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Commissioner Of Central Excise, Bangalore-Ii v. Slr Steels Ltd.
Factual and Procedural Background
The appellant, the revenue, challenged the Tribunal's order which held that the steel and cement used by the assessee, M/s. S.L.R Steels Limited, in the manufacture of storage tanks are eligible for Cenvat Credit. The assessee, engaged in manufacturing pig iron, G. Slag, Coke, and Fuel, was issued a show cause notice on 30-06-2005 alleging irregular availing of Cenvat credit amounting to Rs. 21,34,251/- on ineligible items like steel and cement. The Additional Commissioner of Excise accepted the assessee's contention that the materials were used as inputs in constructing pollution control equipment and storage tanks, and dropped the proceedings. The revenue appealed to the Commissioner of Central Excise, who reversed the decision, holding that storage tanks are immovable property and non-excisable goods, thus disallowing the credit under Rule 6(1) of the Cenvat Credit Rules, 2002/2004. The assessee then appealed to the Tribunal, which restored the assessing authority's order allowing credit based on the precedent of the Supreme Court in Commissioner of C. Ex., Coimbatore v. Jawahar Mills Ltd.. The revenue filed the present appeal against the Tribunal's decision.
Legal Issues Presented
- Whether the duty paid on steel and cement used for the construction of storage tanks and pollution control equipment can be availed as Cenvat Credit by the assessee?
Arguments of the Parties
Revenue's Arguments
- The assessee is not engaged in the business of manufacturing storage tanks.
- Storage tanks are immovable property and non-excisable goods.
- Duty paid on steel and cement used in construction of storage tanks cannot be claimed as Cenvat Credit.
- The amended Explanation 2 of the definition of “input” in 2009 supports the disallowance of credit on such items.
- The appellate authority's order disallowing credit should be restored.
Assessee's Arguments
- Steel and cement were purchased for construction of storage tanks and pollution control equipment, which qualify as capital goods under the Cenvat Credit Rules.
- The Tribunal was justified in granting relief by allowing Cenvat Credit.
- No interference with the Tribunal's order is warranted.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of C. Ex., Coimbatore v. Jawahar Mills Ltd., 2001 (132) E.L.T 3 (S.C.) | Recognition that inputs used in manufacture/construction of capital goods, including storage tanks and pollution control equipment, entitle the assessee to Cenvat Credit. | The Tribunal relied on this precedent to hold that steel and cement used in construction of storage tanks and pollution control equipment qualify as inputs for capital goods, thus allowing Cenvat Credit. |
Court's Reasoning and Analysis
The Court examined the definition of "capital goods" under Rule 2(a) of the Cenvat Credit Rules, 2004, which explicitly includes storage tanks and pollution control equipment. It further analyzed the definition of "input" under Rule 2(k), including Explanation 2, which clarifies that inputs include goods used in the manufacture of capital goods used in the factory of the manufacturer. The Court noted the 2009 amendment excluding certain items like cement and steel used in construction of factory sheds or foundations from Cenvat Credit, but distinguished that steel and cement used in the construction of storage tanks and pollution control equipment fall within the scope of capital goods inputs eligible for credit.
The Court rejected the appellate authority’s reasoning that storage tanks being immovable and non-excisable goods disqualify the assessee from claiming credit. It held that the criterion of marketability is irrelevant in this context. The Tribunal’s decision to restore the assessing authority’s order allowing credit was thus justified. The Court concluded that the revenue's appeal lacked merit and answered the substantial question in favor of the assessee.
Holding and Implications
The appeal is dismissed.
The Court's ruling affirms the entitlement of the assessee to Cenvat Credit on duty paid for steel and cement used in the manufacture of storage tanks and pollution control equipment, classified as capital goods. The decision directly affects the parties by upholding the Tribunal's order in favor of the assessee. No new precedent beyond the existing legal framework was established.
N. Kumar, J.:— This appeal is by the revenue challeng-ing the order passed by the Tribunal which held that the steel and cement use in the manufacture of storage tank for which the assessee is entitled to Cenvat Credit on steel and cement purchased for constructing a storage tank.
2. The assessee M/s. S.L.R Steels Limited is carrying on the business of manufacturing pig iron, G. Slag, Coke and Fuel.
3. It holds Central Excise Registration certificate. A show case notice came to be issued on 30-6-2005 alleging that they have irregularly availed Cenvat credit of Rs. 21,34,251/- on ineligible items like steel, cement etc. and they were asked to a show cause why the said amount should not be recovered from them under Rule 11/14 of the Cenvat Credit Rules, 2002 and 2004 respectively read with Section 11A of the Central Excise Act, 1944. The assessee filed his objections pointing out that the said material was purchased and used as an input in construction of pollution control equipments as well as storage tanks. The Additional Commissioner of Excise accepting the case of the assessee dropped the proceedings. Aggrieved by the said order, the revenue preferred an appeal to the Commissioner of Central Excise. The appellate authority held that cement and steel used for manufacture of the storage tank which is an immovable property is not capable of being bought and sold in the market and hence, are non-excisable goods. No credit of duty paid on any inputs used for such non-excisable goods is admissible in view of the provisions of Rule 6(1) of Cenvat Credit Rules, 2002/2004. Therefore, he allowed the departmental, appeal and confirmed the demand for reversal of wrongly availed capital goods credit, along with interest and penalty. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal held that the cement and steel used by the assessee for the purpose of construct Iron/Coke, storage tank, gas storage tanks are capital goods. Steel and cement purchased was an input in the manufacture/construction of the said capital goods. Therefore, the inputs having been used for the construction of storage tank and pollution control equipment as held by the Apex Court in the case of Commissioner of C. Ex., Coimbatore v. Jawa-har Mills Ltd. reported in 2001 (132) E.L.T 3 (S.C), the assessee is entitled to Cenvat credit. Therefore, the order of the appellate authority was set aside and the order of the assessing authority was restored. Aggrieved by the said order, the revenue is in appeal.
4. Learned counsel for the revenue assailing the impugned order contends that the assessee is not in the business of manufacture of storage tanks. Storage tank is an immovable property. It is not excisable. In those circumstances, the duty paid on steel and cement which is used for the construction/manufacture of storage tank cannot be availed by the assessee as cenvat credit. Infact, the definition of “input” in particular, Explanation 2 as amended in 2009 supports his contention. Therefore, he submits the order passed by the tribunal is erroneous and the appellate authority's order has to be restored.
5. Per contra, learned counsel for the assessee contended the material on record clearly establishes that the steel and cement was purchased for construction of storage tank and also used for pollution control equipments which fall within the definition of “capital goods” and therefore, the Tribunal was justified in granting the said relief. No case for interference is made out.
6. In those circumstances, the substantial question which arises for our consideration in this appeal is “Whether the duty paid on steel and cement which was used for the construction of storage tank and pollution control equipment could be availed of by the assessee as cenvat credit?”
7. In order to answer this question, it is necessary to look into the definition of capital goods as contained in the Cenvat Credit Rules, 2004 which reads as under:
Rule 2(a). Capital goods means:
(A) the following goods, namely : (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, (Heading 6805, grinding wheels and the like, and parts thereof falling under Heading 6804) of the First Schedule to the Excise Tariff Act;
(ii) Pollution control equipment
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
(1) In the factory of the manufacturer of the final products, but does not include any equipment of appliance used in an office; or
(2) For providing output service.
8. A perusal of the aforesaid provision makes it very clear though storage tanks may be immovable property and the pollution control equipment are included within the definition of “capital goods”, input as defined in Rule 2(k) makes it clear that “input” includes in goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Therefore, the input is not necessarily to be used in the manufacture of final product. By virtue of explanation 2-goods used in the manufacturer of capital goods which are further used in the factory of the manufacture also falls within the definition of input. In 2009, this explanation has been amended to the following effect:
“but shall not include cement, angles, channels Centrally Twister Deform bar (C.T.D) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.”
9. Therefore, the notification of the Legislature is very clear that it is only the “inputs” used in the manufacture or construction of capital goods which is construed as input and cenvat credit is available on the duty paid in purchase of such inputs. If the cement, angles, channels, Centrally Twister Deform bar (C.T.D) or Thermo Mechanically Treated bar (T.M.T) and other items are used in the construction of factory shed, building or laying of foundation, the duty paid on such items the assessee would not be entitled to cenvat credit. Similarly, though the assessee is entitled to cenvat credit of cement and steel used in the manufacture of capital goods viz., storage tank, if any structure for support of capital goods is constructed and steel and cement is used for such support, the assessee is not entitled to the benefit of cenvat credit on the duty paid on such cement and steel. Therefore, there is no ambiguity in any of these provisions. When once a storage tank and pollution control equipment constitutes capital goods and any raw material purchased for construction of those goods, the duty paid could be utilized as a cenvat credit by the assessee notwithstanding the fact that the storage tank is an immovable property. Therefore, the appellate authority committed a serious error firstly in holding that the storage tank is an immovable property and secondly, on the ground that it cannot be bought and sold in the market, the criteria which is totally unwarranted under the circumstances. Therefore, the Tribunal was justified in setting-aside the said order and holding that the assessee is entitled to the benefit;
10. In that view of the matter, we do not see any merit in this appeal. The substantial question of law is answered in favour of the assessee and against the revenue. Ordered accordingly.
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