2025 (4) TMI 1595 - AT - Central Excise

Entitlement to CENVAT credit by a manufacturing unit on inputs capital goods and input services that were physically received and used by a separate though related manufacturing unit - HELD THAT - There is no denial to the fact that both the entities though are run by same management but both being separately registered under Excise Laws. However it is also not disputed that the Karwahi Mines got registered after the coal was made excisable w.e.f 01.03.2011. This observation coupled with the admitted fact the Karwahi Mines are engaged in manufacture of coal is sufficient to hold that there was no need for Karwahi Mines to take Central Excise Registration prior 01.03.2011. Coming to the demand for the period 01.3.2011 to 30.9.2011 of Rs. 46, 21, 582/ - the said demand has been confirmed by the impunged order on the ground that w.e.f. 01.3.2011 M/s. Sarda Energy and Minerals Ltd. and Karwahi mines Tamnar Raigarh became a separately registered manufacturers of respective excisable goods and cenvat credit of capital goods input and input services utilized at mines was admissible to Karwahi Mines Tamnar only and not to the respondent post the final product of Karwahi Mines/ Coal became excisable from 01.03.2011 - This perusal is sufficient to hold that the present appeal filed by the department has become infructuous and the entire demand as was proposed vide impugned Show Cause Notice including the partial demand as has been confirmed vide the impugned Order-in- Original stands already set aside. Conclusion - The demand relating to the period before 01.03.2011 was rightly dropped as the mines were captive and not separately registered. The appeal filed by the department is dismissed as infructuous.

The core legal questions considered in the present adjudication revolve around the entitlement to CENVAT credit by a manufacturing unit on inputs, capital goods, and input services that were physically received and used by a separate, though related, manufacturing unit. Specifically, the issues are:

1. Whether the respondent manufacturing unit was entitled to avail CENVAT credit on inputs, capital goods, and input services which were received and used by its separately registered captive coal mining unit.

2. The effect of the separate Central Excise registration of the captive coal mines unit from 01.03.2011 onwards on the entitlement to CENVAT credit by the respondent manufacturing unit.

3. The applicability of extended limitation period and penalty under the CENVAT Credit Rules, 2004 and Central Excise Act, 1944 in respect of the demand raised.

4. The maintainability of the departmental appeal in view of prior Tribunal orders on related issues.

Issue 1: Entitlement to CENVAT Credit on Inputs/Capital Goods/Input Services Used by Captive Coal Mines Unit

The relevant legal framework includes the CENVAT Credit Rules, 2004, which permit manufacturers to avail credit of duty paid on inputs, capital goods, and input services used in or in relation to manufacture of excisable goods. The principle established in judicial precedents, notably the Supreme Court decisions in Vikram Cement and Jaypee Rewa Cement, is that CENVAT credit can be availed only by the unit that actually uses the inputs or services in manufacture. Separate registration under Central Excise for different manufacturing units implies separate entitlement to credit.

The department's contention was that since the captive coal mines unit was separately registered as a manufacturer from 03.08.2010 (with excise duty becoming applicable on coal from 01.03.2011), the respondent manufacturing unit was not entitled to claim credit on inputs and services used by the mines. The department relied on precedents emphasizing separate registration and use as the basis for credit entitlement.

The respondent countered by asserting that the captive coal mines were integral to its manufacturing process, producing coal exclusively for captive use in the respondent's plant. Since coal was used as an input in manufacture of sponge iron and ferro alloys, and for power generation for manufacturing, the credit on inputs and services used in the mines should be admissible to the respondent. The respondent also pointed out that prior to 01.03.2011, the mines were not separately registered as excise duty was not payable on coal, and that the issue of credit on inputs/services used in captive mines is settled in their favor by the Supreme Court in Vikram Cement and by this Tribunal in earlier orders.

The Court examined the timeline and noted that the mines became separately registered only after coal became excisable from 01.03.2011. For the period prior to this date, the Court upheld the respondent's entitlement to credit, holding the mines as captive and integral to the respondent's manufacturing unit. The demand for Rs. 2,04,27,936/- relating to the period 03.08.2010 to 28.02.2011 was rightly dropped by the adjudicating authority.

Issue 2: Effect of Separate Registration of Mines from 01.03.2011 on Credit Entitlement

From 01.03.2011 onwards, the captive coal mines were separately registered under Central Excise as manufacturers of excisable goods (coal). The department argued that post this date, the credit on inputs, capital goods, and input services used by the mines was admissible only to the mines unit and not to the respondent manufacturing unit. The adjudicating authority confirmed a partial demand of Rs. 46,21,582/- on this ground.

The respondent contested this demand, submitting that the Tribunal had already set aside the impugned order on the ground of limitation in a final order dated 22.11.2023, thereby merging the earlier order and rendering the present departmental appeal not maintainable. The respondent also relied on the principle that the captive mines, though separately registered, are part of the same management and produce coal solely for captive consumption, which is used in manufacture.

The Court observed that the demand for the period 01.03.2011 to 30.09.2011 was confirmed by the impugned order but was subsequently set aside by the Tribunal on limitation grounds. The Court held that since the Tribunal had set aside the entire demand including the partial demand confirmed, the departmental appeal had become infructuous. The Court also noted that on merits, the demand had been set aside in the respondent's own case by a prior Tribunal order dated 24.08.2022, which the adjudicating authority below had ignored.

Issue 3: Applicability of Extended Limitation and Penalty

The show cause notice proposed recovery of the entire credit amount along with proportionate interest and penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. The adjudicating authority had confirmed part of the demand and imposed penalty accordingly.

The respondent challenged the imposition of extended period and penalty, and the Tribunal in its final order dated 22.11.2023 held the show cause notice to be barred by limitation, setting aside the entire demand and penalty. This effectively negated the departmental demand and penalty on the ground of extended limitation.

Issue 4: Maintainability of Departmental Appeal in View of Prior Tribunal Orders

The respondent contended that the impugned Order-in-Original dated 24.03.2023 had been merged with the Tribunal's final order dated 22.11.2023 under the Doctrine of Merger, rendering the departmental appeal not maintainable. The Court agreed with this submission, noting that the Tribunal's final order had already set aside the demand and penalty on limitation grounds, and therefore the departmental appeal against the impugned order had become infructuous.

Significant Holdings:

"The Karwahi Mines were the captive mines of the respondent. Hence, the impugned order is upheld to that extent."

"The Karwahi Mines got registered after the coal was made excisable w.e.f 01.03.2011. This observation coupled with the admitted fact the Karwahi Mines are engaged in manufacture of coal is sufficient to hold that there was no need for Karwahi Mines to take Central Excise Registration prior 01.03.2011."

"The Tribunal vide Final Order no. 51594/2023 dated 22.11.2023 has set aside the impugned order on the ground of the said show cause notice being barred by time, thereby setting aside the entire demand."

"The adjudicating authority below is held to have ignored the said decision [Tribunal's prior order dated 24.08.2022]."

The Court concluded that the demand relating to the period before 01.03.2011 was rightly dropped as the mines were captive and not separately registered. The partial demand confirmed for the period post 01.03.2011 was rendered infructuous due to the Tribunal's order setting aside the demand on limitation grounds. The departmental appeal was dismissed accordingly.

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