2025 (7) TMI 926 - AT - Central Excise

CENVAT Credit - M.S. Plates Channels Stairs and Ladders - credit availed on Commercial Invoices - credit availed on Debit Notes Testing Charges - reversal of Cenvat Credit in respect of Electricity Generated - Extended period of limitation - levy of penalties. Eligibility of Cenvat Credit on M.S. Plates Channels Stairs and Ladders - HELD THAT - Reliance on the decisions of M/s. Sri Sai Sindhu Industries Ltd. 2016 (8) TMI 484 - CESTAT HYDERABAD and Steel Strips Wheels Ltd. 022 (9) TMI 797 - CESTAT CHENNAI . In the case of Steel Strips Wheels Ltd. the Single Member considering the ratio of the High Court in the case of India Cements 2015 (3) TMI 661 - MADRAS HIGH COURT has held that the CENVAT Credit on support structures which have used M.S. Plates angles etc. are eligible as capital goods. Similarly in the case of Sri Sai Sindhu Industries Ltd. after duly considering the above two circulars the Single Member has allowed the CENVAT Credit of similar items. It is evident from the SCN dated 19.03.2014 that the Appellant have taken Cenvat Credit on the basis of invoices raised by M/s. Cethar Vessels Ltd. for supply of various support structural items viz. Boiler Ceiling Structures Tie beams bracings HR Plates Hanger rods U rods bridge channels supporting structure access platforms stairs and ladders etc. along with the goods which merits classification under capital goods under the common description as Supply of Boiler Components and Accessories under tariff heading 8402 11 00 or 8402 90 20. Jurisdictional High Court s decision in the case of M/s. India Cements Ltd. Vs. Commissioner of Customs Excise and Service Tax 2015 (3) TMI 661 - MADRAS HIGH COURT it is held that the Appellant is eligible for availment of Cenvat Credit on supporting structures i.e. M.S. Plates Channels stairs Ladders etc. for their boiler plant as capital goods and as inputs to the capital goods. Cenvat Credit on Commercial Invoices - HELD THAT - In respect of the CENVAT Credit availed on the commercial invoices to the tune of Rs.73, 841/- the Appellant has voluntarily foregone the credit. So there is no need to discuss about what was not contested. The Appellant is liable to reverse the above credit with interest. Cenvat Credit availed on Debit Notes Testing Charges - credit sought to be denied as there was no Service Tax Registration Number in any of these documents - HELD THAT - A perusal of the above debit note or service tax invoice clearly indicates that Service Tax Registration Number and all other details are incorporated as required. Details of service tax paid are also discernable. As such denial of the credit is not justified and the same is to be allowed as there is substantive compliance which stands undisputed. Further the Appellant had also availed credit on the services provided by M/s. Envirocare India Pvt. Ltd. to the tune of Rs.52, 483/-. These services are meant for testing of air in and around their factory premises. The Department held the view that the Appellant is not eligible for this input service credit in terms of Rule 2(l) of the CENVAT Credit Rules 2004 as this is not related directly or indirectly or in or in relation to manufacture of final products. However the Appellant s contention is that input credit is available on pollution control equipment and other related activities as such contested the denial of the credit. It is quite obvious that testing of air in and around the factory premises as the pollution control measure is a necessary activity mandated by the law and as such denial of the credit cannot be supported. The Appellant is eligible for availing the Cenvat credit availed on the services of M/s. Envirocare India Pvt. Ltd. Demand of reversal of Cenvat Credit in respect of Electricity Generated - HELD THAT - The issue is no longer res integra as the issue has been squarely covered by the decision in the Appellant s own case for the earlier period 2022 (6) TMI 555 - CESTAT CHENNAI . As rightly pointed out by the Advocate for the Appellants when the department has not contested the above in the earlier proceedings and as the issue had attained finality cannot be re-opened in a subsequent proceeding. Further there is no allegation that there has been availment of any CENVAT Credit on any inputs or inputs services after the stage of steam generation that would warrant any revisit. It is also duly appreciated that the Ld. Adjudicating Authority did not have the benefit of the above judgment while confirming the demand or otherwise the same could have been allowed. The by-product steam is converted into electricity which is non-excisable. When the credit is to be allowed in case of by-product the question of reversal shall not arise in respect of electricity generated using the said by-product. In the case of Hindustan Zinc Ltd. 2004 (1) TMI 283 - CESTAT NEW DELHI it was held that mere fact of use of by-product for conversion to further goods which were exempted would not amount to use of Modvat of the inputs in the manufacture of exempted product and consequently denial of Cenvat credit is not justified - the denial of Cenvat credit in generation of electricity on the ground that flue gases / steam / electricity or by-product exempted is not legally correct and cannot be agreed to. Extended period of limitation - HELD THAT - There is complete agreement that there cannot be an invocation of larger period on subsequent period of demands when all the facts are known to the department during the first proceeding. Levy of penalties - HELD THAT - As the issue decided on merits in favor of the Appellant there cannot be imposition of any penalty in the instant case on any of the issues and accordingly all the penalties imposed are vacted. Appeal allowed.

Summary

The core legal issues considered in this judgment include:

1. Whether CENVAT credit is admissible on duty paid for various items such as M.S. Plates, Channels, stairs, and ladders received as capital goods or inputs to capital goods, specifically when used as structural components of boilers.

2. The validity of CENVAT credit availed on commercial invoices and whether such credit can be voluntarily foregone.

3. The eligibility of CENVAT credit on service tax paid for air testing services conducted around the factory premises as part of pollution control measures.

4. The admissibility of CENVAT credit on service tax paid in respect of reimbursement to the seller of coal under debit notes, particularly in the absence of a service tax registration number on the documents.

5. The requirement to reverse CENVAT credit availed on inputs and input services used in the manufacture of non-excisable goods, specifically electricity generated using by-products (steam) from the manufacturing process.

6. The applicability of the extended period of limitation for demand of duty and penalties in the absence of fraud, collusion, or willful suppression of facts.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT Credit on Structural Components (M.S. Plates, Channels, Stairs, Ladders) as Capital Goods:

The legal framework centers on the definition of "inputs" and "capital goods" under the CENVAT Credit Rules, 2004, particularly Rule 2(k)(iii) and related circulars issued by the Central Board of Excise and Customs (CBEC). Circular Nos. 964/07/2012-CX and 966/09/2012-CX clarify that structural components which are essential parts of a boiler system are classified under Chapter Heading 8402 and are eligible for CENVAT credit, provided they are not merely used for laying foundations or making support structures for capital goods.

The Court examined prior judicial precedents, including decisions of this Tribunal and the Hon'ble Madras High Court, which have consistently held that structural components integral to capital goods like boilers qualify as inputs or capital goods eligible for credit. The Court noted the absence of any evidence that the impugned items were used merely as support structures or foundations, which are excluded from credit eligibility.

Further, the Court rejected the Department's reliance on a Larger Bench decision that had been subsequently overturned by the High Court, reinforcing that reclassification at the receiver's end is impermissible when the supplier's classification is accepted by jurisdictional authorities.

Applying these principles to the facts, the Court found the Appellant's claim for credit on such structural components justified and lawful.

2. CENVAT Credit on Commercial Invoices:

The Appellant voluntarily conceded the demand relating to credit availed on commercial invoices amounting to Rs.73,841/-. Since this issue was not contested, the Court held that the Appellant is liable to reverse this credit with interest, and no further discussion was warranted.

3. CENVAT Credit on Service Tax Paid for Air Testing Services:

The legal question was whether service tax paid on air testing services, which are mandated pollution control activities, qualifies for input service credit under the CENVAT Credit Rules. The Court relied on Rule 2(a)(A)(iii) of the CENVAT Credit Rules, which includes pollution control equipment as capital goods eligible for credit, and on the decision of the CESTAT Ahmedabad in Coromandel International Ltd., which allowed credit on effluent treatment services.

The Court accepted the Appellant's argument that air testing is an essential pollution control measure related to manufacturing operations and hence eligible for credit. The Department's contention that such services are not directly related to manufacture was rejected.

4. CENVAT Credit on Service Tax Paid in Respect of Reimbursement to Seller of Coal under Debit Notes:

The Department challenged the credit on the ground of absence of service tax registration number on the debit notes. However, the Appellant produced debit notes and invoices containing all requisite details, including service tax registration numbers and tax amounts, fulfilling the requirements of Rule 9 of the CENVAT Credit Rules.

The Court held that substantive compliance was established and denial of credit was unwarranted, allowing the credit claimed.

5. Reversal of CENVAT Credit on Inputs and Input Services Used in Manufacture of Non-Excisable Goods (Electricity Generated from By-Products):

This issue involved whether the Appellant must reverse credit availed on inputs used in generating electricity from steam produced as a by-product during sponge iron manufacture. The Department contended that electricity is a non-excisable product, thus credit on inputs used in its manufacture must be reversed.

The Court analyzed the manufacturing process, noting that steam is an inevitable by-product generated from flue gases and used in captive power plants. The steam generation is not a separate manufacturing activity but a technological necessity integral to sponge iron production. The electricity generated partly serves captive use and partly is wheeled out.

Judicial precedents, including the Appellant's own earlier case and decisions of the Hon'ble Madras High Court and Supreme Court, were examined. These establish that inputs used in the manufacture of by-products which are exempt or non-excisable do not attract reversal of credit if the inputs are primarily used for dutiable goods. The Court cited the principle that the mere use of a by-product for further manufacture of exempt goods does not justify denial of credit.

The Court also noted that the Department had not alleged any credit availed beyond the stage of steam generation, and the issue had attained finality in previous proceedings, barring reopening under extended limitation.

Consequently, the Court held that reversal of credit on inputs used for electricity generation from by-product steam was not justified.

6. Invocation of Extended Period of Limitation and Penalties:

The Department invoked the extended period of limitation for demand and imposed penalties alleging suppression or misstatement. The Appellant denied any fraud, collusion, or willful suppression, asserting that all returns and credits were filed and disclosed in compliance with the law.

The Court agreed with the Appellant, holding that extended limitation cannot be invoked absent proof of fraud or willful misstatement. Furthermore, since the issues were already examined and decided in earlier proceedings, reopening was impermissible. The Court also vacated all penalties imposed.

Significant Holdings:

"In view of the above discussion and appreciating the ratio of the above decisions particularly Jurisdictional High Court's decision in the case of M/s. India Cements Ltd. Vs. Commissioner of Customs, Excise and Service Tax [2015 (3) TMI 661-MADRAS HIGH COURT], we hold that the Appellant is eligible for availment of Cenvat Credit on supporting structures i.e., M.S. Plates, Channels, stairs, Ladders, etc., for their boiler plant as capital goods and as inputs to the capital goods."

"The denial of Cenvat credit in generation of electricity on the ground that flue gases / steam / electricity or by-product exempted is not legally correct and cannot be agreed to."

"There cannot be an invocation of larger period on subsequent period of demands when all the facts are known to the department during the first proceeding."

"When the credit is to be allowed in case of by-product, the question of reversal shall not arise in respect of electricity generated using the said by-product."

"Denial of credit on service tax paid for air testing services which are pollution control measures mandated by law is not justified."

"Substantive compliance with Rule 9 of the CENVAT Credit Rules, 2004, including presence of service tax registration number and tax details on debit notes and invoices, suffices to allow credit."

Final determinations on each issue are as follows:

- CENVAT credit on structural components used as parts of boilers is admissible.

- Credit availed on commercial invoices voluntarily foregone must be reversed.

- Credit on service tax paid for air testing services is admissible.

- Credit on service tax paid on reimbursement to coal seller under debit notes with proper documentation is admissible.

- No reversal of credit is required on inputs used for generation of electricity from by-product steam.

- Extended period of limitation and penalties are not sustainable in absence of fraud or suppression.