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2015 (7) TMI 267 - MADRAS HIGH COURT

2015 (7) TMI 267 - MADRAS HIGH COURT - 2015 (323) E.L.T. 290 (Mad.) - Reversal of CENVAT Credit - leasing out the power plant with ancillary equipments to KPPL without removing the capital goods - Held that:- Rule 3 (5) only speaks about the removal of goods under cover of invoice referred to in Rule 9 on inputs or capital goods on which cenvat credit has been taken and if such goods are removed as such from the factory or premises of the provider of output service, the manufacturer of the final .....

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nvat credit has been taken are removed as such from the factory, then subject to compliance of other requirements, the credit availed in respect of inputs on capital goods shall be paid. This situation has not arisen in the present case, as no invoice has been issued for removal of the goods from the factory premises and, therefore, the said rule is not applicable to the case of the assessee. - no reason to interfere with the well considered findings of the Tribunal on the questions of law as ra .....

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der dated 12.11.08, this Court, while admitting these appeals, framed the following substantial questions of law for consideration:- "C.M.A. No.3420/2008 1. Whether the inputs and capital goods used in a power plant and on which Cenvat credit of duty had been taken could be deemed as removed as such in terms of the provisions of Rule 3 (5) of the Cenvat Credit Rules, 2004, when the right to use the said power plant along with the land, building, plant and machinery were leased by the assess .....

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said to be an integral part of the factory of the assessee to be eligible inputs, capital goods and input services as defined in Rule 2 (a), Rule 2 (k) and 2 (1) of the Cenvat Credit Rules, 2004, even after the lease resulting in transfer of the power plant from the possession and use of the assessee to another company? C.M.A. No.3421/2008 1. Whether the inputs and capital goods used in a power plant and on which Cenvat credit of duty had been taken could be deemed as removed as such in terms o .....

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, building, plant and machinery to another company as removal as such and consequently, be liable to pay an equal amount of penalty under Section 11AC of the Central Excise Act, 1944 for consciously suppressing the fact of removal of power plant by way of lease? 3. Whether the power plant and the inputs, capital goods and input services used in the said power plant could be said to be an integral part of the factory of the assessee to be eligible inputs, capital goods and input services as defin .....

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assessee availed cenvat credit on capital goods, inputs and input services and utilised the same for payment of duty on the final product, viz., cement. During the period between March, 2004 and March, 2005, a power plant was set up by the assessee within their factory premises for which they took cenvat credit on the duty paid on inputs and capital goods received in their factory in relation to the setting up of the power plant. The credit availed by the assessee was utilised for payment of du .....

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KPPL was to pay a monthly rent of ₹ 18,37,500/- to DCL. On termination of the lease, KPPL were to hand over physical possession of the property to DCL. The lease further provided that it was the liability of KPPL to obtain all consents, licences, approvals, etc., as are necessary for the execution, validity and enforceability of the lease deed and for the operation of the power plant and also to keep them effective in force during the lease period. It further provided that DCL was not liab .....

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DCL would pay at the prescribed tariff. The power purchase agreement further provided that KPPL should not supply power to any third party without prior written consent of DCL. It also stipulated the terms and conditions for supply of fuel by DCL and for operation and maintenance of the power plant by KPPL. A Memorandum of Understanding dated 28.3.05 was executed between the two companies, which provided that DCL would continue to retain control over the power plant; that the ownership of the f .....

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ties to run the plant. It was also stated that the lease deed was registered under the provisions of the Transfer of Property Act. In the course of investigation, DCL, under protest, paid an amount of ₹ 6,84,82,078/- partly from cenvat credit account and partly from PLA. 3. Further to the investigations, the department issued a show cause notice dated 5.4.06 to DCL seeking to recover the following :- (a) an amount of ₹ 7,05,03,828/- (consisting of Cenvat Credit of ₹ 6,94,14,477 .....

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and inputs used for setting up the power plant and, consequently, in terms of Rule 3 (5) of the Cenvat Credit Rules, 2004, (for short 'CCR, 2004') they were liable to pay an amount equal to the credit taken on such capital inputs and capital goods. It was also alleged that the credit taken on input services used in the setting up of the power plant, which was subsequently transferred to KPPL, was also inadmissible. The extended period of limitation was invoked in the show cause notice al .....

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of ₹ 12.5 Lakhs under Section 11AC of the Central Excise Act read with Rule 15 of the Cenvat Credit Rules, 2004, was levied on DCL. The adjudicating authority, viz., the Commissioner, took the view that the power plant and the land on which the power plant is situate has been transferred by way of lease deed to KPPL and, therefore, the power plant ceased to be part of the assessee and stood excluded from the factory premises and, thereby, provisions of Rule 3 (5) of the Cenvat Credit Rules .....

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nasmuch as even after lease to KPPL, it continued to produce and supply power to the cement manufacturing plant of DCL. All the raw materials required for the generation of electricity in the plant were supplied by the assessee to KPPL and the entire electricity generated by KPPL was supplied to the assessee for the manufacture of cement. c) There is no physical removal of capital goods or inputs from the assessee's factory, since the power plant remained within the factory premises as indic .....

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. f) Rule 3 (5) of the CCR, 2004, speaks only about removal of inputs and capital goods as such from factory and is silent about input services. The demand for reversal of credit on input services under the above provision is, therefore, not justifiable. g) The Commissioner erred in relying on the Tribunal's decision in Majestic Auto Ltd. - Vs - CCE, Ghaziabad (2004 (173) ELT 145 (Tri. Del.)), which case is distinguishable on facts. h) The department had been informed by DCL about its propos .....

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nst them and the entire demand is liable to be set aside as barred by limitation." 7. On the above stated contention, the Tribunal, on facts, came to the conclusion that the 2nd respondent/assessee had set up a captive power plant and leased out the same to another company, viz., KPPL, w.e.f. 15.3.05 for generation of electricity and supply thereof to the assessee at the prescribed rates. The moot question that arose for consideration before the Tribunal was "whether such a leasing of .....

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003, was considered and held in favour of the assessee, decided the present case holding that there was no physical removal of capital goods as such from the factory. There was no invoice issued as envisaged under Rule 11 (1) of CCR, 2002 read with Rule 3 (5) of CCR, 2004, for clearance of any capital goods as such from DCL factory. The Tribunal held that the provisions of Rule 3 (5) of CCR, 2004, is not applicable to the instant case. In such view of the matter, the issue was answered in favour .....

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he whole issue relates to the interpretation of Rule 3 (5) and 9 of CCR, 2004 and Rule 11 (1) of CCR, 2002, for better clarity, Rule 3 (5) and Rule 9 of the CCR, 2004 and Rule 11 (1) of the CCR, 2002, are extracted hereinbelow :- Rule 3 (5) of CCR, 2004 3. ........ (5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the .....

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ovider of output service for providing the output service and the capital goods are brought back to the premises within 180 days, or such extended period not exceeding 180 days as may be permitted by the jurisdictional Deputy Commissioner of Central Excise, or Assistant Commissioner of Central Excise, as the case may be, of their removal. Rule 9 of CCR, 2004 9. Documents and accounts.- (1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service dis .....

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nment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002; (iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or (b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the con .....

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ul misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty. Explanation.- For removal of doubts, it is clarified that supplementary invoice shall also include challan or any other similar document evidencing payment of additional amount of additional duty leviable under section 3 of the Customs Tariff Act; or (c) a bill of entry; or (d) a certificate issu .....

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e Service Tax Rules, 1994. Rule 11 of CCR, 2002 Rule 11. Goods to be removed on invoice.- (1) No excisable goods shall be removed from a factory or a warehouse except under an invoice signed by the owner of the factory of his authorised agent and in the case of cigarettes, each such invoice shall also be countersigned by the Inspector of Central Excise or the Superintendent of Central Excise before the cigarettes are removed from the factory. Provided that a manufacturer of yarns or fabrics fall .....

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erms of this rule after making adjustments in respect of the goods rejected and returned by the buyer. The proforma invoice and the invoice issued in terms of this sub-rule shall have cross reference to each other by way of their serial numbers. Provided further that the said period of five working days, as referred to in the first proviso, may be extended upto a period not exceeding twenty-one days, inclusive of the said period of five working days, by the Commissioner of Central Excise, on rec .....

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tor or Hindu Undivided Family, as the case may be, shall also be mentioned in the invoice. (3) The invoice shall be prepared in triplicate in the following manner, namely :- (i) the original copy being marked ORIGINAL FOR BUYER. (ii) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER. (iii) the triplicate copy being marked as TRIPLICATE FOR ASSESSEE. (4) Only one copy of invoice book shall be in use at a time, unless otherwise allowed by the Assistant Commissioner of Central Excise, or .....

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of this rule shall apply mutatis mutandis to goods supplied by a first stage dealer or a second stage dealer: Provided that in case of the first stage dealer receiving imported goods under an invoice bearing an indication that the credit of additional duty of customs levied on the said goods under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be admissible, the said dealer shall on the resale of the said imported goods, indicate on the invoice issued by him .....

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on the invoice issued by him that no credit of the additional duty levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 shall be admissible. Explanation. - For the purposes of this rule, "first stage dealer" and "second stage dealer" shall have the meaning assigned to them in CENVAT Credit Rules, 2002." 11. Keeping the above rule position in mind, this Court proceeded to analyse the case of the assessee as revealed by the records. 12. While the adjud .....

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f the particular provision and since there is no deeming provision in Rule 3 (5) of the Cenvat Credit Rules, 2004, the Department cannot attribute the cost of removal in a transaction covered by a lease agreement. 14. On facts, the Tribunal went in detail into the lease deed, the terms and conditions of the lease and the various clauses to come to the conclusion that there was no removal of goods as such from the premises of DCL and, therefore, held that the order of the adjudicating Commissione .....

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notice of this Court that the decision of Majestic Auto case (supra), which was relied upon by the jurisdictional Commissioner has since been reversed by the Allahabad High Court in Hero Motors Ltd. - Vs - Commissioner of Central Excise, Ghaziabad (2014 (310) ELT 729 (All.)). A cursory glance at the said decision would reveal that the case was also a case of lease and in the said case also the capital goods remained installed in the same premises and in the said circumstances, the Allahabad Hig .....

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the premises. The I.C. Engines manufactured by HBSA Pvt. Ltd. in the same premises were used by the appellant. Once it was admitted that the capital goods, on which Modvat Credit was taken by the appellant remained installed in the same premises, which was leased out and continued to be engaged in the manufacture of I.C. Engine, which was further used in the manufacture of two wheelers and that a separate registration certificate was obtained by HBSA Pvt. Ltd., there was no removal of goods. Th .....

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ods are removed as such from the factory or premises of the provider of output service, the manufacturer of the final products or provider of output service, shall be liable to pay an amount equal to the credit availed in respect of such inputs or capital goods. 17. In this case, we find there is no removal of goods under cover of invoice as provided under Rule 9 of the Cenvat Credit Rules, 2004 and there is nothing in Rule 3 (5) of the Cenvat Credit Rules, 2004 to invoke the deeming fiction as .....

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