2000 (11) TMI 1051 - AT - Central Excise

Tribunal overturns order denying Modvat credit for power plant capital goods, citing lack of reasoning.

The Tribunal set aside the Commissioner's order disallowing Modvat credit on capital goods used for a power plant installation. It found the order lacking ... Eligibility for Modvat credit on capital goods - treatment of power plant as movable 'goods' or immovable property - application of the notification scheme under Rule 57Q and procedural requirements under Rule 57T - penalty under Rule 173Q(1)(bb) for contravention of Rule 173B and Rule 174 - requirement of a speaking and reasoned orderEligibility for Modvat credit on capital goods - treatment of power plant as movable 'goods' or immovable property - application of the notification scheme under Rule 57Q and procedural requirements under Rule 57T - Whether the question of entitlement to Modvat credit on the imported components used to assemble a power plant (claimed to be for captive use in manufacture of paper and paperboard) requires fresh adjudication. - HELD THAT: - The Tribunal found that the Commissioner's order did not deal with the core factual and legal matrix: (a) whether the assembled power plant constitutes 'goods' or forms part of immovable property for purposes of excise; (b) whether the imported items fall within the items contemplated in column No.2 of the Notification under Rule 57Q and were in fact used within the factory for manufacture of the final product in column No.3; and (c) whether the procedural scheme of Rule 57Q and Rule 57T (including declaration and deferment/availment rules) was properly applied. The Commissioner had recorded only a brief conclusion invoking Sirpur Paper Mills without addressing contrary authorities cited by the appellant or explaining how the power plant came into existence prior to fixation. Because these determinative points were not examined and no findings were given on how the declared components were utilised within the factory for manufacture of paper and paperboard, the Tribunal held that the issue must be considered afresh by the original authority with full opportunity to the parties and a detailed reasoned order. [Paras 5]Matter remanded to the original authority for de novo consideration on entitlement to Modvat credit, with directions to examine and record reasons on whether the power plant constitutes goods, the applicability of Rule 57Q/57T, and the utilisation of declared items within the factory.Application of precedents and consideration of contrary authorities - requirement of a speaking and reasoned order - Whether the Commissioner erred in failing to consider and record reasons on the judgments relied upon by the assessee and in issuing an order that is non-speaking. - HELD THAT: - The Tribunal noted that several tribunal and appellate decisions relied upon by the appellant (including Gujarat Ambuja Cements Ltd., Rathi Alloys & Steel Ltd., Oriental Carbon & Chemicals Ltd., and DCW Ltd.) were not considered or distinguished in the impugned order. The Commissioner's reliance on Sirpur Paper Mills without addressing contrary decisions and without analysing how that ratio applies rendered the order non-speaking. For adjudication to be sustainable, the original authority must examine the precedents relied upon by the parties, state reasons for accepting or rejecting them, and furnish a detailed speaking order. [Paras 5]Set aside and remand for fresh adjudication with direction to consider and give reasons on the authorities cited by the parties and to pass a reasoned speaking order.Penalty under Rule 173Q(1)(bb) for contravention of Rule 173B and Rule 174 - requirement to record reasons for imposition of penalty - Whether imposition of penalty under Rule 173Q(1)(bb) was sustainable without detailed findings as to contravention, mens rea or statutory breach. - HELD THAT: - The Tribunal observed that the Commissioner imposed a substantial penalty without recording clear findings as to how Rule 173Q(1)(bb) was attracted, whether there was an intention to evade duty, or whether the statutory preconditions in Rule 173B and Rule 174 were breached. The absence of examination of these statutory requirements and lack of reasons for the quantum and basis of penalty rendered the penalty decision unsustainable at this stage. The matter of penalty therefore requires fresh consideration by the original authority in the light of findings on substantive issues and after affording opportunity to the assessee. [Paras 5, 6]Penalty set aside for de novo consideration; original authority to record reasons and examine applicability of Rule 173Q(1)(bb) after adjudicating substantive issues.Final Conclusion: Impugned order set aside and matter remanded to the original authority for de novo consideration on entitlement to Modvat credit, examination of relevant precedents, and reassessment of penalty; appellants to be afforded full opportunity and a detailed speaking order to be recorded on all grounds. Issues Involved:1. Eligibility of Modvat credit on capital goods used for installation of a power plant.2. Classification of the power plant as excisable goods.3. Applicability of penalties under Rule 173Q(1)(bb) for contravention of Central Excise Rules.Detailed Analysis:1. Eligibility of Modvat Credit on Capital Goods:The central issue is whether the capital goods used for the installation of a power plant are eligible for Modvat credit under Rule 57Q of the Central Excise Rules, 1944. The Commissioner of Central Excise, Hyderabad, disallowed the Modvat credit on the grounds that the power plant is excisable under sub-heading 8502.90 of the Central Excise Tariff Act, 1985, and no appropriate Central Excise duty was paid on it. Furthermore, even if duty were paid, the resultant product, electricity, is non-excisable, thus disqualifying the capital goods from Modvat credit.The appellants argued that their final product is paper and paperboard, not electricity, and the capital goods used for the power plant installation should be eligible for Modvat credit. They cited several case laws to support their contention, but these were dismissed by the Commissioner as they pertained to inputs and not capital goods.2. Classification of the Power Plant as Excisable Goods:The appellants contended that the power plant should not be considered 'goods' as it becomes immovable property upon installation. The Commissioner, however, referenced the Supreme Court judgment in M/s. Sirpur Paper Mills Limited, which held that embedding machinery in a concrete base does not make it immovable property. The Commissioner concluded that the power plant, being capable of dismantling and reinstallation, qualifies as 'goods'. Thus, the non-payment of excise duty on the power plant invalidated the Modvat credit on the capital goods used.The appellants countered that the Commissioner's reliance on the Sirpur Paper Mills judgment was misplaced, as subsequent Supreme Court judgments in Quality Steel Tubes Pvt. Ltd. and Mittal Engineering Works Pvt. Ltd. had distinguished the earlier ruling, emphasizing that goods must exist prior to installation to be considered excisable.3. Applicability of Penalties under Rule 173Q(1)(bb):The Commissioner imposed a penalty of Rs. 1 crore under Rule 173Q(1)(bb) for failing to obtain registration for the manufacture of excisable goods (power plant) and for not filing the necessary declarations under Rule 173B. The appellants argued that the penalty was unjustified as the power plant was not 'goods' and thus not subject to excise duty. They also pointed out that the Commissioner did not provide a clear rationale for the penalty, making the order non-speaking and unsustainable.Tribunal's Decision:The Tribunal found the Commissioner's order to be non-speaking and lacking in detailed reasoning. It noted that the Commissioner failed to address key arguments and case laws cited by the appellants. The Tribunal highlighted the need for a clear finding on whether the power plant is 'goods' and whether the capital goods used for its installation qualify for Modvat credit under Rule 57Q.The Tribunal also emphasized the need for a detailed examination of whether the items used in the power plant installation were utilized within the factory for manufacturing the final product (paper and paperboard) and whether the provisions of Rule 57Q and 57T were correctly applied.Furthermore, the Tribunal pointed out the lack of justification for the hefty penalty imposed and the absence of a clear finding on the alleged contraventions of Rule 173Q(1)(bb).Conclusion:The Tribunal set aside the impugned order and remanded the matter to the original authority for de novo consideration. It directed the original authority to provide a detailed speaking order addressing all the grounds raised by the appellants and to ensure a thorough examination of the eligibility for Modvat credit, the classification of the power plant, and the justification for the penalties imposed. The appeal was allowed by way of remand.