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2005 (1) TMI 306

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..... cts.., Rule 57AC of the 2000 Rules and Rule 4(5)(a) of July 2001 Rules provide an additional facility, and do not lay down any requirement that the following of Notification 214/86-C.E. is precondition for availment of Cenvat credit, in any case, where the intermediate product is not excisable or otherwise exempted from payment of duty, the question of availing the benefit of Notification No. 214/86 does not arise. We, therefore, do not see any force in the contention of the Revenue. We, therefore, hold that the appellant was entitled to take Cenvat credit on the duty paid on Naphtha, sent as such, or after being partially processed (CLS) to the power plant for generation of steam or electricity, which was sent to the petrochemical complex of the appellant for use or in relation to the manufacture of final products under Rule 57AC or Rule 4(5)(a) of the Central Excise Rules or Cenvat Credit Rules. We are also of the view that no relevant facts were suppressed by the appellant as is evident from various letters and discussions with the Departmental Officers, and, therefore, the extended period of limitation cannot be invoked under the proviso to Section 11A(1) of the Central Excise .....

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..... nterrupted supply of electricity and steam of an acceptable quality. For the purpose of meeting its requirement of electricity and steam, a combined cycle co-generation electricity plant (hereinafter referred to as 'power plant' 116 MW capacity) was setup by the appellant in a joint venture with M/s. Larsen and Toubro Limited. The Joint Venture Company, which owns the power plant, is known as HPL Co Generation Limited (HPLCL). A power agreement for a period of 20 years was signed between the appellant and HPLCL. In terms of this agreement, the appellant was required to supply Naphtha, as such, or partially processed Naphtha (CLP), and start up fuel free of cost to HPLCL, through pipeline for generation of electricity and steam, which would be returned back to the appellant for use in the manufacture of its final products. As per the power agreement, the appellant was required to pay conversion charges to HPLCL for carrying out the aforesaid operation. The land on which the power plant is situated has been assigned by the appellant to the joint venture (HPLCL) for a period of 20 years. Although the power plant is situated within the factory complex, the area of the power pla .....

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..... power plant is under the ownership of a different company, HPLCL and the land on which the power plant is situated is assigned by the appellant to HPLCL by way of a deed of assignment and as such, it no more remains the part of the factory premises of the appellant. According to the Commissioner (Appeals), the factory of the appellant and the power plant of HPLCL are in two separate premises. On the basis of this finding, the Commissioner of Central Excise (Appeals) held that the Modvat credit was permissible only in respect of the duty paid on the inputs used for generation of electricity or steam used for manufacture of the final product or for any other purpose within the factory of production. In this case, according to him, the input was being used for generation of electricity or steam outside the factory of production, and as such the Modvat credit was not available. This order gives rise to Appeal No. E/4210/04-A. 6. In continuation of the letter dated 1-4-2000 received from the Superintendent, the appellant also wrote a letter on 25-5-2000 to the Commissioner of Central Excise and Customs. In this letter, the appellant again stressed that the generation of electricity and .....

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..... , Cenvat Credit is admissible to us on Naphtha used for generation of electricity and steam by HPLCL on job work basis. Further, since we are a new assessee, we request your goodself to kindly let us the procedural aspects, if any, to be followed by us under the job work mode . 8. On 12-7-2000, the Superintendent of Central Excise clarified the procedural aspects by inviting attention of Rule 57AB(5)(a) of the Central Excise Rules, 1944 which provided that the inputs should be received from the job worker within 180 days, failing which duty would be required to be paid to the extent attributable to the inputs not received. As such, he asked the appellant to debit the Central Excise duty on the Naphtha supplied to HPLCL for generation of electricity and steam, not received back within a period of 180 days. In reply, the appellant wrote a letter dated 18-7-2000 pointing out that at any point of time, the time gap between supply of Naphtha to HPLCL and its return after conversion can never exceed 2-3 days. As such, the question of Cenvat reversal did not arise. The letter again mentioned the discussions with the Commissioner and assurance given by him regarding the availability of Cen .....

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..... d steam and in that process, the character of the inputs gets totally converted from raw material to energy. Rule 4(5)(a) emphasises return of the inputs or partially processed inputs from the job worker's premises after further processing such as testing, repair, re-conditioning or any other purposes and not for complete conversion of input or partially processed input into a different entity altogether. He has further held that the relationship of HPL and HPLCL cannot be said to be one of principal manufacturer and its job worker. It is a case of two independent manufacturers belong to two separate and independent companies. The Commissioner also sustained the charge of suppression. He disallowed the credit and confirmed demand of duty of Rs. 29,18,30,118/- with interest under Section 11AB and also imposed a penalty of equal amount under Section 11AC of the Central Excise Act by his final order dated 2-5-2004. This gives rise to Appeal No. E/4001/04-A. 10. We have heard both sides. 11. Two issues arise for consideration in these appeals. (1) Whether the power plant is located within the factory premises of the appellant and consequently whether Cenvat credit is admissible. (2 .....

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..... er processing and any other purposes used in the rule must be given wide amplitude and would even cover complete manufacture as seen from the provisions of Rule 4(6). In this connection, he also relied upon the Board's Circular dated 4-5-94. The Ld. Counsel also specifically relied upon the decision of the Tribunal in the case of Essar Steel Limited v. Commissioner of Central Excise, Surat reported in 2001 (129) E.L.T. 213 (T) which according to him directly applies to the present case. He also relied upon the decision of the Supreme Court in the case of Escorts Limited v. Commissioner of Central Excise, Delhi reported in 2004 (171) E.L.T. 145 (S.C.) = 2004 (64) RLT 227 (SC) wherein the Supreme Court has held that so long the duty is paid on the final product, mere fact that duty was not paid on the intermediate product would not disentitle the manufacturer from the benefit of Cenvat credit. 14. The Ld. Counsel also submitted that Notification No. 214/86 has no relevance to the facts of the present case. He also submitted that the extended period of limitation cannot be invoked in view of the fact that everything was known to the Central Excise authorities and RT-12 returns wer .....

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..... ds which are further used in the factory of the manufacture. Rule 57AB. Cenvat credit. — [(1) A manufacturer or producer of final products shall be allowed to take credit (hereinafter referred to as the Cenvat credit) of, - (i) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as said First Schedule), leviable under the Act; (ii) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985, leviable under the Act, (iii) the additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978; (iv) the additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957; (v) the National Calamity Contingent duty leviable under Clause 129 of the Finance Bill, 2001, which clause has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, and (vi) the additional duty leviable under Section 3 of the Customs Tariff Act, 1975, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv) an .....

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..... whatsoever. Explanation 2. - Inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacture. Rule 3. CENVAT credit. — (1) A manufacturer or producer of final products shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of- (i) the duty of excise specified in the First Schedule to the Tariff Act, leviable under the Act; (ii) the duty of excise specified in the Second Schedule to the Tariff Act, leviable under the Act; (iii) the additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); (iv) the additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); (v) the National Calamity Contingent duty leviable under Clause 136 of the Finance Act, 2001 (14 of 2001); and (vi) the additional duty leviable under Section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv) and (v) above, paid on any inputs or capital goods received in the factory on or after the first day of..........., including, .....

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..... n the factory of production. As such, the intention seems to be clear that the definition of inputs covers specifically inputs used for generation of electricity or steam which is used for manufacture of final products. 18. The Rules specifically provide that Cenvat credit is admissible inputs, as such, or after being partially processed, are sent to a 'job worker' for further processing, testing, repair, re-conditioning or any other purpose provided the goods are received back in the factory of production within 180 days of their being sent to a job worker. It is accepted in the order that the steam and electricity were being received back in the petrochemical complex within a period of 2-3 days only. The power plant is indeed a job worker because all the raw materials are supplied by the appellants to the power plant, free of charge for doing certain operations and (intermediate) products so produced are returned to the petrochemical complex of the appellant. The appellant does not pay anything to the power plant for electricity or steam. The power plant is completely dedicated to the petrochemical complex and was in fact set up for generation of electricity and steam for .....

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..... tioning or any other processing and due to such partial and final processing can undergo and result in any stage of intermediate goods, by-products, refuse or/and waste. The Larger Bench further observed commercial prudence and technological feasibility would induce manufacturer to re-convert, re-process, re-condition and otherwise deal with intermediate goods, by-products, scrap, refuse, waste etc., to obtain maximum target available in his premises or by sending them out on job work to other places. In the case of EMCEE Crown Corks (P) Ltd. reported in 2002 (149) E.L.T. 639 (T), the Tribunal held that the goods after job work may be exigible or non exigible intermediate goods which are then to be used in the appellant's premises. The Tribunal further held that the finding of the Commissioner that the inputs have lost identity would not debar availment of credit which is available on the date when the goods were sent to the job worker, in the context of Notification No.119/75-C.E., the Rajasthan High Court in the case of Hindustan Development Corporation Ltd. v. Union of India reported in 2002 (150) E.L.T. 1425 (Raj.) had also taken a similar view. 21. In the case of Bhilwara .....

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..... n any case, where the intermediate product is not excisable or otherwise exempted from payment of duty, the question of availing the benefit of Notification No. 214/86 does not arise. We, therefore, do not see any force in the contention of the Revenue. 24. We, therefore, hold that the appellant was entitled to take Cenvat credit on the duty paid on Naphtha, sent as such, or after being partially processed (CLS) to the power plant for generation of steam or electricity, which was sent to the petrochemical complex of the appellant for use or in relation to the manufacture of final products under Rule 57AC or Rule 4(5)(a) of the Central Excise Rules or Cenvat Credit Rules. We are also of the view that no relevant facts were suppressed by the appellant as is evident from various letters and discussions with the Departmental Officers, and, therefore, the extended period of limitation cannot be invoked under the proviso to Section 11A(1) of the Central Excise Act, 1944. There is also no case for imposition of penalty, firstly for the reason that the demand of duty is unsustainable and secondly for the reason that the case involves a question of interpretation of law. 25. We, therefore, .....

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