TMI Blog2022 (10) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 2.1.1 and clause 3.1.1 of the BTA. In the erstwhile Central Excise Rules, 1944 or the Central Excise Rules, 2002, the manufacturer of excisable goods was required to pay duty on the goods removed from the factory or the bonded warehouse. The sale of goods or transfer of ownership of the goods from the seller to the buyer, is not the criteria to cast duty liability on the manufacturer/seller of excisable goods. What is important is the physical removal of excisable goods from the factory of the manufacturer. Both the appellants viz. M/s Simbhaoli Sugars Ltd., Chilwaria and Simbhaoli were not required to reverse the cenvat credit on sale of capital goods, as part of running power plant, in terms of rule 3(5A) of CCR, 2004. We further hold that no penalty is imposable under Rule 26 of CER, 2002 on the Chairman of the appellant company. In view of the ruling of Hon ble Madras High Court in the case of THE COMMISSIONER OF CENTRAL EXCISE VERSUS CUSTOMS, EXCISE SERVICE TAX APPELLATE TRIBUNAL, M/S. DALMIA CEMENTS (BHARAT) LTD. [ 2015 (7) TMI 267 - MADRAS HIGH COURT] , which have been accepted by the CBIC as clarified in the Circular No. 1063/2/2018-CX, we hold that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sugars Ltd., are similar and involve identical issue. For convenience we are describing the facts of Appeal No. E/50380/2021-DB, as lead case. 3.2 The appellant availed MODVAT/ CENVAT credit in the past on procurement of inputs(used in fabrication of capital goods),capital goods/plant and machinery for the purpose of setting up of power plant. The capital goods were assembled and installed together to form a power plant. The capital goods were installed /embedded into the earth and post-installation they became part of the immovable property and ceased to be movable/transportable from one location to another, without cannibalising the structure and the capital goods. 3.3 In January, 2013 the appellant sold/ transferred the ownership of the entire power plant to their subsidiary company viz. M/s Simbhaoli Power Pvt. Limited (SPPL) on slump sale for lumpsum consideration on as is where is basis . For this purpose, the appellant entered into Business Transfer Agreement (BTA) dated 25.01.2013 with M/s SPPL, for transfer of power plant on slump sale basis. 3.4 The items of plant and machinery, buildings and misc. Civil structures installed in the power plant were transferred b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is operating the power plant wherein power is generated from biomass fuel (bagasse). Further, stated that SPPL is subsidiary company of SSL having common Directors. The capital goods plant and machinery of the power plant were transferred to SPPL under BTA for consideration of Rs. 85 cr. on as is where is basis. Further, the piece of land on which the power plant is situated have also been leased out to SPPL for consideration of Rs. 24 lacs per annum vide lease deed dated 25.01.2013. The capital goods transferred under BTA includes turbines, which was acquired in the year 2008-09 on which cenvat credit have been availed of Rs. 19,61,375/- basic duty and Rs. 82,405/- towards cess. As regards the other parts and machineries of the power plant, it was stated that the appellant shall reconcile with their cenvat credit register as regards credit availed, if any, and shall provide the details in due course. It was further stated that the transfer of power plant to SPPL was executed by their Board of Directors through BTA. Further, no Central Excise invoices in relation to transfer of such plant and machinery was issued by appellant and thus no Central Excise duty have been paid by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied to UPPCL. 7. On perusal of Director s report with consolidated and annual financial statement for the financial year 2012-13 of SSL, it appeared to Revenue that SSL have transferred its power unit (the existing power business) in both the sugar units located at Simbhaoli and Chilwaria including all its assets, liabilities, rights and obligations to SPPL at an aggregate consideration of Rs. 159.78 cr. on 25.01.2013. 8. SSL, Chilwaria vide letter dated 26.11.2015 submitted details and description of capital goods transferred to SPPL alongwith details of documents on which credit was availed, details of cenvat credit availed, copy of balance sheet, profit and loss account, assets valuation report etc. 9. Further, statement of Sh. Md. Aslam, Deputy Manager (Accounts) of SPPL was recorded on 26.11.2015, wherein he inter alia stated that SPPL is in the nature of joint venture between SSL and Singapore based M/s Sundicatum Captive Energy Singapore Pte Limited, wherein 51% shares are held by SSL and 49% shares are held by M/s Sundicatum Captive Energy Singapore Pte Limited, Singapore based company. He further stated that their power plant/ unit was surrounded in all directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction value, has wilfully avoided the above payment in violation of the provisions of Central Excise Act, 1944 and the Rules made thereunder. 11. Further it appeared to Revenue that the appellant have not given proper information to the Department of such transaction wherein they transferred their power plant to SPPL on as is where is basis under BTA, and have violated the provisions of Rule 3(5A) of Cenvat Credit Rules under which they were required to pay the proportionate amount of cenvat credit (after depreciation, if any), to the exchequer as applicable to them, read with Notification No. 18/2012-CE (NT). Further, the appellant have not shown the changes in the boundary of their registered premises as required under Rule 9 of Central Excise Rules, 2002 and have also not disclosed the relevant details of transfer/ removal of plant and machinery in their monthly return as required under Rule 12 of Central Excise Rules, 2002. Therefore, it appeared that the appellant have deliberately not disclosed such facts of transfer of capital goods to the Department with intent to evade the amount payable as Central Excise duty (reversal of cenvat credit) on the transaction value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(5A) of CCR, 2004 are applicable when the capital goods, on which CENVAT credit has been taken, are removed, after being used, whether as capital goods or waste and scrap. The basic criteria is the removal of capital goods and not the sale-purchase of capital goods. In other words, the transfer of ownership of capital goods by the transferor to the transferee is not relevant for invoking rule 3(5A). 16.2 That the Revenue has relied upon the following judgments of the Supreme Court:- (i) State of Maharashtra Vs. Embee Corporation, Bombay (1997) 7 SCC 190. (ii) State of Andhra Pradesh Vs. Kone Elevators (India) Ltd. 2005 (181) ELT 156 (S.C.) The appellant submits that both the above judgments refer to the sale of goods/ works contract transactions, taxable under the State Sales Tax Act. In the case of Embee Corporation, the issue before the Apex Court was whether the expression sale or purchase occasions such import occurring in section 5(2) of CST Act, 1956, requires that a completed sale should precede the import of goods. Similarly in the case of Kone Elevators, the Apex Court was concerned with the contract for sale of elevators and lifts or works contract, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch consumption or utilisation. Clause (b) of sub-section (4) of Section 4 has defined place of removal , but it has not defined removal . There can be no doubt that the word removal contemplates shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another. Although the Supreme Court was concerned with constitutional validity of section 51 of the Finance Act, 1982 which validated the amendments to rule 9 and 49 of Central Excise Rules, 1944 with retrospective effect. It was pleaded by the petitioners that the expression place of removal defined in section 4(4)(b) does not contemplate any deemed removal but a physical and actual removal of goods from the factory or any other place of production or manufacture etc. In this context, the Apex Court observed that the word removal (which is the basic event for attracting excise duty) refers to physical movement of goods from one place to another. 19. That the dicta laid down by the Apex Court in J.K. Spg. Wvg. Mills (supra) has been relied upon by the various benches of the CESTAT and the High Courts. A compilation of case law on physical removal / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the CBEC has accepted the aforesaid order of the Madras High Court in the case of Dalmia Cements Ltd., (supra) and vide circular No. 1063/2/2018-CX dated 16.02.2018, the Board has conveyed to the field formation that the cases pending in the jurisdiction of Commissionerates on identical matter may be decided accordingly. 23. That it is well settled law that the circulars issued by the Board are binding on the lower authorities (departmental officers) and the authorities are not allowed to take a view different from the Board s clarification. The adjudicating authority has ignored the Board s instructions on the subject in question while adjudicating the case. 24. That it is submitted that though in the case of Dalmia Cement, the power plant was leased out and not sold out by the assessee to another company, that does not matter as the crucial test / event to attract rule 3(5A) of CCR, 2004 is the removal of capital goods . In the case of leasing of capital goods, the ownership remains with the owner / lessor but the control and possession goes to the lessee. The transfer of ownership is not the criteria under CCR, 2004. Therefore, even if the title to the goods is not tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of CGST C. Ex., - 2021-VIL-674-MAD-CE examined the applicability of rule 3(5) of CCR, 2004 in a case where the petitioner was engaged in the manufacture of tyres and tubes sold the capital goods / plant and machinery to another entity but the said capital goods were leased back to the petitioner. The High Court relied upon the Division Bench of the Madras High Court in the case of CCE Vs. CESTAT, Chennai Dalmia Cements (Bharat) Ltd., - 2015 (323) ELT 290 (Mad.) and further noted that the said judgment has been accepted by the Department as conveyed by the Board vide circular No. 1063/2/2018-CX dated 16.02.2018. In view of this position, the Madras High Court quashed the impugned order and affirmed that in the absence of physical removal of capital goods from one place to another, the provisions of rule 3(5) of CCR, 2004 are not applicable. 25.4 That the Allahabad High Court in the case of Hero Motors Ltd. Vs. CCE, Ghaziabad - 2014 (310) ELT 729 (All.) has examined a case where the assessee-company gave on lease a part of their factory premises to M/s HBSA Pvt. Ltd., who obtained separate registration under Central Excise Rules for manufacture of parts and access ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T credit was availed by the manufacturer in the past. The wordings of the rule require removal or physical shifting of the capital goods from one place to another and the word removal should be interpreted in that sense and not in any other manner, such as deemed or constructive removal or transfer of ownership / sale of capital goods from one person to another for consideration. 28. That it is well settled maxim that when the words of a statute are clear, plain or unambiguous i.e., they are reasonably susceptible to only one meaning, the Courts are bound to give effect to that meaning, irrespective of consequences. This maxim is explained at page 55 of the Book on Principles of Statutory Interpretation by Justice G.P. Singh (14th Edition) as under:- When the words of a statute are clear, plain or unambiguous, i.e. they are reasonably susceptible to only one meaning, the courts are bound to give effect to that meaning irrespective of consequences. The rule stated by TINDAL, C.J. in Sussex Peerage case is in the following form: If the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by the Department, have simply relied upon Karnataka High Court judgment in ACC case and the ruling of the Apex Court on the interpretation of the term removal has not been considered:- (a) Pure Drinks Ltd. Vs. Union of India 2012 (281) ELT 51 (Del) (b) CCE, Chandigarh Vs. Krypton Outsourcing Ltd. 2010 (256) ELT 768 (Tri-Del). (c) J.K. Paper Mills Vs. CCE, Bhubaneswar-I 2014 (309) ELT 359 (Tri-Kol). 30.1 That the provisions of rule 3(5)/(5A) of CCR, 2004 are attracted on removal of capital goods on which the CENVAT credit was availed by the assessee in the past. The capital goods covered by rule 3(5)/(5A) are movable goods other than money and actionable claims. Immovable goods are capital assets and not capital goods. In the appellant s case, the plant and machinery such as Boilers, Turbines, Bagasse Carrier, Ash Handling system, Cooling Towers, RO water plant etc. forming part of the power plant sold by the appellant on slump sale are so fixed / embedded to the earth that they could not be moved from one place to another without causing substantial damage to the capital assets. The immovable nature of the capital assets can be appreciated from the Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal penalty was warranted against him. 36. Opposing the appeals, ld. Authorised Representative appearing for the Revenue inter alia submits that the appellant have admittedly sold the power plant by way of lumpsum sale on as is where is basis to a new company namely SPPL. In the said new company, appellant have got 51% shareholding and balance 49% is held by the Singapore based company. The entire power plant including steam generation are capital goods, on which cenvat credit was availed, have been transferred by the appellant to the new company for consideration. Further, the land which is owned by the appellant, on which the power plant is situated, have also been leased out to the transferee company, and consequent upon alteration of the boundary of the factory of the appellant (in Central Excise registration), there is a deemed removal and/or nothing short of removal of the power plant. In terms of the BTA, all rights, title in the movable and immovable property comprising the power plant, building, civil structure relating to the power plant as a whole have been sold and transferred to the transferee company. 37. It is further urged that there is existence of contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed (on straight line method). However, if the asset is removed as waste and scrap then duty as applicable on waste and scrap, has to be paid on the transaction value. The Revenue invoked the proviso (extended period) in demanding the amount equal to Central Excise duty on the transaction value, and further imposed penalty being 50% of the duty demanded. 40. We find that the expression removal is defined neither in the Central Excise Act / Rules nor in the CCR, 2004. The Ld. Advocate submitted that Hon ble Supreme Court in the case of J.K. Spinning Weaving Mills Ltd., Vs. Union of India - 1987 (32) ELT 234 (S.C.) observed that the word removal contemplates physical shifting of a thing from one place to another. We find that in the context of retrospective amendments in Rule 9 and 49 of erstwhile Central Excise Rules, 1944, the Supreme Court observed that clause (b) of sub-section (4) of section 4 of Central Excise Act, has defined the term place of removal but it has not defined removal . The Apex Court observed in para 38 that there can be no doubt that the word removal contemplates shifting of a thing from one place to another. The Supreme Court went on to say that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s BESCL, stood removed and the respondent was required to pay an amount equal to the duty of excise leviable on the inputs and capital goods installed in the captive power plant on which CENVAT / MODVAT was taken, in terms of rule 3(4) of CCR, 2004. The Department relied on registration of M/s BESCL as a separate factory with the Chief Inspector of Factories, Chhatisgarh, and took a view that the transfer is liable to be termed as removal. The Tribunal took note of observations of the Hon ble Supreme Court in the case of J.K. Cotton Spinning Weaving Mills (supra) wherein the meaning of the word removal was examined and interpreted as physical movement of goods from one place to another. The Tribunal held that no amount was required to be paid by the assessee u/r 3(4) on capital goods, as there was no removal of capital goods. The relevant para 14 from the said Tribunal judgment is reproduced below:- 14. After considering various case laws cited by both the sides we find that the Hon'ble Supreme Court has clearly held that 'removal' contemplates physical removal of goods from one place to another. Such a view has also been taken by the majority of the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of setting up of power plant. Subsequently, the assessee leased out the entire power plant to another entity M/s Keshav Power Pvt. Ltd. (KPPL) under a lease deed for a period of 10 years. The Department raised duty demand on the assessee on the ground that by leasing out the power plant with ancillary equipments to another entity, the assessee removed the capital goods and in terms of rule 3(5) of CCR, 2004, the assessee was liable to pay an amount equal to credit taken on such inputs and capital goods. The Tribunal held that there was no physical removal of capital goods as such from the factory in as much as the capital goods had, by the time the power plant was leased out, lost their separate identity, having become integral part of the power plant. By citing these reasons, the Tribunal held that the provisions of rule 3(5) of CCR, 2004 were not applicable and set aside the impugned order. In appeal, the Madras High Court in CCE, Tiruchirapalli Vs. CESTAT, Chennai - 2015 (323) ELT 290 (Mad.) upheld the Tribunal s order holding that rule 3(5) only speaks about removal of goods under the cover of invoice referred to in rule 9 on inputs or capital goods on which CENVAT credit has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred on lease, the capital goods even if they were deemed to be installed in the premises of HBSA, rule 57S of erstwhile CER, 1944, would not be attracted. The provisions of clause (b) and (c) of rule 57S(2) are reproduced below:- (b) where capital goods are removed after being used in the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.5 percent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit under rule 57Q; and (c) where capital goods are sold as waste and scrap, the manufacturer shall pay the duty leviable on such waste and scrap. On perusal of clause (b) and (c) of rule 57S(2), it is clear that the said clauses are similar to rule 3(5A) of CCR, 2004. Both these rules talk of removal of capital goods after being used in the factory. Thus the views expressed by the Allahabad High Court w.r.t. erstwhile rule 57S(2) of CER, 1944 are equally applicable in the context of rule 3(5A) of CCR, 2004. 48. We find that this Tribunal has considered similar objection from the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ELT 768 (Tri-Del) (c) J.K. Papers Ltd. Vs. CCE, Bhubaneswar-I - 2014 (309) ELT 359 (Tri-Kol) We find that all the above judgments were passed in favour of the Revenue by relying upon the Karnataka High Court judgment in the case of ACC Ltd. Since we have decided not to follow the said ACC judgment for the reasons given above, we do not find any force in the judgments cited by the Ld. AR. 51. In view of the above analysis, we hold that both the appellants viz. M/s Simbhaoli Sugars Ltd., Chilwaria and Simbhaoli were not required to reverse the cenvat credit on sale of capital goods, as part of running power plant, in terms of rule 3(5A) of CCR, 2004. We further hold that no penalty is imposable under Rule 26 of CER, 2002 on the Chairman of the appellant company. 52. In view of our aforementioned findings and observations, particularly in view of the ruling of Hon ble Madras High Court in the case of Dalmia Cement (supra), which have been accepted by the CBIC as clarified in the Circular No. 1063/2/2018-CX, we hold that in the facts and circumstances of the present case, there is no removal of capital assets/power plant. As There have been no removal, the provision of Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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