TMI Blog2010 (4) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... of excisable goods. Hence, 'capital goods' defined in the CENVAT Credit Rules in the context of providing credit of duty paid, have to be excisable goods. - Goods like cement and steel items used for laying 'foundation' and for building 'supporting structures' cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules for the impugned period. - E/1036/2008 - 296/2010-EX (PB)(LB) - Dated:- 30-4-2010 - Per : Chittaranjan Satapathy: SCOPE OF THE REFERENCE In the case of Vandana Global Ltd. Vs. CCE, Raipur - 2008 (230) ELT 169 , the Division Bench hearing the matter recorded the following prima facie view:- "In the present case, we, prima facia, find that the steel items like angles, joists, beams, channels, bars, flats, etc. are used in the construction work; the resultant structures are permanently embedded to the earth; they cannot be considered as part of the machinery/equipment; they do not qualify to be called as goods; as they cannot be treated as goods; they can not be considered as capital goods. We find that credit has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extension area had started, the manufacturing activity abutting thereto was suspended till completion of such civil work. In a nutshell, a manufacturing line near civil work was suspended, and the manufacturing activity in other side of the shed, which has closed covered area was going on. This is because it is technically essential to provide protective cover in and around the mill area to protect it from exposure to environment. 7.4 In the light of above discussions, we hold that credit on roofing materials is admissible to the Appellants." 3. Accordingly, the Bench hearing the case of Vandana Global Ltd. (supra), has referred the following questions which are now before this Larger Bench:- (a) Whether the term "capital goods" can include plant, structures embedded to earth? (b) Whether the goods like angles, joists, beam, channels, bars, flats which go into fabrication of such structures can be treated as 'inputs' in relation to their final products as inputs for capital goods, or none of the above? (c) Whether the credit can be allowed in respect of goods like angles, joists, beam, channels, bars, flats which go into fabrication of such structures and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D) or Thermo Mechanically Treated Bar (TMT) and other items used for:- (i) construction of factory shed, building; or (ii) laying of foundation; or (iii) making of structures for support of capital goods. Two relevant questions arise for consideration for the past period:- (i) Were such items which now stand excluded from the definition of input could be considered as input under the legal provisions in force before the amendment of 7.7.2009? (ii) Can the amendment of 7.7.2009 be considered to be retrospective? LEGAL PROVISIONS 7. Before taking up the arguments advanced on behalf of both sides, for clarity sake we first examine the legal provisions relevant in the context of this reference. Section 3 of the Central Excise Act, 1944 authorizes levy and collection of excise duty. Sub-section (1) thereof reads as under:- SECTION 3. Duties specified in the first Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied - (1) There shall be levied and collected in such manner as may be prescribed, - (a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used- (1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (2) for providing output service; (B) Motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act. "input" means - (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production. (ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service; Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al' and 'goods'. He also cites the following decisions in support of his arguments:- (i) Mahalaxmi Glass Works Ltd. Vs. CCE - 1999 (113) EL T 558 (ii) United Phosphorous Ltd. Vs. CCE - 2002 (150) EL T 650 (iii) CCE Vs. HEG Ltd. - 2004 (177) EL T 605 (iv) Bellary Steel Alloys Ltd. Vs. CCE - 2005 (180) EL T 92 12. He submits that apart from the rule making power under Section 37(2)(xvia) of the Act, the Government has general rule making power under sub-section (1) of Section 37 as has been held in the case of Telco Vs. Union of India - 1998 (1) BLJR 727 in Civil Writ Jurisdiction Case No.200/1990 . According to him, this judgement of the Hon'ble Patna High Court makes it amply clear that the Government has power to grant benefit and restrict the same keeping the fiscal and social objectives. Therefore, the provisions of Section 37(2)(xvia) need not necessarily cover capital goods. 13. He also argues that credit is available even if parts have become integral parts of immovable structure. In this connection he cites the following decisions:- (i) Star Paper Mills Vs. CCE - 1999 (107) ELT 241 (ii) Tata Iron and Steel Company Vs. CCE - 2000 (117) ELT 669 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed for indirect use. 17. Shri Kartik Kurmy, learned counsel appearing for some of the assessees states that in respect of one appeal, the claim for credit is in respect of cement and TMT bars for laying foundation whereas in respect of two other appeals, the claim is for credit on structurals. He argues that Rule 2 itself opens with the phrase 'unless the context otherwise requires' and hence the phrase 'capital goods' should be given its original and natural meaning. According to the dictionary meaning, the capital goods means especially machinery, plant etc. used in producing commodities. The CENVAT scheme is to eliminate cascading effect of tax and hence in the context of the scheme, the credit on goods used for laying foundation and for structurals should be allowed. He states that as far as capital goods are concerned there is no functional test attached nor there is any condition that capital goods must participate in the manufacture. From the definition, it can be seen that capital goods includes not only components, spares and accessories, parts specified under Chapters 82, 84, 85 and 90 but also components, spares, accessories falling under any other Chapter. He arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh, learned Jt. CDR appearing for the Department states that the issues framed by the referral Bench are not very clear and hence the issues require to be reframed as under:- (a) Whether the term "capital goods" can include plant, structures embedded to earth? (b) Whether the goods like angles, joists, beam, channels, bars, flats which go into fabrication of embedded structures can be treated as 'inputs' for capital goods? (c) Whether the goods like angles, joists, beam, channels, bars, flats which go into fabrication of embedded structures can be treated as 'inputs' in relation to their final products ? (d) Whether the credit can be allowed in respect of goods like angles, joists, beam, channels, bars, flats which go into fabrication of such structures and plant embedded to earth? He states that though 'goods' has not been defined in the Act, 'excisable goods' has been defined. He distinguishes capital goods from inputs stating that capital goods are not used immediately in the process of production unlike raw materials or intermediate goods. Referring to the scheme of the Central Excise Act and the rules framed thereunder, he argues that capital goods in the contex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital goods are already manufactured prior to getting support from the structurals. What is needed to support the capital goods cannot be said to have been used in the manufacture of capital goods. 25. He states that there are five differences between capital goods and inputs which are enumerated below:- Capital Goods Inputs 1. Used for producing or processing of goods or an activity incidental thereto Commodity which is processed by Capital Goods for being transformed into final products or used in 2. Eligible for depreciation Not eligible 3. Staggered credit On time credit 4. Separate Account to be maintained for receipt and use of both products. 5. Installation required No installation 26. According to the learned Jt. CDR if the input includes capital goods then there was no need to define capital goods separately. He further states that since the two terms have been defined in the statute, it cannot be said that commodities covered under one will be included in the other. In this connection he quotes para 29 of the Tribunal's decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the aforecited amending Notification No. 22/09-CE (NT) dated 7.9.2009 was issued as a part of the Budget proposals of the Finance Minister. The said notification along with other Budget notifications, the Finance (No.2) Bill, 2009 and the accompanying Memorandum explaining the provisions in the Finance (No. 2) Bill, 2009 (popularly known as the "Pink Book" because of its colour, which has remained the same over several decades) were laid on the Table of the Parliament. The said Pink Book contained the following Explanatory Memorandum at page 28:- "H. AMENDMENT IN CENTRAL EXCISE RULES AND CENVAT CREDIT RULES. * * * * * * * * * * * * 2) An explanation is being inserted in Rule 2 of Cenvat Credit Rules, 2004 so as to clarify that 'inputs' shall not include cement, angles, channels, CTD or TMT bars and other items used for construction of shed, building or structure for support of capital goods. * * * * * * * * * * * *" The abovecited Explanatory Memorandum placed before the Parliament makes it amply clear that the purpose of the amendment was clarificatory and that it sought to clarify that the expression input does not cover cement and steel items used for construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CCE, Jaipur- 1996 (88) ELT 785 , where the Tribunal considered whether the substituted explanation to Rule 57Q, was clarificatory or not and came to the following finding:- "The above substituted Explanation to Rule 57Q is obviously clarificatory in nature as is evident from the Budget Speech of the Finance Minister while moving the Finance Bill, 1996 in pursuance of which the notification has been issued. The Finance Minister stated, therein, "The Modvat Scheme which provides for duty credit on inputs and capital goods has been liberalised considerably over the past few years. Still there are problems about the coverage of certain inputs and capital goods. I propose to clarify the scope of eligible capital goods by specifying the heading and sub-headings of the tariff relating to capital goods in the Modvat Rules". (emphasis added). Being thus, a clarificatory amendment to Rule 57Q, the substituted Explanation, in our view, can be retrospectively applied as per well-settled principles of interpretation of notifications. In this context, the judgments of the Supreme Court in the case of K.P. Verghese - [1981 (131) ITR 597], Sold Trustee Loksikshan Trust (1976 TLR Page I) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed since he pays tax on all goods and services supplied by him. Even such assessees are not allowed to re-claim VAT on that proportion of goods and services which are obtained for non-business use. While in a VAT system all goods and services supplied by an assessee is taxed, in our tax system, we have excise duty on manufacture, service tax on services supplied and sales tax on sale of goods under different enactments. Moreover, in our system, all goods and services supplied by a business are not subjected to tax since there are goods and services which either (i) are not taxable having not been brought under the tax net or (ii) are eligible for full exemption. Under such a scenario, the Parliament has not authorized credit of input tax paid on all goods and services purchased by an assessee as all his output may not be taxable. Under the scheme of excise law, the power to grant credit of excise duty paid on goods by a manufacturer is limited and is governed by the rule making power under Section 37(2)(xvia) which is reproduced below:- "(xvia) provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to the manufacture of excisable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts, and (iii) inputs used in the manufacture of capital goods which are further used in the factory of the manufacturer. 39. There are other details to the CENVAT scheme and we note that the definition of 'capital goods' primarily includes machinery items; components, spares and accessories of the same; and a few other things which have been specifically added such as pollution control equipment; moulds, dies etc.; refractories; tubes and pipes and fittings thereof; and storage tank. The moulds, dies, refractories, tubes and tank have been specifically added as they would not get classified and included as machinery items but the rule makers in their wisdom have specifically and additionally included these perhaps considering their functional utility to the manufacturing process. By specifically including these items, credit in respect of duty paid on such items has been allowed which would not otherwise get coverage under the term 'capital goods'. Secondly, credit of duty paid on inputs used in the manufacture of such specifically listed items has also been allowed. We, however, note that factory shed, building, foundation and structures (in the manufacture of which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded to earth may be categorized as capital assets but would not qualify to be capital goods in terms of the definition contained in the CENVAT Credit Rules. In fact, the definition states that 'capital goods' means "the following goods, namely after which a list of goods has been provided. Mainly all goods falling in the machinery chapters of the Tariff have been specified in the list as also components, spares and accessories of such goods, As stated above earlier in paragraph 39, a few additional items have also been specially included in the list such as pollution control equipment, moulds and dies, refractories, tubes and pipes, and storage tank. We find that the foundation and supporting structures are neither machinery items, nor components, spares and accessories of machineries, nor have they been listed for special inclusion in the definition. Some arguments have been advanced that the supporting structures should be considered as parts and accessories of the machinery. Parts (which include components parts and spare parts) and accessories have specific connotation in the context of the Customs and Excise Tariff Schedules in terms of which the supporting structures canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me the definition of inputs excluded machines, machinery, plant, equipment, apparatus, tools, appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products and therefore, but for the exclusion, the expression inputs would have included machines etc. This argument appears to us to be clearly untenable. The exclusion provided earlier clearly appears to have been so provided by way of abundant caution to clarify that the inputs in any case would not include machinery and equipment. From such a clarificatory provision, it cannot be concluded that the expression 'input' would include cement and steel items used for laying foundation and making supporting structures. Moreover, if for a moment one has to agree with the contention that input included machinery etc. there would have been no need for providing a separate definition for capital goods and making a separate provision for allowing credit on capital goods. Such an argument cannot also be accepted as it would imply that capital goods would be included twice in the definition under Rule 2(a) with limited scope and with unlimited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like"used", "in or in relation to", "the manufacture of final products" would inevitably disclose, that the same refer to only those products which are used in or integrally connected with the process of actual manufacture of the final product and only such product could be entitled to be classified as the input in or in relation to the manufacture of final products, and not otherwise. When the legislature in its wisdom has specifically defined a term, no Court or Tribunal under the guise of interpretation thereof is empowered to expand the meaning of such term. If the contention on behalf of the appellants is accepted, it would virtually amount to expand the meaning of the term "input" beyond the scope prescribed under the definition clause in Rule 2(k) of the Cenvat Credit Rules, 2004. 29. It is also pertinent to note that the legislature in its wisdom has independently defined the expression capital goods under Rule 2(a) of the said rules. If the inputs were to include every product under the sun which is somehow related to the premises where the manufacturing process goes on, then there is no need to provide a definition of the term capital goods and, therefore, the accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the final product and therefore, credit of the duty paid on the same should be allowed does not appear to be legally tenable under the CENVAT credit scheme. As pointed out in paragraph 37, the excise duty levied under the Act has only been named as CENVAT but the same is on goods produced or manufactured and is not in the nature of a value added tax. It was also noted in the said paragraph that the statute authorizes grant of credit of duty paid on the goods used in or in relation to the manufacture of excisable goods, The credit is not allowed with reference to value addition. We also find that in the case of Maruti Suzuki (supra), the Hon'ble Supreme Court has referred to the integral connection with the ultimate product, the dependence test and the functional utility test in the context of deciding what is an eligible input. It also held in the said case in paragraph 14 as follows:- "Packing material by itself would not suffice till it is proved that the item is used in the course of manufacture of final product, Mere fact that the item is a packing material whose value is included in the assessable value of the final product will not entitle the manufacturer to take cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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