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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 ..... 2. The period involved in the first appeal is from April 2000 to March 2002. The period involved in the second appeal is from May to June 2002. 3. In both the appeals the issues involved relate to eligibility of cenvat credit of items under the relevant provision of the Cenvat Credit Rules in force during the respective periods. These items were used by TSL at its steelworks in Jamshedpur. 4. One of the items which is common in both the appeals is ingot moulds, which were declared as "capital goods". According to the Revenue, TSL was not eligible to avail cenvat credit of the balance 50% of the duty paid on ingot moulds in the subsequent year since they were not in TSL's possession and therefore availment of the said balance 50% of the cenvat credit and utilisation thereof was irregular. This has been contested by TSL, according to whom the cenvat credit of the balance 50% availed on ingot moulds in the subsequent year was valid, proper and in accordance with the provisions of the Cenvat Credit Rules. 5. The second appeal involved 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-Ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king is not possible. In support of this reliance is placed upon: (a) An article entitled "The Making, Shaping and Treating of Steel", 10th Edition/Latest Technology, published by The Association of Iron and Steel Engineers, USA, relevant extracts from Chapter 20; (b) "Introduction to Modern Steelmaking [A Text Book for Engineering Students]" by Dr. R.H. Tupkary, relevant extracts from paras 24.4 and 24.5; (c) IS Specification bearing Nos. IS:3005 (part I) - 1979 and (Part II) - 1979; (d) Definition of "ingot mould" in Chambers' Science & Technology Dictionary. The contention of the Revenue that steel making is possible without the ingot mould in the ingot process of steel making is misconceived, which is evident from the abovestated literature. (iii) TSL has a L.D.-1 shop wherein iron is melted. The ingot mould 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t TSL had failed to establish that the goods covered by Sl. Nos. 1 to 9, 10, 16 to 20, 22, 29, 30, 32, 34, 35 and 43 of Annexure-I to the show cause notice had been used in or in relation to the manufacture of finished goods and hence, even as input materials, they were not eligible to cenvat credit. Annexure to the reply to the show cause notice filed both in the instant proceedings, being a chart prepared, vis-à-vis Annexure-1 of the show cause notice, against each item the manner in which the subject materials were used in or in relation to the manufacture of dutiable final products in the steelworks are stated, establishing the correctness of the availment of cenvat credit and utilisation thereof. They have not been considered. (ii) Even though initially 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid in respect of the said imported electrodes. (v) The Commissioner, inspite of coming to the conclusion that the office equipments referred to in Sl. No. 15 of Annexure-1 of the show cause notice formed a part of the Distributed Control System ("DCS") and were used in connection with production of steel and hence credit on the same was available and holding accordingly, did not deduct the same from the demand made in the Order part of the order and, on the contrary, confirmed the same, thereby erroneously denying the credit of Rs. 5,43,414/- to which TSL was duly eligible to. Confirmation of demand of 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 Rs. 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 Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner is liable to be rejected. 11. In respect of the other items involved in Appeal No. E/76127/2014 filed by TSL, the Revenue reiterated the findings of the Commissioner in the impugned order dated March 26, 2014. 12. The contentions of both the parties have been considered. 13. Availability of cenvat credit on the balance 50% of the duty paid on ingot moulds during the subsequent year in the absence of the said moulds being unavailable with TSL. 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 "c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al goods to the extent of 50 percent of such duty in the financial year in which he receives the capital 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 good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily confined to particular machines for which they 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 regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 moulds are themselves massive castings of more uniform shapes with a cross-section like square, rect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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 still molten during the subsequent stripping operation, in which the molds are removed from the ingots. For other types they are permitted to stand fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf, 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 Rs. 5,43,414/- contained in the total demand of Rs. 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 Cenvat Credit Rules, 2002 as components of goods specified under Rule 2(b)(i). These electrodes which were used for welding the rolls are therefore "inputs" within the meaning of Rule 2(f) of the Cenvat Credit Rules, 2002 and credit of Rs. 7,83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Zinc Ltd. [2008 (228) E.L.T. 517 (Raj.)], involving similar issue - "Whether welding electrodes used for repair and maintenance of plant and machinery are eligible for cenvat credits, both as capital goods as well as inputs?" The High Court relying upon the decision of the Supreme Court in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 passed the following order: 'Delay condoned. On the facts of this case, matters stand dismissed.' [Steel Authority of India Ltd. v. Commissioner - 2008 (229) E.L.T. A127 (S.C.)] .................................................................................................... ....................... ..................................................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erior 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 and thus, entitled for cenvat credit.' 16. On the aspect, as to how the word 'input' in Rule 2(g) of Cenvat Rules, 2002 has to be understood, the Hon'ble Supreme Court in Maruti Suzuki Ltd. vs. Commissioner of Central Excise, Delhi-III reported in 2009 (240) E.L.T. 641 (S.C.), at paragraph nos.9, 10, 12, 14 and 16 held as hereunder: '9. Coming to the statutory definition of the word "input" in Rule 2(g) in the CENVAT Credit Rules, 2002, it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, there was a controversy as to what is the meaning of the word "input", conceptually. It was argued by the Department in a number of cases that if the identity of the input is not contained in the final product then such an item would not qualify as input. In order to get over this controversy in the above definition of input, the Legislature has clarified that even if an item is not contained in the final product still it would be classifiable as an "input" under the above definition. In other words, it has been clarified by the definition of "input" that the following considerations will not relevant: (a) use of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 credit only when used in or in relation to the manufacture of final product. Hydrogen gas used in the manufacture sodium cyanide is an eligible input, since it has a significant role to play in the manufacturing process and since the final product cannot emerge without the use of gas. Similarly, Heat Transfer oil used as a heating medium in the manufacture of LAB is an eligible input since it has a persuasive role in the manufacturing process and without its use it is impossible to manufacture the final product. Therefore, none of the categories in the inclusive part of the definition would constitute relevant consideration per se. They become relevant only when the above crucial requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 Court in the case of Hindustan Zinc Ltd. Vs. Union of India, 2008 (228) ELT 517 and the Chattisgarh High Court in the case of Ambuja Cement Vs. Commissioner of Central Excise, 2010 (256) ELT 690, in which the Larger Bench decision of the Tribunal in Jaypee Rewa Plant Vs. Commissioner, 2003 (159) ELT 553 (T-LB) was held to be no longer good law and overruled. 14.4.2 Respectfully following the above decisions considering and the use of the welding wires and rods, we are of the view that TSL had correctly availed cenvat credit on the said welding wires and rods amounting to Rs. 2.48 lakhs. 14.5 The fact that TSL had declared the subject goods as capital goods cannot prohibit them from claiming cenvat credit on the ground that they were inputs within the meaning of the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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