Commissioner of Central Goods and Service Tax, Jaipur Versus Shree Cement Limited
Central Excise
2018 (9) TMI 822 – RAJASTHAN HIGH COURT – 2018 (16) G. S. T. L. 196 (Raj.)
RAJASTHAN HIGH COURT – HC
Dated:- 17-1-2018
D.B. Central/Excise Appeal No. 134 / 2017
Central Excise
MR. K.S.JHAVERI AND MR. VIJAY KUMAR VYAS, JJ.
For The Petitioner(s) : Mr. Siddharth Ranka with And Mr. Muzaffar Iqbal
For The Respondent (s) : Mr. M.P. Devnath, Mr. Sameer Jain, Mr. Vivek Sharma, Ms. Mahi Yadav, Mr. Daksh Pareek And Mr. Arjun Singh
Order
1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee.
2. This Court while admitting the appeal on 04.12.2017 framed following substantial question of law:
“1) Whether the ld. CESTAT was right in law in holding that the assessee was entitled to avail the full credit of Excise Duty/service tax paid on input/input services under in their capt
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
lding or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of any taxable service specified in sub-clauses (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act;
(C ) capital goods except when used as parts or components in the manufacture of a final product;
(D) motor vehicles;
(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and -/
(F) any goods which have no relationship whatsoever with the manufacture of a final product.
Explanation – for the purpose of this clause, “free warranty” means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;]
4. He has also taken us
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
place of removal; but excludes services, –
(A) specified in sub-clauses (p), (zn), (zzn), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for –
(a) construction of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or
[(B)] specified in sub-clauses (o) and (zzzzj) of clause (105) of section 65 of the Finance Act, in -/ so far as they relate to a motor vehicle which is not a capital goods; or
(BA) specified in sub-clauses (d) and (zo) of clause (105) of section 65 of the Finance Act, except when used by –
(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by him; or
(b) a provider of output service as specified in sub-clause (d) of clause (105) of section 65 of the Finance Act, in res
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
vices which have been used in the Captive Power Plant for generation of electricity to the extent of the portion of electricity not used in the manufacture of goods within their factory and cleared or wheeled out to their other units / sister concerns whether for a consideration or not.
F. BECAUSE the Id. CESTAT failed to appreciate that the sister units of the assessee respondent cannot be treated as one and the same. In this regard the Hon'ble Supreme Court while dealing with the issue of eligibility to exemption in the case of Rollatainers Ltd. v. CCE, Delhi has laid the following law: -/
“7. There is no two opinion that both the factories are near to each other and it is owned by the same owner and the common balance sheet is maintained. But, by this can it be said that both the factories are one and the same? The definition of the “factory as defined in Section 20(e) of the Central Excise Act, 1944, reads as under:
“(e) “factory” means any premises, including the prec
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
s apparent that there is no commonality between the two factories, both are separate establishments run by separate Managers though at the apex level it is maintained by the appellant company. There are separate staff, separate finished goods. Simply because both the factories may have common boundaries that will not make it one factory. Accordingly, we are of the opinion that the view taken by the Tribunal does not appear to be well-founded and likewise, the view taken by the Commissioner, Central Excise. Accordingly, we allow both these appeals, set aside the order of the Tribunal passed on June 7, 2002 as well as the order passed by the Commissioner, Central Excise, New Delhi-III on September 28, 2001 in both the appeals. No order as to costs.”
G. BECAUSE the ld. CESTAT failed to appreciate that it is settled proposition of law that the sister units of the assessee respondent having different registration are distinct entities and cannot be treated as one and the same and -/ ther
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
respondent to the extent the electricity was wheeled out/ transferred to other sister units.
I. BECAUSE the Final order No. A/939/2012- SM(BR) dated 10-07-2012 of the Id. CESTAT in case of Hindustan Zinc Ltd. has been accepted on monetary limit and not on merit.
J. BECAUSE the Final Order No. A/51895- 51899/2016-Ex (DB) dated 16-11-2016 of the ld. CESTAT in case of Hindustan Zinc Ltd. has been accepted on monetary limit and not on merit.
K. BECAUSE the Final order No. 52132- 52133/2017-EX[DB] dated 02.03.2017 of the ld, CESTAT in case of Hindustan Zinc Ltd. has not been accepted by the Department on merits and is being appealed against.
L. BECAUSE the Final order No. 53340- 53343/2017-Ex[DB] dated 17.04.2017 of the ld. CESTAT in case of Shree Cement Limited, Ajmer has not been accepted by the Department on merits and is being appealed against.”
5. Counsel for appellant has contended that the observations made by the Tribunal are as under:/
” Here, the excess electricity
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
hin the factory of production. Therefore, to the extent of Cenvat attributable to the inputs/ input services used/utilized in the production of excess electricity wheeled out to other units would not be admissible for Cenvat Credit as 'input & input services' used in such wheeled out electricity would not fall within the definition of Rule (k) & Rule (I) of the Cenvat Credit Rules, 2004 as enumerated in the foregoing para.
6. From the above it is clear that Cenvat Credit is only available to such input/ inputs services which is used in the generation of that quantum of electricity which has been used captively in the production of final product and the input/ input services which has been used in the generation of electricity which has been wheeled out to the sister concern units of the appellant is not considered as the input and input services in terms of definitions given here in above. Hence, credit taken on that quantity of electricity which has been wheeled out to the sister
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
A/522so/2016.sM(BR) dated 30.06.2016.
4. The Ld. DR submits that the issue may be decided in favour of the Revenue.
5. on careful consideration of the submissions made by both sides and perusal of records, we find that the issue is regarding reversal of Cenvat Credit attributable to the power generated but transferred to their sister concerns. It is the case of the Revenue that the inputs and input services are not used in respect of power which is generated and captively consumed. We find no merits in the arguments put forth by the adjudicating authority in denying the cenvat credit to the appellant as in an identical issue, in respect of very same assessee, but situated at Chittorgarh, Rajasthan, this bench vide Final order No. A5189s 51899/2016 held as under:
“Heard both the sides and examined the appeal records. The short point for decision is whether or not the appellant is eligible to avail the credit on input services used in the generation of electricity which is part
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
the appellant himself without proportionate distribution. Such being the factual position, I find that the impugned orders are not sustainable. Further, the reliance placed in the impugned order on the ratio of Hon'ble Supreme Court in Maruti Suzuki Ltd. vs. CCE, Delhi III (supra) is not appropriate. In fact the appellate Authority records that the facts are different in both the cases but still goes ahead and applies the ratio. As mentioned earlier in this order, the Hon'ble Supreme Court was dealing with the sale of electricity to outside parties and not to clearance of electricity to another manufacturing unit of the appellant. The input service credits attributable to the electricity sold to utility companies are not available to the appellants as held by the Hon'ble Supreme Court. This, the appellants are not contesting and have already reversed the amount towards such input service credits.”
7. He has relied upon the first order which is against the judgment of Gujarat H
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ued to the respondent. Paper book be prepared within three months issued. After the paper book is prepared, the appeal be listed final hearing. -/
The Appellate Tribunal in its impugned order had held that supplies made to a 100% EOU cannot be considered as exempted goods for denying Cenvat by virtue of Rule6(6)(ii) of Cenvat Credit Rules 2004. Assessee used cenvatable inputs viz, furnace oil to generate electricity and also to produce steam. Part of this electricity and steam supplied to its sister concern, a 100% EOU, situated outside its factory premises. It is economical in the modern competitive working to have a larger power plant catering to power requirements of various units of same group of companies rather than having small power plants for each unit Cenvat credit cannot be denied.
It was further held that issue of admissibility of credit on supplies made to a 100% EOU was under litigation and different courts given different interpretations regarding admissibility of
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
the Department are accordingly allowed with no order as to costs. and also relied upon decisions:
1. Punjab and Haryana High Court in Maruti Suzuki India Limited vs. Commr. Of Central Excise, -/ 2017 (5) G.S.T.L. 18 (P&H), wherein it has been observed as under:
” Electricity that was wheeled out to third parties was not used in manufacture of assessee's final product – Therefor LNG to extent used for production of electricity wheeled out to third parties was not input and service of inward transportation thereof was not input and service. Electricity like money would lose its identity once it is used with electricity obtained from other sources – No nexus established between final product of third party sold to assessee and electricity sold to it by assessee, no question of apportionment arose – Electricity was sold for consideration to third parties, who were independent entities and not job workers of assessee – No material on record that establishes an obligation on part o
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ut element of sale, was not discussed. Also, CESTAT had not decided question as to whether electricity supplied to other units of assessee situated in different premises was also entitled to the credit. Hence, the matter remanded to CESTAT for factual adjudication.
3. Commissioner of C. Ex. Chennai-I vs. Indian Organic Chemicals Ltd., 2013 (298) E.L.T. 517 (Mad.), wherein it has been observed as under:
“….Furnace oil/Naphtha used in generation of electricity and steam, part of which was transferred to adjacent unit. Held : Assessee was entitled to credit on Furnace oil/Nephtha only to the extent to which they were using electricity and steam within their factory.” -/
4. Sanghi Industries Ltd. vs. Commissioner of Central Excise, Rajkot, 2014 (302) E.L.T. 564 (Tri. Ahmd.), wherein it has been observed as under:
” …. Factory – Clubbing of Sister units situated in different premises having different registration cannot be considered as same factory. Appellants' contention t
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
l be made under the cover of an invoice referred to in rule 9″
11. He has also relied upon the decisions:
1. First judgment of Single Judge of Tribunal in M/s Hindustan Zinc Ltd. vs. CCE nd ST, Jaipur- II, 2016 SCC Online CESTAT 1294, wherein it has been observed as under:
“4. Heard both the sides and examined the appeal records. The short point for decision is whether or not the appellant is eligible to avail the credit on input services used in the generation of electricity which is partly cleared to their sister units who are also engaged in the -/ manufacture of dutiable final products. The admitted fact is that the Cenvat credit on input services used in the generation of power is eligible to the appellant as long as the electricity is used in the manufacture of dutiable final product. The only dispute is relating to the usage of electricity captively within the plant of generation or also outside the generation unit by the same manufacturer. Considering that the electricity
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
urt was dealing the sale of electricity to outside parties and not to clearance of electricity to another manufacturing unit of the appellant. The input service credits attributable to the electricity sold to utility companies are not available to the appellants as held by the Hon'ble Supreme Court. This, the appellants are not contesting and have already reversed the amount towards such input service credits.”
2. D.B. Judgment of Tribunal in – M/s Hindustan Zinc Ltd. vs. CCE & ST, Jaipur-II, Appeal No.E/2068, 2067/2012-EX (DB) wherein it has been observed as under:
“5. on careful consideration of the submissions made by both the sides and perusal of records we find that the issue is regarding reversal of Cenvat credit attributable to the power generated and transferred to their sister concern. It is the case of the Revenue that the input services are not used in respect of the power which is generated and captively consumed. We find no merits in the arguments put forth by the
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
al products and also the fact that all units belong to the appellant the denial of credit is not justifiable in the present case. Further, it is a fact that if the appellant were to follow the procedure for input service distribution the credit eligibility on part of the electricity cleared to sister unit could not have been questioned and the credit could have been passed on to the unit which is actually using the electricity or retained fully by the appellant himself without proportionate distribution. Such being the factual position, I find that the impugned orders are not sustainable. Further, the reliance placed in the impugned order on the ratio of Hon'ble Supreme Court in Maruti Suzuki Ltd. vs. CCE, Delhi- III (supra) appropriate. In fact the appellate Authority records that the facts are different in both the cases but still goes ahead and applies the ratio. As mentioned earlier in this order, the Hon'ble Supreme Court was dealing the sale of electricity to outside parties
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
infirmity exists in the impugned order of the Tribunal.
4. Maruti Suzuki Ltd. vs. Commissioner of Central Excise Delhi-III, 2009 (240) ELT 641 (S.C.) wherein it has been observed as under:
“20. To sum up, we hold that the definition of “input” brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. The important point to be noted is that, in the present case, excess electricity has been cleared by the assessee at the agreed rate from time to time in favour of its joint ventures, vendors etc. for a price and has also cleared such electricity in favour of the grid for distribution. To that extent, in our view, assessee was not entitled to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
held by this Court, we do not find any merit in this appeal on the first question and hold that modvat credit was allowable for the use of LSHS by the Assessee. As regards the second issue involved in the case, the Revenue has accepted the decision in the case of Raymond Ltd. (supra), as it did not file any appeal against the said decision in this Court. The second issue is already decided in favour of the Assessee. The decision rendered by the Tribunal is, thus, confirmed. The appeal is dismissed leaving the parties to bear their own costs.”
6. Collector of Central Excise vs. Solaris Chemtech Limited, 2007 (214) ELT 481 (S.C.), wherein it has been observed as under:
“2. In this batch of civil appeals the short question which arises for determination is : whether the assessee is entitled to MODVAT credit under Rule 57A on Low Sulphur Heavy Stock (LSHS) and furnace oil used for generating electricity captively consumed for the manufacture of the final products such as caustic soda,
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
manufacture cement/caustic soda. The electrolysis process is dependent on continuous flow of electricity. If there is disruption in the supply of electricity from the Electricity Board then the entire plant of the assessees would fail and the manufacture of cement/caustic soda would not take place. Therefore, LSHS would come within the ambit of the expression “used in or in relation to the manufacture of the final product”. Further, in the case of Collector of Central Excise v. Rajasthan State -/ Chemical Works 1991ECR465(SC) , it has been held that any operation in the course of manufacture, if integrally connected with the operation which results in the emergence of manufactured goods, would come within the term “manufacture”. This is because of the words used in Rule 57A, namely, “goods used in or in relation to the manufacture of the final products”. Electricity is one form of heat. It gets generated in several ways. LSHS is a fuel used in the generation of electricity. Since, ele
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
he Central Excises and Salt Act, 1944 (for short, 'the said Act'). It is for this reason that this Court has repeatedly held that the expression “in relation to” must be given a wide connotation. The Explanation to Rule 57A shows an inclusive definition of the word “inputs”. Therefore, that is a dichotomy between inputs used in the manufacture of the final product and inputs used in relation to the manufacture of final products. The Department gave a narrow meaning to the word “used” in Rule 57A. The Department would have been right in saying that the input must be raw- material consumed in the manufacture of final product, however, in the present case, as stated above, the expression “used” in Rule 57A uses the words “in relation to the manufacture of final products”. The words “in relation to” which find place in Section 2(f) of the said Act has been interpreted by this Court to cover processes generating intermediate products and it is in this context that it has been repeat
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
g final product marketable or something used otherwise in assisting the process of manufacture. This doubt is set at rest by use of the words “used in relation to manufacture”. In the present case, the LSHS is used to generate electricity which is captively consumed. Without continuous supply of such electricity generated in the plant it is not possible to manufacture cement, caustic soda etc. Without such supply the process of electrolysis was not possible. Therefore, keeping in mind the expression “used in relation to the manufacture” in Rule 57A we are of the view that the assessees were entitled to MODVAT credit on LSHS. In our opinion, the present case falls in Clause (c), therefore, the assessees were entitled to MODVAT credit under Explanatory Clause (c) even before 16.3.95. Inputs used for generation of electricity will qualify for MODVAT credit only if they are used in or in relation to the manufacture of the final product, such as cement, caustic soda etc. Therefore, it is no
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
/ 57-AA of the Central Excise Rules Modvat Credit is not admissible to the second unit.
9. The learned counsel for the appellant has placed reliance upon Rule 57-AA particularly Clause (d) which is reproduced below:
Rule 57AA. Definitions – For the purpose of this section-
(a)………….
(b)………….
(c)………….
(d) 'Inputs' means all goods, except High Speed Diesel oil and Motor Spirit used in or in relation to the manufacturer of the final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils cleared along with the final products, goods used as paint, or as packing materials or as fuel or for generation of electricity uses for manufacture of final products or for any other purpose within the factory of production.
14. The learned counsel produced various orders passed by the different Tribunals and they all do support the impugned order of the Tribunal. The learned counsel for th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
” That in this connection, as far as the present case is concerned, it is submitted that is transferring power to its own units without there being any sale. In such a situation no denial of credit can be made in the case. This is because of certain observations made in the order itself, which are as under:-
(a) “Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity, the electricity generation also forms part of the manufacturing activity and the “input” used in that electricity generation is an “input used in the manufacture” of final product.
This observation makes it clear that in the case where there is an arrangement for captive generation of electricity, it has to be treated as a requirement for carrying out manufacturing process and therefore credit would be admissible. Therefore, the key expression is “captive arrangement”. Captive arrangement means arrangement me
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
