2005 (98) ECC 399 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench -- Bangalore

Dr. S.L. Peeran, Member (J) and Shri K.C. Mamgain, Member (T)

JOCIL Limited, Guntur

Versus

Commissioner of Customs, Guntur

Appeal No. E/409/03

[Arising out of Order-in-Original No. 12/2003, dated 11.3.2003, passed by the Commissioner of Central Excise, Guntur]

Final Order No. 1424/2004, dt. 27.8.2004, Certified on 13.9.2004

Demand & Penalty

Electricity was generated by the power plant to produce or process final products of the assessee, therefore use of components/parts of power plant was to be treated as used for producing or processing of the final products -- Penalty under Section 11 AC read with Rule 57AH of the erstwhile Central Excise Rules and under Rule 173Q read with Rule 57AH was set aside.

Appeal allowed

PRESENT :

Shri K.S. Venkataramani, Consultant for the appellant.

Shri P.M. Saleem, SDR for the respondent.

Cases Cited :

1. Ballarpur Industries v. CCE, 2000 (116) ELT 312 (LB)....................................... [Para 6]

2. CCE v. Jawahar Mills Ltd., 2001 (77) ECC 1 (SC)............................................. [Para 9]

3. CCE, Bhopal v. Bhaskar Industries Ltd., Final Order No. A/970/2002-NB, dated 23.8.2002 [Para 8]

4. CCE, Coimbatore v. Southern Iron & Steel Co., 2000 (121) ELT 164 (Tri)........... [Para 1]

5. CCE, Hyderabad v. Nava Bharat Ferro Alloys Ltd., Final Order No. 239/2003, dated 18.2.2003 [Para 4]

6. CCE, Raipur v. Jindal Steel & Power Ltd., 2003 (158) ELT 178 (Tri-Del).............. [Para 4]

7. Commissioner of Central Excise, Meerut v. Ganeswar Limited, 2000 (115) ELT 653 (Tri) [Para 1]

8. DCW Limited, 2000 (115) ELT 878 (Commr. Appl)............................................ [Para 1]

9. DLF Cement Ltd. v. Commissioner of Central Excise, New Delhi, 2000 (115) ELT 743 (Tri) [Para 1]

10. Grasim Industries Ltd. v. CCE, Indore, 2004 (164) ELT 348 (Tri-Del)................. [Para 4]

11. Jawahar Mills Ltd., 1999 (108) ELT 47 (Tri-LB)................................................ [Para 6]

12. Kamakhya Steels (P) Ltd., v. CCE, Meerut, 2004 (92) ECC 230 (LB)................ [Para 9]

13. Visakhapatnam Steel Plant v. CCE, Visak, Final Order No. 47/2003, dated 17.1.2003 [Para 4]

Per : Dr. S.L. Peeran

This appeal arises from Order-in-Original No. 12/2003 dated 11.3.2003. By this Order the Commissioner has upheld the Department's issue of demands for recovery of irregular modvat credit/CENVAT credit filed in terms of three show cause notices issued to the appellants. There is also an order of imposition of penalty under Sec. 11AC read with Rule 57AH of the erstwhile Central Excise Rules. There is also a penalty imposed under Rule 173Q read with Rule 57 AH of erstwhile Rules. The appellants are engaged in the manufacture of toilet soaps, soap for other than toilet purpose, stearic acid and other excisable goods falling under various Chapter Headings of the Central Excise Tariff Act, 1985. The Department on investigation found that the appellant unit had been availing modvat credit of duty paid on the capital goods used in a power plant, which is meant for manufacture and sale of electricity. They had filed declarations from 4.12.99 under the erstwhile Rule 57T of Central Excise Rules, 1944, seeking to avail modvat credit on the capital goods used in the said power plant. The said declaration, inter alia, indicates toilet soaps with various brand names soap noodles, refined glycerin, pitch, IMCFA, Nitrogen and Oxygen as specified final products whereas soap noodles, unrefined glycerin, Glycerol Water and fatty acids were shown as intermediate goods arising in the course of manufacture of the final product. It was observed that the capital goods in question were used/being used/meant for use in the said power plant. It was noted that the assessee by their own admission stated that the above-said project was started with the objective of generating power in the first instance and subsequently retracted and stated that they intend to produce steam and power for captive use and to sell the power generated in surplus to/through A.P. Transco. Therefore, it was noted by the Department that the capital goods meant for use in the power plant and that the said plant is meant for generation of electricity or power and it was not as stated in the declarations filed by the party from time to time. Therefore, it was alleged that:

(a) they had wilfully mis-declared/mis-stated with regard to the usage of capital goods in question in their factory for manufacture of specified final products and processing of intermediate products.

(b) the capital goods in question were used/being used in the manufacture of/construction of power plant for generation of electricity or power which stands for the time being as a non-specified goods/commodity in the first Schedule of the CETA for being subjected to duty of excise. Therefore the Department alleged that the assessee was not entitled for credit of duty paid on the capital goods, which were exclusively used in the manufacture of goods falling outside the purview of the CETA, 1985, which were not subjected to levy of CE duty. The appellants filed their replies and the gist of the same has been brought out in Para 8 of the impugned order, which is reproduced below:-

"8. M/s JOCIL, Dokiparru, vide their letters Ref. Nos. JOCIL/ADM/91/01/4390 dated 24.8.2001, No. JOCIL/ADM/91/2002/11064 dated 11.3.2002, No. JOCIL/ADM/91/2002/11242 dated 16.3.2002, No. JOCIL/ADM/91/2002/4808 dated 31.8.2002, replied to the aforesaid show cause notices stating inter alia that:

(i) they have filed declaration under Rule 58T then applicable regularly;

(ii) in the very first declaration dated 4.12.99 the fact of generation of steam and power and their consumption in the process plant were mentioned;

(iii) the plant was completed and commissioner in March 2001;

(iv) the eligibility for Modvat/Cenvat credit was decided based on the rules applicable on the date of receipt of capital goods in the factory premises;

(v) the Modvat credit eligibility/ineligibility of the assessee had to be determined with reference to the rules applicable upto 31st March 2000 and the rules applicable from 1.4.2000 as the case may be, for the equipment received in the respective periods;

(vi) the Modvat rules applicable upto 31.3.2000 for the capital goods received till that date, may please be made applicable;

(vii) all the capital goods on which claim for Modvat credit was made by them upto 31.3.2000 had fallen under the specified chapter headings given under rule 57Q; that the final products manufactured by the assessee, such as Fatty Acids, Glycerin, Soap fall under chapter heading 3823.00, 1506.00, 3104.19 respectively and all of them were also covered under Column 3 of the table;

(viii) the intermediate products like Soap Noodles, Un-refined Glycerine, Glycerol water and Fatty Acids falling under Chapter headings 3401.11, 1506.00, 3823.00 are also covered under column No. 3 of the above table; that therefore, they were eligible for Modvat credit on all the capital goods received for the power plant;

(ix) they had filed the declarations in the prescribed proforma under Rule 57T for all the capital goods received for power plant upto 30th July 2000 (legally required upto 31.3.2000) regularly in time and the department has also issued acknowledgements without any adverse remarks; that they had also accounted all the capital goods received in the factory in RG23C Part-I and the original and duplicate copies of RG-23C, Part-I Register was submitted alongwith RT-12 returns to the department; that they had not received any objection from the department for availing modvat credit;

(x) the power plant and process plant was an integrated plant; that the steam generated in the boiler was used in the turbine and in the process plant; that the steam was also covered under column 3 of the table given under Rule 58Q; that they had included steam as a product in the classification declaration dated 5.3.99; that unless the capital goods were exclusively used for manufacture of exempted items Modvat credit is available as per provisions under sub-rule (1) of Rule 57R; that hence without prejudice, the assessee was eligible for modvat Credit on all the capital goods of power plant upto the stage of generation of steam as the steam was used in the process plant for manufacture of excisable goods;

(xi) they use about 60% of the power generated from the power plant in the process of manufacture of excisable products and only the surplus power is exported to the grid; that therefore, they were eligible for Modvat credit in terms of sub-rule (1) of Rule 57R upto 31.3.2000 and also eligible for Cenvat Credit in terms of Rule 57AD in respect of all the capital goods received for cogeneration power plant on or after 1.4.2000;

(xii) they are eligible for Cenvat Credit under Rule 57AA in respect of all the power plant equipment received by them;

(xiii) the Hon'ble Tribunal in several cases had stated that power generating equipment is eligible for Modvat Credit; they had cited the following decisions passed by the Hon'ble Tribunal, in the case of:

(i) Commissioner of Central Excise, Meerut v. Ganeswar Limited, 2000 (115) ELT 653 (Tri).

(ii) DLF Cement Ltd. v. Commissioner of Central Excise, New Delhi, 2000 (115) ELT 743 (Tri).

(iii) CCE, Coimbatore v. Southern Iron & Steel Co., 2000 (121) ELT 164 (Tri).

(iv) CCE (Appeals), Trichy-I in the case of DCW Limited, 2000 (115) ELT 878 (Commr. Appl);

(xiv) Some of the items included in the statement of Modvat claimed/availed enclosed to the Show cause notice were cleared by them from their factory premises for installation at pump house near the canal and laying pipelines outside the factory premises; while making such clearance the Cenvat / Modvat Credit on their items Rs. 1,32,426 had been reversed;

(xv) As per the provisions of Sec. 11A of the Act, the department should have raised the issue and given Show cause notice to the assessee within a period of one year from the relevant date i.e. on the date of filing RT 12 return; they had earned Modvat Credit on the capital goods on the date of receipt in the factory of manufacture subject to filing required declarations and entering in RG-23C Part 1; that taking credit of Modvat was postponed under Rule 57Q(7) till installation/use for manufacture of excisable products; therefore, the show cause notice was time barred as far as Modvat credit earned of Rs. 55,78,514 till 31.3.2000, by them;

(xvi) intention to evade payment of duty must be proved for invoking the proviso to Sec. 11AB(1) of the Central Excise Act, 1944 and this was not established in the show cause notice;

(xvii) the show cause notices may be withdrawn; and

(xviii) they may be granted personal hearing."

The Commissioner, however, rules the objections raised by the appellants and has held that the capital goods involved in all the four cases were meant for erection and commissioning of Biomass based cogeneration plant of 6 MW capacity and these facts are not disputed. He has held that the appellants had deliberately mentioned in the declaration filed under Rule 57T that the final products were toilet soaps, fatty acids, etc., and not electricity. He has noted that in the said declaration, the capital goods such as beans, columns, boiler components, etc., were mentioned. The purpose/utility of the aforesaid items/capital goods mentioned as beans for boiler for steam generations steam is used for processing of oils/fats/fatty acids and for generation of power for captive consumption. He has concluded that in terms of the statutory provisions/rules, levying modvat credit on capital goods, no modvat credit on capital goods exclusively used in the manufacture of exempted goods/non-excisable goods was available in terms of Rule 57R of the Central Excise Rules, 2001 and Rule 6 of CENVAT Credit Rules, 2001, Rule 6 of CENVAT Credit Rules, 2002. He has held that as the capital goods were used in relation to the cogeneration plant and that steam and electricity which are exempted and non-excisable goods respectively therefore the appellants were ineligible to avail modvat credit on the duty paid on the capital goods for paying duty on the final products which are different in nature. He has noted that steam and electricity are exempted and non-excisable goods were manufactured/produced by the boiler and the power plant. Simply because a part of the steam and electricity were utilized in the process plant where in soaps, fatty acids, glycerine etc., were produced, neither boiler and power plant nor steam and electricity become intermediate goods in the manufacture of soaps, fatty acids, glycerine, etc., therefore modvat credit cannot be availed by them. He also held that there was suppression in the case and larger period is applicable as their acts of wilful misdeclaration in the declarations filed under the Rules and taking modvat/CENVAT credit on the impugned capital goods which were not entitled for credit and thus have contravened Rules 57AD of Central Excise Rules, 1944/Rule 6 of the CENVAT Credit Rules during the period from 1.4.2000 to 31.3.2002, thereby they are liable for penalty.

2. We have heard Ld. Consultant, Shri K.S. Venkataramani, for the appellant and Shri P.M. Saleem, Ld. SDR for the Revenue.

3. Ld. Consultant submitted that the issue is no longer res-integra and the modvat credit availed by the appellants on the capital goods used for generation of electricity was justified in terms of law. He pointed out that there is no specific rule to deny the benefit. It is his submission that the issue is covered with the Tribunal judgments rendered in the following cases:

"(1) Visakhapatnam Steel Plant v. CCE, Visak [Final Order No. 47/2003, dated 17.1.2003]

(2) CCE, Hyderabad v. Nava Bharat Ferro Alloys Ltd. [Final Order No. 239/2003, dated 18.2.2003]

(3) CCE, Raipur v. Jindal Steel & Power Ltd., 2003 (158) ELT 178 (Tri-Del)

(4) Grasim Industries Ltd. v. CCE, Indore, 2004 (164) ELT 348 (Tri-Del)

4. Ld. SDR submitted that the judgments are distinguishable. He pointed out that the credit earned on the capital goods cannot be utilized for payment of duty on the other final goods as capital goods were used for manufacture of steam and electricity which were exempted products. It is his submission that if modvat credit is allowed to be taken to pay duty on the final products which were not produced by the capital goods then it would lead to a situation when much revenue would be lost. He submitted that the Revenue is aggrieved with the cited judgments and has filed appeals before the Apex Court and the same is pending. He prayed for taking a different view in the matter in the interest of Revenue.

5. We have carefully considered the submissions made by both sides and have perused the records and the citations. The question that is required to be determined in these appeals is as to whether the appellants have availed properly the modvat/CENVAT credit in respect of the duty paid on the capital goods while clearing the goods manufactured by them. The Department's contention is that the capital goods were utilized for manufacture of steam and electricity on the exempted products and the capital goods are not utilized for manufacture of final products of the appellants and hence the modvat credit cannot be availed by them. We are required in the first instance to see as to whether the rulings relied by the appellants applies to the facts of the case. While disposing of the stay application of the appellants by Stay Order No. 17/2004, this Bench prima facie noted that the citations clearly applied to the facts of the case. We now examine the citations.

6. In the case of Visakhapatnam Steel Plant v. CCE, Visakhapatnam (supra) the issue was regarding benefit of modvat credit of duty paid on capital goods on the allegation that the capital goods were not used in the manufacture of iron and steel products manufactured by the appellants, but were used in the thermal power plant for generation of electricity. It was also alleged that the capital goods did not specify the definition of the capital goods; and that the declarations under Rule 57T were not filed in respect of certain capital goods. The Tribunal after detail consideration and noting the details of items used noted that the issue is covered by Larger Bench judgment rendered in the case of Ballarpur Industries v. CCE, 2000 (116) ELT 312 (LB) wherein the theory of `direct participation' of the goods eligible for modvat credit had been specifically rejected by the Larger Bench in the light of its earlier Larger Bench judgments rendered in the case of Jawahar Mills Ltd., 1999 (108) ELT 47 (Tri-LB) which has been affirmed by the Apex Court. The Tribunal also upheld the assessee's plea that the demands were time barred. On our appreciation of the facts we notice that the Tribunal in the cited case of Visakhapatnam Steel Plant Ltd., has considered the Larger Bench judgments rendered in the case of Ballarpur Industries (supra) and Jawahar Mills Ltd. (supra) to overrule the Revenue's contention that there has to be direct participation of goods for claiming the benefit of modvat credit. In the cited case the facts were identical inasmuch as the allegation was that the capital goods were used for generation of steam and electricity and duty paid on such capital goods were utilized while paying duty in respect of iron and steel products manufactured by the assessee therein. We find that this judgment squarely applies of the facts of the case.

7. In the case of Nava Bharat Ferro Alloys (supra) the Tribunal noted that the ground made out in the show cause notice was that the items on which credit was taken had been used to assemble an immovable property, therefore the credit of duty is not available. The Tribunal also noted the ground in the appeal that `since electricity is non-excisable intermediate product and is not specified as final product under Rule 57Q and therefore modvat credit was not available' was not a ground set out in the show cause notice and held the ground to be liable to be not considered being beyond the proceedings. He noted that the issue was covered by the judgment of the Visakhapatnam Steel Plant (supra) and those of Larger Bench rendered in the case of Ballarpur Industries Ltd. and Jawahar Mills Ltd.

8. In the case of CCE v. Jindal Steel Plant Ltd. the issue involved was as to whether the modvat credit of duty on capital goods used in power plant was available to the assessee. The assessee had succeeded before the Commissioner. The Revenue had filed the appeal on the ground that the modvat credit of duty paid on capital goods is not available to the assessee because the power plant has been used exclusively in the manufacture of steam, which in turn had been used to generate electricity which is not excisable. The further ground was that Rules 57(R)(1) provided that no credit of duty on capital goods is permissible which are used exclusively in the manufacture of final products which is exempt from the whole of duty of excise or chargeable to nil rate of duty and that steam/electricity cannot also be treated as intermediate products for the manufacture of coal based sponge iron and other iron and steel products. The Tribunal after due consideration noted that the assessee was eligible for availing the modvat credit in the light of the earlier judgment of the Tribunal rendered in the case of CCE, Bhopal v. Bhaskar Industries Ltd. [Final Order No. A/970/2002-NB, dated 23.8.2002], which was rendered in a similar facts and circumstances of the case.

9. In the case of Grasim Industries Ltd. (supra) the issue was as to whether modvat credit of duty paid on components of power plant is admissible to the assessee under Rule 57T(13) of Central Excise Rules. The Tribunal after due consideration upheld the assessee's contention in terms of sub-rule (13) inserted under Rule 57T which provided that credit was not to be denied on the ground that `the declaration filed under sub-rule (1) does not contain all the details required to be contained therein or the manufacturer fails to comply with any other requirements under sub-rule (1)'. Proviso to said sub-rule (13) further provided that the Assistant Commissioner, however, should be satisfied `that duty due on the capital goods have been paid and such capital goods have actually been used or are to be used in the manufacture of final products.' Citing these rules and the Larger Bench judgment rendered in the case of Kamakhya Steels (P) Ltd. v. CCE, Meerut, 2004 (92) ECC 230 (LB) : 2000 (121) ELT 247 (LB) the Tribunal held that modvat credit cannot be denied on the ground of filing the detailed modvat declaration late as there is no dispute about the receipt of the impugned goods in the factory. The Tribunal then proceeded to consider the second question as to whether modvat credit is available on parts/components of power plant prior to 16.3.95 in view of the definition of `capital goods' in Explanation (1) to Rule 57Q and in view of the provisions of Rule 57R(2) of the Central Excise Rules. The Tribunal noted that the assessee was eligible for the modvat credit in the light of the Supreme Court judgments rendered in the case of CCE v. Jawahar Mills Ltd., 2001 (77) ECC 1 (SC) : 2001 (132) ELT 3 (SC). The Tribunal concluded that as the power plant satisfy the criteria mentioned in Explanation 1(a) of the Rule 57Q, it is the capital goods and the parts/components brought in by the assessee to assemble power plant will be eligible capital goods. It has noted that the bar of sub-rule (2) of Rule 57R will not be applicable to the facts of the case as the components/parts are used to assemble the power plant which is an eligible capital goods. It has noted that the electricity is generated by the power plant to produce or process final products of the assessee. The use of components/parts of the power plant is to be treated as used for producing or processing of the final products and on that premise upheld the assessee's contention and allowed the appeal.

10. We are of the considered opinion that the facts of the cited judgments are similar to the facts of the present case and we are required to follow the case laws cited supra. Respectively following the same, the impugned order is set aside and appeal is allowed with consequential relief, if any.

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