By TIOL News Service

MUMBAI , NOV 06, 2018: THIS is a Revenue appeal.

The question of law is -

"Whether on the facts and circumstances of the case and in law, was the Tribunal justified in allowing CENVAT Credit on the machines/equipments of a sugar plant?"

The Respondent, a manufacturer of sugar and molasses, entered into two agreements with M/s. S.S. Engineers one for purchase of machinery and equipments required for a sugar plant and the other for setting up of a sugar plant out of the above purchased machinery and equipments at its site.

The above equipments/machines were supplied by M/s.S. S. Engineers under cover of Central Excise (Cenvatable) invoices indicating the name and factory address of the Respondent.

Thereafter, M/s. S.S. Engineers erected/set up and commissioned the sugar plant at the Respondent's factory.

The Respondent availed as CENVAT Credit on the equipment/machines, used to set up the sugar plant and utilized it for payment of duty on its final product and this fact was disclosed in the statutory returns filed.

On 24th March, 2005, the Appellant issued a show cause notice to the Respondent seeking to deny/deprive the Respondent CENVAT credit of Rs.3.60 Crores availed for the period May, 2003 to April, 2004 being 50% @ Rs.1.80 Crores for year ending 31st March, 2004 and 50% @ R.1.80 Crores for year ending 31st March, 2005. The contention of the Revenue was that the credit, if at all, could have been availed only by M/s S.S.Engineers .

The demand was confirmed by the CCE and penalty and interest was also held recoverable.

The CESTAT set aside this order by relying upon the orders passed in Gujarat Ambuja Cements Ltd. [Order no. A/660/2000-NB dated 9 August 2000] and N.R.C. Ltd. [Order no. 1565-1566/2001-WZB/C-II dated 13 June 2001] . The CESTAT also noted that although both these decisions were rendered in the context of Rule 57Q of the MODVAT Rules, the principle therein would be applicable even in respect of CENVAT Credit Rules, 2002.

In its appeal, Revenue inter alia submits that since what is set up is a Sugar plant which is an immovable property [ S.S.Engineers [Order no. A/111-112/2007-WZB/C-I(EB) dated 01.02.2007], Triveni Engineering & Industries Pvt. Ltd.  -  2002-TIOL-14-SC-CX-LB refers ] there can be no carry forward of the duty paid on the inputs used in the setting up of a plant. Reliance is placed on the decision in Bharti Airtel Ltd -   2014-TIOL-1452-HC-MUM-ST   wherein it is held that no CENVAT Credit is available in respect of an immovable property i.e. towers etc.

The respondent assessee submitted that it is undisputed that what has been received in its factory on which CENVAT Credit is claimed, are capital goods as defined in Rule 2 (b) of the CCR, 2002; that these inputs are used in the factory; that the issue whether the CENVAT Credit of the duty paid on machines/equipments used in setting up a immovable property is available to the Respondent in whose factory the immovable property is set up has been held in the affirmative by the Tribunal in JSW Ispat Steel Ltd. -  2013-TIOL-1758-CESTAT-MUM and which decision has been accepted by the Revenue, as communicated by the CBIC. Inasmuch as since the issue is no longer res-integra, the appeal should be withdrawn by the Revenue.

The High Court considered the submissions and observed thus –

++ On plain reading of the Rule 2(b) and 3 of the Credit Rules, 2002, it is clear that the capital goods in the present facts had been received in the Respondent's factory and used in the factory. Thus, the duty paid on these capital goods is available to the Respondent, to be taken as CENVAT Credit as it is duly supported by appropriate cenvatable invoices.

++ It is not the case of the Revenue that the machines/equipments are not relating to manufacture of final products. The only case of the Revenue is that these machines/equipments lose their identity as they became a part of the set up plant and have to work along with other machines/equipments to manufacture final products.

++ This submission of the subject equipment/machines losing its identity in the sugar plant is contrary to the show cause notice as it proceeds on the basis that it is capital goods, as it restricts the allowance only to 50% of the credit for each year of use. Rule 3 of the CENVAT Credit Rules, 2002 requires the receipt of the capital goods in the factory for use in or in relation to manufacture of final products. The subject equipments/machines are undoubtedly used in or in relation to the manufacture of final products. Thus, the literal rule of interpretation when applied to the CENVAT Credit Rules, 2002 would entitle the Respondent to the benefit of CENVAT Credit on the duty paid equipment/machines (capital goods).

In the matter of the reliance placed on the decisions of S.S. Engineers (supra), Triveni Engineering & Industries Ltd., (supra), the High Court viewedboth would have no application to the facts since in those cases the Court was concerned with the issue whether duty is payable on an immovable property.

Insofar as reliance placed by the Revenue on the the decision in Bharti Airtel (supra), the High Court observed that in that case the credit was being sought to be taken on towers and parts of towers, prefabricated buildings, printers and office chairs all of which were not falling under definition of capital goods given in the CENVAT Credit Rules, 2004. Nonetheless, in the present case, the show cause notice itself proceeded on the basis that the subject equipments/machines do fall within the definition of capital goods as given in the CCR, 2002 and, therefore, the decision in Bharti Airtel (supra) was inapplicable, the High Court added.

The High Court further observed that an identical issue arose before the Tribunal in JSW Ispat (supra) and which decision of the Tribunal was on all fours in the present facts and was accepted by the Central Board of Indirect Taxes & Customs on the ground that the same is legal and proper and, therefore, it is not understood as to why the Revenue was agitating this issue.

While concluding, the High Court made the following remarks -

"22. We are of the view that Rule of law prevailing in this country is one of the key elements to determine ease of doing business. The Rule of law inter alia ensures absence of arbitraries in taking decisions, which would mean equal applicability of law to all concerned. Therefore, an issue as raised herein (being a pure question of law), would have all India implication not only before the Court but at various levels of adjudication under the Act. Therefore, where at the highest level i.e. at the level of the Central Board of Indirect Taxes and Customs, the Revenue has accepted a particular view on a pure question of law, then in all such cases, the Revenue should withdraw the show cause notices and/or pending proceedings. This would bring certainty in the minds of the trade as well as the Department and leading to reduction of litigation. We would direct the Counsel for the Revenue/Appellant before us to forward a copy of this order to the CBIC to issue appropriate directions in the above regard."

The substantial question of law was answered in the affirmative i.e. in favour of the Respondent-Assessee and against the Appellant-Revenue.

The Revenue Appeal was dismissed.

(See 2018-TIOL-2352-HC-MUM-CX)