CX - DHD Plant together with SRU & SSRU have to be treated as capital goods used for manufacture of HSD and not as one used for manufacture of exempted Sulphur - When purpose of PCB is defeated, order of adjudication should not sustain - Credit admissible: CESTAT
By TIOL News Service
NEW DELHI, NOV 08, 2013: THE appellants are Indian Oil Corporation Ltd.
During the period April 2000 to March 2003 the appellant were availing CENVAT credit on the inputs and capital goods. The dispute is about eligibility for CENVAT credit of the capital goods namely Sulphur Recovery Unit (SRU) and Standby Sulphur Recovery Unit (SSRU). The total CENVAT credit availed by the appellant in respect of these capital goods is Rs. 6,22,91,614/-.
The department is of the view that these capital goods are not eligible for CENVAT credit, as the same have been exclusively used for manufacture of exempted final product -Sulphur.
The demand was confirmed along with interest and penalty by CCE, Rohtak.
Before the CESTAT, the appellant submitted as follows -
+ When the appellant proposed installation of diesel Hydrogen-sulphurisation (DHDS) Project at Panipat Refinery, the Ministry of Environment has given permission subject to compliance of certain terms and conditions embodied in the permission letter dated 5th March, 1997.
+ By letter dated 2.11.1996 Pollution Control Board of Haryana, Chandigarh required the appellant to manufacture low sulphur diesel, so as to prevent effluent and air emission. According to condition No.10 of the permission letter the appellant Unit will enhance capacity of ETP, so that provision of 20% extra capacity is maintained all the time after adding effluent to be generated from D.H.D.S. Plant. So also there was a condition under clause 13 of the permission letter that the unit shall maintain the efficiency of sulphur recovery plant to the level as 99% efficiency both in the case of refinery as well as D.H.D.S. plant.
+ Because of these requirements the plants/capital goods were required to be installed in the premises of the appellant and, therefore, denial of capital goods credit to the appellant ultimately defeats the norms of Pollution Control Board and also the direction of Ministry of Environment, Govt. of India.
The Revenue representative reiterated the order of the adjudicating authority.
The Member (J) in a short and crisp order held -
"4. When the purpose of the Pollution Control Board and Environment Ministry is defeated, the order of adjudication should not sustain. There is nothing material found to hold that the sulphur recovery plant is not integrally connected plant with the DHDS plant. When Revenue could not prove that there is no integral connection between DHDS plant and low sulphur recovery plant, the appellant succeeds. Consequently, appeal is allowed."
The Member (T) while agreeing with the order of Member (J) opined that since there are certain other issues raised during the hearing and the appeal memo, the same too have to be specifically dealt with and, therefore, he recorded the following separate order -
"10. The appellant among other products, manufactured diesel which in terms of ISI specifications could not contain sulphur above a limit specified in the ISI specifications. Since the Crude Oil used, sometimes, has high sulphur content, this results in the sulphur content of the HSD manufactured out of such crude oil having sulphur beyond the permissible limit. For removal of sulphur so as to bring the sulphur content within the acceptable limit, the HSD is processed in the Diesel Hydrogen Desulphurisation unit, where the HSD is reacted with hydrogen in presence of a catalyst, as a result of which the sulphur present in the HSD reacts with hydrogen and hydrogen sulphide gas is found. Since hydrogen sulphide gas has very foul smell and is poisonous, the same cannot be released in the atmosphere and it is for this reason that the Pollution Control Authorities have directed the appellant to install not only Sulphur Recovery Unit, but also a Standby Sulphur Recovery Unit so that there is no release of Hydrogen Sulphide in the atmosphere. The function of SRU is to extract sulphur from hydrogen sulphide. Though sulphur emerging as an inevitable and unavoidable by-product being nil tariff rate item is an exempted final product, it cannot be said that the SRU and SSRU have been used for manufacture of sulphur, as looking to the use of the SRU and SSRU which have to be installed in terms of the directions of the Pollution Control Authorities, use is more in the nature of Pollution Control Equipment. In fact Diesel Hydrogen Desulphurisation (DHDS) plant together with SRU and SSRU has to be treated as capital goods used for manufacture of marketable HSD and not the capital goods used for manufacture of Sulphur. Therefore, the Commissioner's finding that SRU and SSRU are the capital goods used exclusively for manufacture of exempted final product - sulphur is incorrect and, as such, the impugned order is not sustainable. The SRU & SSRU have to be treated as the capital goods used in the manufacture of marketable HSD meeting the ISI specifications and which is a dutiable final product. The impugned order, therefore, is set aside…."
In fine, the appeal was allowed.
Hopefully this is the end of the Rs.6.22 crores story!
(See 2013-TIOL-1664-CESTAT-DEL)
