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TMI Blog2020 (1) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... d use of the manufacturer of final products in the subsequent year, would be available and cenvat credit of the duty paid thereon can be availed even without satisfying such requirement. The capital goods as defined in Rule 57AA(a)(ii) of 1944 Rules/Rule 2(b)(ii) of the Cenvat Credit Rules, 2001 can be both used in an independent manner by itself as well as an accessory of another capital goods covered under clause (i) of both the said Rules and that the ingot moulds, in the instant case, on an application of the principles laid down in various decisions, is an accessory of the LD Converter, which undisputedly is capital goods under clause (i) of the said Rules - reliance can be placed in the case of BANCO PRODUCTS (INDIA) LTD. VERSUS COMMISSIONER OF C. EX., VADODARA-I [ 2009 (2) TMI 101 - CESTAT AHMEDABAD] and PRECISION RUBBER INDUSTRIES VERSUS COLLECTOR OF CENTRAL EXCISE [ 1990 (3) TMI 76 - HIGH COURT OF JUDICATURE AT BOMBAY] . The TSL had correctly availed cenvat credit of the balance 50% of the duty paid on the ingot moulds in the subsequent years - demand in respect of cenvat credit on ingot moulds are therefore unsustainable - also, TSL had correctly availed cenvat c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed several other items which have been listed in Annexure-1 of the show cause notice dated May 23, 2003 which resulted in the impugned Order-in-Original dated March 26, 2014 of the Commissioner. 6. In the first appeal against the adjudication order dated December 22, 2006 of the Additional Commissioner, TSL preferred an appeal before the Commissioner (Appeals) which was allowed by him upon holding that ingot moulds were accessory of the LD Converter, a capital goods specified in Rule 2(b) of the Cenvat Credit Rules, 2001 and Rule 57Q of the erstwhile Central Excise Rules, 1944 and therefore TSL was eligible to and had correctly availed cenvat credit of the balance 50% of the duty paid, in the subsequent year inspite of the moulds being not in its possession. 7. We have heard Dr. Samir Chakraborty, Ld. Sr. Advocate and Shri Arijit Biswas, Advocate on behalf of TSL and Shri K. Chowdhuri , Supdt (AR) on behalf of Revenue and perused the appeal records. 8. On the issue of availment of cenvat credit of the balance 50% on ingot moulds, it was contended on behalf of TSL as follows: (i) Though as per Rule 57AA(a)(ii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to give shape to liquid steel, to solidify liquid steel by absorbing temperature. There are two types ingot moulds namely T.P. 5 on top pouring and bottom pouring moulds. The ingot mould is used in bottom Bogey Pouring set. One bottom Bogey Pouring set contains six Bogeys for transporting the set from LD shop to stripping section of LD shop and vice versa ready stock set back from ingot logistic section to main LD Shop teeming section. Liquid metal is poured in the set of ingot mould and after pouring teeming process is complete in the said mould and the liquid steel remains in the ingot mould for solidification. After solidification of liquid metal and upon being converted into ingot, the ingot is stripped out of ingot mould and the empty ingot moulds are again used for solidification of liquid metal. The ingot mould is therefore an accessory of the LD-1 shop without which steel ingot cannot be manufactured. After several uses the said moulds are required to be replaced. (iv) In Circular bearing No. 4/89-C.Ex.8, issued under F. No. 267/103/87- C.Ex.8 dated March 21, 1989, the Board has categorically observed that ingot moulds are used in the process o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitially declarations were made that the subject goods were capital goods, TSL cannot be denied benefit of input credit on such goods as input materials once it is established, as the case is, that the said goods were used in or in relation to the manufacture of final products in the assessee s factory, directly or indirectly, as has been held in: (a) Commr. of Cus C.Ex. Vs. Modi Rubber Ltd., 2000 (119) ELT 197 (T-LB). (b) Commissioner of Cus C.Ex. Vs. Bhilai Steel Plant, 2010 (261) ELT 612 (T) ; (c) Commissioner of Central Excise Vs. Core Fitness Pvt. Ltd., 2017 (4) GSTL 80 (T), (iii) Denial of cenvat credit on welding wires and rods covered under Sl. Nos. 5 to 8 of Annexure-1 to the show cause notice, relying upon a Single Member Bench decision of the Tribunal, was erroneous, since in subsequent decisions several High Courts specifically held that cenvat credit was available on welding wires and rods used in the manner as in the instant case, which are detailed in the aforesaid chart submitted. In support, reliance was placed upon the following decisions: (a) Ambuja Cements Eastern Ltd. Vs. Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount is ex-facie unsustainable. (vi) There being no contravention by TSL of any provision of the Cenvat Credit Rules nor any irregular or wrongful availment of cenvat credit by it, imposition of penalty of ₹ 5 lakhs under Rule 13 of the Cenvat Credit Rules is untenable and unsustainable. 10. On behalf of the Revenue, on the issue of cenvat credit availability of the balance 50% of the duty paid on ingot moulds in the subsequent year, besides reiterating the findings of the Commissioner in the adjudication orders dated December 22, 2006 of the Additional Commissioner in the first appeal and dated March 26, 2014 of the Commissioner in the second appeal, it was contended as under: (i) The Commissioner (Appeals) without referring to any technical literature has come to a definite finding to the effect that ingot mould is an accessory of the plant and not an independent capital goods. Ingot moulds have all along been specified as capital goods under Rule 2 of the Cenvat Credit Rules as a separate entry, quite distinguished from the parts and accessories thereof. The qualifying grounds of possession and use of such moulds for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.1 Rule 57AA(a) of the Central Excise Rules, 1944 is as follows: 57AA. Definitions.- For the purpose of this section,- (a) capital goods means- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Central Excise Tariff Act, 1985; (ii) components, spares and accessories of the goods specified at (i) above; (iii) moulds and dies; (iv) refractories and refractory materials; (v) tubes and pipes and fittings thereof, used in the factory; and (vi) pollution control equipment, used in the factory of the manufacturer of the final products; Explanation. - For removal of doubts, it is hereby clarified that capital goods do not include any equipment or appliances used in an office. 13.2 Rule 57AC(2)(b) of the Central Excise Rules, 1944 reads as follows: (b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital goods. The balance credit may be taken in a subsequent financial year subject to the capital goods still being in the use and possession of the assessee. It had been represented that this condition could not be satisfied in respect of certain capital goods like components, spares and accessories, grinding wheels, refractory materials. These representations have been considered, and Rule 57AC has been amended to allow credit in respect of the balance 50 percent of the duty in respect of these capital goods (namely, components, spares and accessories, refractories and refractory materials and goods falling under Heading 68.02 and sub-heading 6801.10) in a subsequent financial year without the condition of these goods being in the use and possession of the assessee in the subsequent year. The effect of this amendment would be that the assessee would avail credit of 50 percent of the duty paid on components, spares and accessories, refractories and refractory materials and goods falling under Heading 68.02 and sub-heading 6801.10 in the financial year in which he receives these goods in his factory; the balance 50 percent credit may be availed by him in a subsequent financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey may serve as aids. The same item may be an accessory of more than one kind of instrument. This decision was relied upon by the Supreme Court in the case of Pragati Silicons Pvt. Ltd. Vs. CCE, Delhi, 2007 (211) ELT 534 (SC), para 21, while dealing with what is a parts and an accessory in the subject Central Excise Tariff and came to similar conclusion. 13.7.2 The expression accessory in erstwhile Rule 57Q of the 1944 Rules also came up for interpretation before the Rajasthan High Court in the case of Union of India Vs. Rishabhdev Textiles, 2001 (141) ELT 352 (Raj). Upon reviewing the law on the issue, including decision of other High Courts, it was observed and held as follows: In view of this universal meaning of the expression accessory which can be assigned to the equipment which is used as addenda or adjunct, not essential but which adds to its efficiency and wide meaning adopted by the Courts universally, and keeping in view in the context of definition of capital goods given in Explanation to Rule 57Q, the finding recorded by the Commissioner, Central Excise (Appeals) about the user to which the voltage regulator/vol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Cenvat Credit Rules, 2002, a similar provision. 13.7.5 From these decisions it is clear that a capital goods as defined in Rule 57AA(a)(ii) of 1944 Rules/Rule 2(b)(ii) of the Cenvat Credit Rules, 2001 can be both used in an independent manner by itself as well as an accessory of another capital goods covered under clause (i) of both the said Rules and that the ingot moulds, in the instant case, on an application of the principles laid down in the aforesaid decisions, is an accessory of the LD Converter, which undisputedly is capital goods under clause (i) of the said Rules. 13.8 The technical literature and IS Specification produced by TSL also establish that in the ingot process of steel making an ingot mould is an essential accessory without which steel product making is not possible. 13.8.1 In the text book, Introduction to Modern Steelmaking by Dr. R.H. Tupkary, inter alia, the following extracts demonstrate the nature and function of ingot moulds in steel making: 24.4 The Ingot Mould Except in steel foundry molten steel is poured into moulds to produce ingots for rolling, forging, etc. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnace, the liquid steel is tapped into a refractory-lined open-topped vessel called a steel ladle. Alloying materials and deoxidizers may be added during the tapping of a heat. The steel ladle has an off-center opening in its bottom, equipped with a nozzle. Some ladles are equipped with a stopper-rod assembly and a mechanism called the ladle rigging for raising and lowering the stopper rod vertically to open and close the bottom hole. Other ladles employ a sliding gate mechanism by which the flow of steel from the ladle can be controlled externally by sliding a refractory plate with an opening to align the opening in the plate with the opening in the ladle bottom to permit steel to flow; flow can be stopped by sliding the plate so that the solid part of the plate covers the bottom opening. The ladle is moved by an overhead crane to a pouring platform where the steel is then poured or teemed into a series of molds of the desired dimensions. The steel solidifies in each of the molds to form a casting called an ingot. During the course of solidification and cooling, the surface of an ingot is colder than its interior. In fact, for some types of steel, the centers of ingots are sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From Annexure-1 of the show cause notice against this Sl. No. 15 the amount of credit stated is a total of ₹ 5,43,414/- (₹ 4,21,635/- + ₹ 73,444/- + ₹ 1,83,345/-). As per the impugned order itself, credit of this amount is available to TSL and therefore had been correctly availed and utilised. However it is seen that in the ORDER part credit of this amount has not been allowed by the Commissioner while allowing cenvat credit on three other items. This amount of ₹ 5,43,414/- contained in the total demand of ₹ 50,70,524/- confirmed by the impugned order is thus unsustainable. 14.3 In so far as electrodes covered under Sl. Nos. 36 and 37 of Annexure-1 of the show cause notice, we find, upon consideration of the submission made on behalf of TSL and upon perusing the sketch illustrating the above contained in the records of the present proceedings, that the functioning of the rolls for welding of which electrodes were used are components of slab caster, which itself formed a part of the LD-2 plant and thus is goods falling under Chapter 84 of the Central Excise Tariff. Consequently, rolls are covered under Rule 2(b)(iii) of the Cenva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imately, at paragraph 23, relying on the decision of the Rajasthan High Court in Hindustan Zinc Ltd. v. Union of India reported in 2008 (228) E.L.T. 517 (Raj.), Commissioner of Central Excise vs. India Cements Limited reported in 2009 (238) E.L.T. 411 (Mad.) and the decision of the Delhi Tribunal in Birla Jute Industries Limited reported in 2002 (139) E.L.T. A93, and subsequently, confirmed by the Hon'ble Apex Court, the Chhattisgarh High Court, allowed the appeals of the assessee, and answered the substantial question of law, raised therein viz., whether the welding electrodes used in repairs/maintenance of plant and machinery can be construed as input, as defined under Rule 2(g) of the Cenvat Credit Rules, 2002. The Hon'ble Division Bench of the Chhattisgarh High Court further held that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rules, 2002 and thus, entitled for cenvat credit. Relevant paragraphs in the said judgment are extracted hereunder: 13. The decision in Jaypee Rewa Plant came into consideration before the Rajasthan High Court in the matters of Hindustan Zi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he definition of capital goods in terms of Rule 57Q of the Central Excise Rules, 1944. . 16. The Northern Bench of the Tribunal, New Delhi, in the matter of Birla Jute Industries Ltd., held that modvat credit is admissible for Electrodes and Calibration Gas Mixture (welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil Appeals preferred by the revenue against the above order were again dismissed by the Supreme Court with an observation that the civil appeals have to be dismissed in view of the judgment of this Court in Jawahar Mills Ltd. (Commissioner v. Birla Jute Inds. Ltd.). 17. The Kolkata Tribunal in the matter of SAIL held that modvat Credit on goods and welding electrodes etc. which are used for welding, repaid and maintenance of machineries, is not admissible. Relying upon the decision in Jaypee Rewa Plant, it has been observed that the decision in this matter has not been appealed against or reversed. SAIL filed a petition for special leave to appeal against the above decision and dismissing the SLP, the Supreme Court pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law that refusing of special leave to file appeal by a nonspeaking or speaking order does not attract the doctrine of merger, whereas where an award, appeal or revision is provided against the order passed by the Court, Tribunal or any other authority before a superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law, as held by the Supreme Court in Kunha Yammed. 23. On the basis of aforesaid discussions, relying upon the decision of the Rajasthan High Court in Hindustan Zinc Ltd., Madras High Court in India Cement Ltd., and Delhi Tribunal in Birla JUte Industries Ltd., which have been subsequently affirmed by the Supreme Court, we allow both the appeals, set aside the impugned orders and answer the substantial question of law in favour of the appellant-assessee and hold that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rules, 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e difference between the expression used in the manufacture and used as input (raw material) was highlighted. In that judgment, it was held that undoubtedly the said two expressions are distinct and separate, but, when an ancillary process (like electricity generation) aids the making of an end product, then, the ancillary process gets integrally connected to the end product. In the said judgment, this court applied what is called as the dependence test . It may, however, be noted that in the definition of input the expression used in or in relation to the manufacture of final product is not a standalone item. It has to be read in entirety and when so read id reads as used in or in relation to the manufacture of final product whether directly or indirectly and whether contained in the final product or not . These words whether directly or indirectly and whether contained in the final product or not indicates the intention of the legislature. What the legislature intends to say is that even if the use of input (like electricity) in the manufacturing process is not direct but indirect still such an item would stand covered by the definition of input . In the past, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct on account of the use of the expression used in or in relation to the manufacture of final product . Similarly, we are of the view that consideration such as input being used as packing material, input used as fuel, input used for generation of electricity or steam, input used as an accessory and input used as paint are per so also not relevant. All these considerations become relevant only when they are read with the expression used in or in relation to the manufacture of final product in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is used in or in relation to the manufacture of final product . It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression used in or in relation to the manufacture have many shades and would cover various situations based on the purpose for which the input is used. However, the specified input would become eligible for credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed supra, make it abundantly clear that welding electrodes used for repair and maintenance of machineries, in relation to manufacture of the final product, namely sugar, is eligible for cenvat credit. 19. Though Mr. A. P. Srinivas, learned Senior Standing Counsel for Central Excise made submissions to sustain the order of the Tribunal impugned before us, in the light of the discussion and decisions extracted, directly applicable to the case on hand, we are not inclined to accept the same. 20. The substantial question of law raised in the appeal whether the Hon'ble Customs, Excise and Service Tax Appellate Tribunal committed an error of law in disallowing the cenvat Credit on welding rods/electrodes used by the appellants when, in fact, the same were used in and/or in relation to manufacture of the final produce as required by Rule 2(k) of the Cenvat Credit Rules, 2004?, is answered, in the affirmative, in favour of the appellant/assessee. 14.4.1 In the case of ACC Limited Vs. Commissioner of Central Excise, 2018 (361) ELT 343 (Bom) the Hon ble Bombay High Court has referred to and followed the decisions of the Rajasthan High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Rule 2(g) of the Cenvat Credit Rules, 2002. 14.6 In so far as the remaining goods are concerned, considering the small amounts involved, the learned Counsel on behalf of TSL has submitted that he does not want to press the same. 15. Therefore, in Appeal No. E/76127/2004 out of the total demand of ₹ 50,70,524/- confirmed, the demand of ₹ 45,01,720/- (₹ 29,26,764/- + ₹ 5,43,414/- + ₹ 7,83,542/- + ₹ 2,48,000/-) is unsustainable and is set aside. The penalty of ₹ 5 lakhs imposed is not imposable in the facts and circumstances of the instant case and is set aside. The order dated March 26, 2014 passed by the Commissioner of Central Excise Service Tax, Jamshedpur is modified accordingly and the appeal of TSL against the same is allowed partially to the extent abovestated. 15.1 The order dated December 16, 2008 passed by the Commissioner (Appeals), Central Excise, Ranchi in Appeal No. E/79/2009 is upheld and the appeal of the Revenue against the same is rejected. 15.2 Both the appeals are disposed of accordingly. (Pronounced in the open court on 18.12.2019) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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