2014 (9) TMI 1090 - HC - Central Excise

CENVAT credit - use of explosives outside the factory premises - whether eligible for CENVAT credit or not? - Held that - the factory may be compact and in a defined premises. However if the manufacturing process is a complex one and involves usage of quite large amount of raw material and various processes it is difficult to treat any particular area as the factory premises. Though the actual processing may take place in an area of few thousand square feet the processing of raw material or storing thereof may occur in hundreds of acres of land - If explosives are used to procure raw material which in turn is supplied to the factory either through surface transport or through conveyor belt it is difficult to segregate it from the factory premises - credit allowed.

Summary

Issues:
1. Retrospective or prospective application of substituted rules.
2. Eligibility of explosives used outside factory premises for Cenvat credit under Rule 57AA(d).
3. Justifiability of orders of Hon'ble CEGAT under changed rules.

Analysis:

Issue 1: Retrospective or prospective application of substituted rules
The reference made under Section 35H(1) of the Central Excise Act sought clarification on whether the substituted rules were retrospective or prospective. The Court did not delve into this issue in detail but focused on the specific questions referred for consideration.

Issue 2: Eligibility of explosives used outside factory premises for Cenvat credit under Rule 57AA(d)
The respondent, a cement manufacturer, availed Cenvat credit on explosives used in the process of procuring raw materials. A show cause notice was issued alleging that the explosives used outside the factory premises were not eligible for Cenvat credit under Rule 57AA(d) of the Central Excise Rules, 1944. The Tribunal, considering the judgment of the Hon'ble Supreme Court, allowed the appeal, emphasizing the difficulty in segregating areas as factory premises in complex manufacturing processes involving large amounts of raw materials. The Court upheld the Tribunal's decision, dismissing the applicant's argument that raw materials must be used within the factory premises to qualify for Cenvat credit.

Issue 3: Justifiability of orders of Hon'ble CEGAT under changed rules
The Court addressed the argument that the orders of the Hon'ble CEGAT were not justifiable under the changed rules. It emphasized that once an issue is covered by a judgment of the Hon'ble Supreme Court, seeking reference on the same question is unnecessary. The Court dismissed the reference, noting the insignificance of the amount involved in the case.

In conclusion, the Court's judgment upheld the Tribunal's decision regarding the eligibility of explosives for Cenvat credit, emphasizing the complexity of manufacturing processes and the impracticality of strict segregation of factory premises. The Court's analysis focused on the specific questions referred for consideration, providing clarity on the application of rules in the context of Cenvat credit for raw materials used in manufacturing processes.