2024 (2) TMI 1563 - AT - Central Excise

Denial of CENVAT Credit - components /spares/ accessories used in the manufacture of captive power plant - positive corroborative evidence of suppression of facts or not - extended period of limitation - HELD THAT - An identical issue of the appellant has been decided by the Principal Bench of this Tribunal in 2023 (7) TMI 427 - CESTAT NEW DELHI wherein the appeal filed by the Revenue was dismissed and the benefit of Cenvat credit on TGT plant was allowed to the assessee. It is further noted that the appellant had availed credit on goods mentioned in the invoices provided by the contractor to the appellant. The goods on which such credit was taken are components spares and/or accessories of goods classifiable under chapter 84 85 or 90 of the First Schedule to the Central Excise Tariff Act 1985. It is not disputed that the component/parts of captive power plant were received in the factory premises of the appellant under duty paid invoices which was in the name of the appellant - Admittedly the CPP/KPTA plant was manufactured out of such parts/spares/components and such plant was used in the manufacture of the dutiable final product. There is no dispute that machineries/components received at the factory of the appellant on which the credit has been availed are indeed capital goods in terms of Rule 2(a) of the CENVAT Credit Rules 2004 as is evident from the fact that the credit arrangement has been restricted in the impugned show cause notice to 50% in each year. The Tribunal in several earlier decisions has held that the prerequisite for availment of CENVAT credit in respect of capital goods in the factory of manufacturer is its receipt in the factory and use in the manufacture of dutiable final product. The Tribunal in a similar factual matrix in the case of Gujarat Ambuja Cements Vs. Commissioner of Central Excise 2000 (8) TMI 178 - CEGAT NEW DELHI held that In view of the fact that we are accepting the alternative submission of the assessees that they are eligible to the benefit of Modvat credit on parts components and accessories of DG sets in terms of the provisions of Rule 57-T(7) of the Central Excise Rules we do not deem it necessary to pronounce upon the other submissions of the appellants. The respective impugned orders are set aside - Appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the eligibility of Cenvat Credit on parts, components, spares, and accessories used in the manufacture of captive power plants (CPP) and KPTA plants by the appellant. Specifically, the issues include:

• Whether the appellant is entitled to Cenvat Credit on capital goods (parts/components/spares/accessories) used in the manufacture of captive power plants and KPTA plants, which were constructed by independent contractors within the appellant's factory premises.
• Whether the ownership or the fact that the captive power plant or KPTA plant was constructed by contractors affects the appellant's entitlement to Cenvat Credit.
• Whether the capital goods on which credit was availed were received within the factory premises of the appellant under duty-paid invoices in the appellant's name.
• Whether the definition of capital goods under the Cenvat Credit Rules requires that the goods be used directly in the manufacture of the final product or merely used in the factory of the manufacturer of the final product.
• The applicability of extended period for recovery of credit and imposition of penalty in the absence of mens rea (willful suppression) by the appellant.
• Whether the legal precedents and earlier decisions of the Tribunal and Courts support the appellant's claim for credit.

Issue-wise Detailed Analysis

1. Eligibility of Cenvat Credit on Capital Goods Used in Captive Power Plant Constructed by Contractors

Legal Framework and Precedents: The Cenvat Credit Rules, 2004, particularly Rule 2(a)(A) defining capital goods and Rule 3(1) entitling manufacturers to take credit on capital goods received in the factory, govern the issue. Earlier judicial pronouncements such as Commissioner of Central Excise vs Nava Bharat Ferro Alloys, United Phosphorus Limited vs Commissioner of Central Excise, and Lloyds Metals & Engineers Ltd vs Commissioner of Central Excise were cited. Additionally, the Tribunal's decisions in Gujarat Ambuja Cements Ltd. and Commissioner of Central Excise, Mumbai-III vs NRC Ltd. provide authoritative guidance. The Supreme Court's affirmations in Escorts Ltd. vs Commissioner of Central Excise and Commissioner of Central Excise vs Ambuja Cements Ltd. further cement the legal position.

Court's Interpretation and Reasoning: The Tribunal emphasized that the key condition for availing Cenvat Credit on capital goods is their receipt in the factory of the manufacturer of the final product and their use in the manufacture of dutiable final products. The fact that the CPP or KPTA plant was constructed by contractors (BHEL/L&T) within the factory premises does not negate the appellant's entitlement to credit. The ownership of the plant by the contractor is irrelevant as the capital goods were received under duty-paid invoices in the appellant's name and never removed from the factory premises.

The Tribunal noted that the credit was restricted to 50% per year in the impugned orders, indicating acceptance that the goods qualified as capital goods under Rule 2(a). The Tribunal distinguished between the manufacture of the capital goods themselves (exempted from duty) and the use of their components in the factory for manufacture of the final product, holding that credit on components is permissible even if the final capital goods are exempted.

Key Evidence and Findings: The invoices showed that parts/components/spares/accessories were received at the appellant's factory under duty-paid documents in the appellant's name. The performance acceptance certificates evidenced that the plant was commissioned and accepted by the appellant. The plants were used to generate electricity for manufacturing zinc and lead, the dutiable final products.

Application of Law to Facts: Applying the legal provisions and precedents, the Tribunal held that since the capital goods were received and used within the factory for manufacture of dutiable final products, the appellant was entitled to Cenvat Credit. The fact that the plant was built by contractors on a turnkey basis did not affect the credit entitlement.

Treatment of Competing Arguments: The Revenue argued that since the CPP was constructed by contractors and the parts were transferred to them under store issue vouchers, credit should be denied. The Tribunal rejected this, holding that the goods were received in the appellant's factory and used in manufacture, satisfying the statutory conditions. The Revenue's contention that credit should be denied because the plant was exempt from duty was also rejected based on the distinction between capital goods and their components.

Conclusions: The appellant was entitled to Cenvat Credit on parts, components, spares, and accessories used in the manufacture of captive power plants and KPTA plants constructed by contractors within the factory premises.

2. Impact of Ownership and Location of Capital Goods on Credit Entitlement

Legal Framework and Precedents: The Tribunal relied on the definition of capital goods under Rule 2(a)(A) and the principle that credit is available to the manufacturer who receives capital goods in its factory, irrespective of who manufactures or owns the goods initially. The Gujarat Ambuja Cement Ltd. case and the NRC Ltd. case were pivotal in establishing that credit is not dependent on ownership but on receipt and use within the factory.

Court's Interpretation and Reasoning: The Tribunal held that ownership by the contractor does not affect the appellant's entitlement. The capital goods were received in the appellant's factory under duty-paid invoices in the appellant's name. The contractors never had ownership of the plant. The performance acceptance certificate merely certified workmanship and compliance with parameters, not ownership.

Key Evidence and Findings: The invoices and acceptance certificates showed that capital goods were consigned to the appellant's factory and used there. The goods were not removed from the factory premises.

Application of Law to Facts: The Tribunal applied the legal principle that the manufacturer who receives capital goods in its factory and uses them in manufacture of final products is entitled to credit, regardless of who assembled or constructed the plant.

Treatment of Competing Arguments: The Revenue's argument that credit should be denied because the plant was constructed by contractors and was immovable property was rejected as irrelevant to credit entitlement.

Conclusions: Ownership and construction by contractors do not affect the appellant's right to credit, provided the capital goods are received and used within the factory.

3. Requirement of Use in Manufacture of Final Product

Legal Framework and Precedents: The Tribunal examined the wording of Rule 3(1) and the definition of capital goods under Rule 2(a)(A), noting that the law requires capital goods to be used in the factory of the manufacturer of the final product, not necessarily directly in the manufacture of the final product. The NRC Ltd. and Gujarat Ambuja Cement Ltd. cases clarified this distinction.

Court's Interpretation and Reasoning: The Tribunal noted that the CPP/KPTA plants were used to generate electricity, which is an input for the manufacture of the dutiable final products (zinc and lead). Therefore, the use of capital goods in the CPP/KPTA plant is integrally connected to manufacture, satisfying the statutory requirement.

Key Evidence and Findings: Evidence showed that the plants generated electricity used in manufacturing the final products.

Application of Law to Facts: The Tribunal applied the principle that capital goods used in the factory for manufacture of final products qualify for credit, even if the capital goods themselves are not directly part of the final product.

Treatment of Competing Arguments: The Revenue's argument that credit should be denied because the plant was not directly used in manufacture was rejected as contrary to the legal position.

Conclusions: Capital goods used in the factory to facilitate manufacture of final products qualify for credit, even if not directly used in the manufacture.

4. Applicability of Extended Period and Penalty

Legal Framework and Precedents: The appellant argued that extended period for recovery and penalty cannot be imposed in the absence of mens rea or willful suppression. The law requires positive evidence of suppression to impose penalty equal to demand.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant had maintained proper records and the credit was reflected in returns. There was no positive corroborative evidence of willful suppression.

Key Evidence and Findings: The appellant's records and invoices were in order and no concealment was established.

Application of Law to Facts: The Tribunal held that in the absence of mens rea, penalty equal to demand is not justified.

Treatment of Competing Arguments: The Revenue's contention for penalty was not supported by evidence of suppression.

Conclusions: Penalty equal to demand is not sustainable without proof of willful suppression.

5. Binding Effect of Earlier Decisions and Precedents

Legal Framework and Precedents: The Tribunal referred to earlier decisions including the Aditya Cement Ltd. case upheld by the Rajasthan High Court and Supreme Court, and the appellant's own previous favorable orders. The Supreme Court's decision in Commissioner of Central Excise vs Ambuja Cements Ltd. was cited as final authority.

Court's Interpretation and Reasoning: The Tribunal held that these decisions are binding and settle the issue conclusively in favor of the appellant.

Application of Law to Facts: The Tribunal applied the binding precedents to allow the appeals.

Conclusions: The appellant's entitlement to credit is firmly established by binding precedents.

Significant Holdings

"The Tribunal in several earlier decisions has held that the prerequisite for availment of CENVAT credit in respect of capital goods in the factory of manufacturer is its receipt in the factory and use in the manufacture of dutiable final product."

"The credit of capital goods is not governed by the ownership of such goods."

"The fact that the capital goods on which credit was taken were received in the factory of the appellant, and the contractor used them within the factory premises for building the power plant which was used for generation of electricity used for the manufacture of the final product, satisfies the conditions of the Rule and is eligible for the credit."

"The manufacturer is entitled to claim credit on components, spares and accessories of capital goods even if the capital goods themselves are exempt from duty."

"In the absence of mens rea or willful suppression, penalty equal to demand cannot be imposed."

"The issue has attained finality in other judgments of the Tribunal, which has been upheld by the Supreme Court."

"Consequently, the appeals are allowed and the respective impugned orders are set aside."