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2016 (7) TMI 1073 - MADRAS HIGH COURT

2016 (7) TMI 1073 - MADRAS HIGH COURT - 2016 (344) E.L.T. 832 (Mad.) - Cenvat credit on welding rods/electrodes and asbestos sheets - scope of definition of 'inputs', as contemplated by Rule 2(k) of Cenvat Credit Rules, 2004 - Held that:- the term 'inputs', is wide enough to cover all the goods, except the goods specifically mentioned in the definition, inputs used in or in relation to the manufacture of the final product, whether directly or indirectly or whether it contained the final products .....

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Miscellaneous Appeal is directed against the Final Order No.939/09 dated 07.08.2009 passed by Customs, Excise and Service Tax Tribunal, Chennai - 600 006, confirming the order of both original and Appellate Authorities, disallowing Cenvat credit on welding electrodes used by the appellant in their factory. 2. Short facts leading to the appeal are that M/s.National Co-operative Sugar Mills Ltd, is engaged in manufacture of sugar, falling under Chapter Heading No.1701 of the Central Excise Tariff .....

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sued by the Adjudicating Authority, proposing to disallow Cenvat credit on welding rods/electrodes used by the appellant. The Adjudicating Authority also proposed to disallow Cenvat credit, on asbestos sheets, used by the appellant for roofing purposes. In the Adjudicatory Notice, the authority has stated that the welding rods/electrodes used by the appellant were only for repair and maintenance purposes and hence not covered by the definition of 'inputs', as contemplated by Rule 2(k) of .....

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Cenvat Credit Rules, 2004 r/w Section 11A of Central Excise Act, 1944. Penalty also been imposed under Rule 15 of Cenvat Credit Rules, 2004, alleging contravention of Rule 3 of the said Rules. 4. Being aggrieved by the Order in Original dated 31.08.2007, the appellant herein has filed an appeal before the Commissioner of Central Excise (Appeals), Maduari, who, by an order dated 26.02.2009, has modified the order in original dated 31.08.2007 of the adjudicating authority. The appellate Authority .....

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pellate Tribunal committed an error or law in disallowing the Cenvat Credit on welding rods/electrodes used by the Appellants when, in fact, the same were used in and or in relation to manufacture of the final product as required by Rule 2(k) of the Cenvat Credit Rules, 2004 " 6. Heard both parties. 7. Appellant is a Co-operative sugar mill. On the aspect of usage of welding rods/electrodes in the sugar mill, Mr.N.Prasad, learned counsel for the appellant, submitted that major sections of s .....

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s from one stage to another. Therefore, welding electrodes are used to weld together cracks and holes, which may develop in M.S.Pipes. At syrup stage, juice is converted into syrup. Juice has to be kept in storage tanks which may develop cracks. Here again, welding electrodes are used. At the stage of pan, syrup is moved to the pan via M.S.pipes. In the pan, sugar crystals are grown. At this stage also, welding electrodes are used to keep M.S.Pipes in good condition, otherwise, production would .....

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his requires upkeep of the storage tank and to fix fissures and holes in storage tank. If holes and cracks are allowed to develop, there would be loss of raw material, resulting in production being affected. After the centrifugal stage, where the sugar crystals are separated, bagging of sugar takes place. Thus, explaining each and every stage involved in the manufacture of sugar, and how welding electrodes are used in relation to the manufacture of the final product, namely sugar, it is the subm .....

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ained in the final products or not and includes lubricating oil, greases, cutting oils, coolants, accessories of the final product, cleared along with the final product, goods used as paints or as packing material or as fuel, or for generation of electricity of steam used in or in relation to manufacture of final product or for any other purpose within the factory of production." 8. He further submitted that the word 'input' is wider and comprehensive to include all the goods except .....

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y sugar. 10. Placing reliance on the decision in Jawahar Mills Ltd. vs. Commissioner of Central Excise, Coimbatore reported in 1999 (108) E.L.T.47 (Tribunal), learned counsel for the appellant submitted that in the above reported case, stand of the revenue was that the items in dispute, namely, welding electrodes, wires, cables etc. were not capital goods, within the meaning of explanation to Rule 57Q of the Central Excise Rules, 1944, which covers goods used only in production, processing or br .....

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nt, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products; (b) Components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and (c) moulds and dies, generating sets and weigh bridges used in the factory of the manufacturer. 12. He further submitted that the above decision of the Tribunal in hol .....

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dras Aluminium Company Ltd reported in 2008 (226) E.L.T. 342 (Mad.), wherein, at paragraph No.6, the Hon'ble Division Bench held as follows: " 6. In respect of oxygen gas, acetylene gas, electrodes, welding wire and iron, the Tribunal held that Modvat credit were to be allowed following the judgment of the Tribunal in 1993 (67) E.L.T. 364. The issue has been covered in favour of the assessee by the decision of the Apex Court in the case of C.C.E., Coimbatore v. Jawahar Mills Ltd., 2001 .....

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sue in favour of the assessee." 14. He also submitted that though the Kolkatta Tribunal in SAIL vs. Commissioner of Central Excise, Ranchi reported in 2008 (222) E.L.T. 233 (Tri. - Kolkata) held that the welding electrodes, not being used co-extensively, in the process of manufacture of the final product, are not eligible for Cenvat credit, the appeal filed by SAIL, was dismissed in limini, by the Hon'ble Supreme Court it was not a speaking order. At this juncture, this court also perus .....

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ted in 2010 (256) E.L.T. 690 (Chhattisgarh), wherein, the High Court of Chhattisgarh held that welding electrodes used for repair and maintenance of plant and machinery, are eligible for Cenvat credits, both as capital goods, as well as inputs. At this juncture, we also deem it fit to consider the Judgment of Chhattisgarh High Court, as to how the decision in SAIL case has been distinguished. At Paragraph Nos.13, 14, 16, 17, 21 and 22 and ultimately, at paragraph 23, relying on the decision of t .....

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ein viz., whether the welding electrodes used in repairs/maintenance of plant and machinery can be construed as input, as defined under Rule 2(g) of the Cenvat Credit Rules, 2002. The Hon'ble Division Bench of the Chhattisgarh High Court further held that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rules, 2002 and thus, entitled for Cenvat credit. Relevant paragraphs in the said judgment are extracted he .....

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hus: "11. In our view, the Judgment of Hon'ble Supreme Court, in J.K.Cottons SPG & WVG Mills Co. Ltd v. Sales Tax Officer, Kanpur, reported in 1997 (91) E.L.T. 34, has a material bearing on the controversy involved in the present case. It may be noticed, that the Tribunal in J.P.Rewa case has referred to this judgment of Hon'ble Supreme Court in J.K.Cotton's case, by reproducing a part of the head note, but then, the very significant continuing next sentence has been omitted .....

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tively carry on the manufacturing process. Thus, with the above, if the quoted part of the judgment in J.K.Cotton's case is read, it becomes clear, that the expression "in the manufacture of goods" should normally encompass entire process carried on by the dealer, of converting raw materials into finished goods, where any particular process, or activity, is so integrally connected with the ultimate production of the goods, but for that process, manufacturing, or processing of the g .....

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maintenance are covered under the definition of capital goods in terms of Rule 57Q of the Central Excise Rules, 1944. 16. The northern Bench of the Tribunal, New Delhi, in the matter of Birla Jute & Industries Ltd., held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil Appeals preferred by the revenue against the above order were again dismissed by the S .....

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against or reversed. SAIL filed a petition for special leave to appeal against the above decision and dismissing the SLP, the Supreme Court passed the following order: "Delay condoned. On the facts of this case, matters stand dismissed." [Steel Authority of India Ltd. v. Commissioner - 2008 (229) E.L.T. A127 (S.C.)] ............ ............ 21. Shri Bhishma Kinger, learned counsel for the respondents/revenue, vehemently argued that in the matter of SAIL, the Tribunal at Klkata relyin .....

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as we find that SLP against the decision of Kolkata Tribunal in SAIL has been summarily dismissed without any speaking order, whereas the Rajasthan HighCourt in Hindustan Zinc Ltd., after considering the Larger Bench decision of the Tribunal in Jaypee Rewa Plant, has observed that the matter has been decided by selectively referring to the decision of the Supreme Court in J.K.Cotton's case, and decided the matter by omitting the very significant continuing next sentence. Paras 11 & 12 of .....

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that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (Welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944, Civil appeals preferred by the revenue have been further dismissed by the Supreme Court. It is settled law that refusing of special leave to file appeal by a non-speaking or speaking order does not attract the doctrine of merger, whereas where an award, appeal or revision is provided against the order passed by the .....

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c Ltd., Madras High Court in India Cement Ltd., and Delhi Tribunal in Birla JUte & Industries Ltd., which have been subsequently, affirmed by the Supreme Court, we allow both the appeals, set aside the impugned orders and answer the substantial question of law in favour of the appellant-assessee and hold that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rules, 2002 and thus, entitled for Cenvat credit.&qu .....

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ot; can be divided into three parts, namely : (i) Specific part (ii) Inclusive part (iii) Place of use 10. Coming to the specific part, one finds that the word "input" is defined to mean all goods, except light diesel oil, high speed diesel oil and 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. The crucial requirement, therefore, is that all goods "used in or in relation to the m .....

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nto finished products or any other process (like electricity generation) which is integrally connected with the ultimate production of final product has to fall within the above expression. It was observed that the purpose was to widen the scope, ambit and content of "inputs". According to the Special Bench of CEGAT, the purpose behind the above expression is to widen the ambit of the definition so as to attract all goods, which do not enter directly or indirectly into the finished pro .....

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an ancillary process (like electricity generation) aids the making of an end product, then, the ancillary process gets integrally connected to the end product. In the said judgment, this court applied what is called as "the dependence test". It may, however, be noted that in the definition of "input" the expression "used in or in relation to the manufacture of final product" is not a standalone item. It has to be read in entirety and when so read id reads as " .....

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finition of "input". In the past, there was a controversy as to what is the meaning of the word "input", conceptually. It was argued by the Department in a number of cases that if the identity of the input is not contained in the final product then such an item would not qualify as input. In order to get over this controversy in the above definition of input, the Legislature has clarified that even if an item is not contained in the final product still it would be classifiabl .....

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product" which, as stated above, is the crucial requirement of the definition of "input". Moreover, the said expression, viz, "used in or in relation to the manufacture of the final product" in the specific/substantive part of the definition is so wide that it would cover innumerable items as "input" and to avoid such contingency the Legislature has incorporated the inclusive part after the substantive part qualified by the place of use. For example, one of th .....

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hey are used in relatino to manufacture of the final product. The intention of the Legislature is that inputs falling in the inclusive part must have nexus with the manufacture of the final product. ............ ............ 16. In our earlier discussion, we have referred to two considerations as irrelevant, namely, use of input in the manufacturing process, be it direct or indirect as also absence of the input in the final product on account of the use of the expression "used in or in rela .....

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n. In each case it has to be established that inputs mentioned in the inclusive part is "used in or in relation to the manufacture of final product". It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression "used in or in relation to the manufactu .....

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edium in the manufacture of LAB is an eligible input since it has a persuasive role in the manufacturing process and without its use it is impossible to manufacture the final product. Therefore, none of the categories in the inclusive part of the definition would constitute relevant consideration per se. They become relevant only when the above crucial requirement of being "used in or in relation to the manufacture" stands complied with. In our view, one has to therefore read the defin .....

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16, the Hon'ble Division Bench of this court, held hereunder: "16. As far as item Nos.(v), (vi), (vii), (viii), (ix) and (x) MS Plates various sizes, Oxygen Gas, Acetylene Gas, MS welding electrodes, Aluminium Welding wire and CI Welding wire are concerned, these inputs were under the consideration of Tribunal's decision in the assessee's own case reported in 2001 (136) E.L.T. 182 (Tribunal-Chennai) (MALCO v. CCE, Coimbatore) which is subsequently confirmed by the Division Benc .....

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