 2. In the CENVAT Credit Rules, 2004 (hereinafter referred to as the said rules), in rule 2, in clause (k), in Explanation 2, after the words factory of the manufacturer, the following shall be inserted, namely:- but shall not include cement, angles, 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 Notification No.16/2009 Central Excise (N.T.) New Delhi, the 7th July, 2009 . (Emphasis is ours) 36. A plain reading of the relevant parts of the Notification, which have been emphasised by us, would bring forth the point which we have sought to articulate herein above, that is, intrinsic evidence points in the direction that the notification is not retrospective. 36.1. If, that be the conclusion, certainly, the submission advanced on behalf of TAS and DCBL has weight, which is that the Revenue, with effect from 07.07.2009, has sought to, in a sense, nullify the impact of the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated above, in Mundra's case, the Gujarat High Court made observations in this behalf, which being relevant, are extracted hereafter:. 8. Mr. Y.N Ravani, learned counsel for the revenue has placed reliance on the decision of the Larger Bench of the Tribunal in Vandana Global Limited v. Commissioner of Central Excise, Raipur, 2010 (253) E.L.T 440. We have carefully gone through the decision of the Larger Bench of the Tribunal. We do not find that amendment made in Cenvet Credit Rules 2004 which come into force on 7.7.2009 was clarificatory amendment as there is nothing to suggest in the Amending Act that amendment made in Explanation 2 was clarificatory in nature. Wherever the legislature wants to clarify the provision, it clearly mentions intention in the notification itself and seeks to clarify existing provision. Even, if the new provision is added then it will be new amendment and cannot be treated to be clarification of particular thing or goods and/or input and as such, the amendment could operate only prospectively. In our opinion, the view taken by the Tribunal is based on conjectures and surmises as the Larger Bench of the Tribunal used the expression that intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came to the conclusion that unless it is demonstrated that iron and steel structures, (which were claimed as component parts, within the meaning of sub-rule (5) of Rule 57Q), were essential in the manufacture of the sugar manufacturing unit or in the composition of the sugar manufacturing unit, they would not come within the ambit of the aforementioned exemption notification. 41.2. It is pertinent to note that during the course of argument, the Assessee had relied upon the 1996 circular, to which, we have made a reference above. The Supreme Court, as it clearly emerges upon a perusal of para 22 of the judgment, indicated that since, the circular was not produced before the Tribunal, it was justified in reaching a conclusion, which went against the interest of the Assessee, in that case. The Court, however, concluded by saying that since, they had ruled that the iron and steel structures were not components of machinery used in the installation of sugar manufacturing plant, the observation made, qua the 1996 circular would not come to the assistance of the Assessee. 41.3. Therefore, to our minds, contrary to what Ms.Hemalatha has stated, the decision in the Saraswathi Sugar Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about any change in any substance for the manufacture of final products; (b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and (c) moulds and dies, generating sets and weighbridges used in the factory of the manufacturer. 12. Inter alia observing that capital goods can be machines, machinery, plant, equipment, apparatus, tools or appliances if any of these goods is used for producing or processing of any goods or for bringing about any change in the substance for the manufacture of final product, although this view was expressed in the light of the aforenoted definition of capital goods in the said Rule, which is not there in Rule 57Q, as applicable in the instant case, yet the user test evolved in the judgment, which is required to be satisfied to find out whether or not particular goods could be said to be capital goods, would apply on all fours to the facts of the present case, in fact, in para 6 of the said judgment, the court noted the stand of the learned Additional Solicitor General, appearing for the Revenue, to the effect that the question whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Mills Limited case. 43.2. Therefore, quite clearly, the two judgements referred to above cannot be read in the manner, as the Revenue is seeking to read them, that is, at cross purposes. In our opinion, the ratio of the two judgments, is that, as long as it is shown that the component and/or accessory is an integral part the capital goods, (which, in turn, fall within the scope and ambit of the expression 'capital goods', referred to in Rule 2(a)(A)(i) of the 2004 Rules,) they would also qualify as capital goods. 44. In the facts of this case, we have to conclude that MS structurals, which support the plant and machinery, which are, in turn, used in the manufacture of sugar and molasses are an integral part of such plant and machinery. The Assessee has clearly demonstrated that structurals as well as foundations, which are erected by using steel and cement are integral part of the capital goods (i.e., plant and machinery), as they hold in position the plant and machinery, which manufactures the final product. Therefore, in our opinion, whether the user test is applied, or the test that they are the integral part of the capital goods is applied, the Assessees, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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