2007 (1) TMI 438 - AT - Central Excise

Tribunal Rules Business Restructuring Not a Sale; Modvat Credit Retained for Rotor, Even Outside Factory Premises.

STEEL AUTHORITY OF INDIA LTD Versus COMMR. OF C. EX., BHUBANESHWAR-II

The Tribunal set aside the impugned order, allowing the appeals with consequential relief for the appellants. It concluded that the separation of the ... Cenvat/Modvat - Capital goods - lifting of Corporate Veil - separation of power plant into a new company - manufacture of the final product - HELD THAT:- In the present case, initially the power plant was also part of the steel mill and was also owned by Steel Authority of India Ltd. The deed of March, 2001, whereby power supply company was hived off into a new company through transfer of a certain business, was part of a restructuring exercise only. This is clear from clauses A, B, C and D of the deed. Other clauses in the deed also make clear that what is involved is not sale and alienation of assets; but transfer on assignment. The sale was only to ensure that the new entity had enough resources for the purpose of effectively financing its own function. The transfer by assignment was not alienation of property. After the transfer also, the power plant continued to remain in the same use, dedicated solely for the generation of power for use in the steel mill. We find that this factual aspect are almost identical to the case of Renusagar Power Mill’s [1988 (7) TMI 367 - SUPREME COURT] and in the light of judgment of Hon’ble Supreme Court, this is not a case of sale of the power plant. Manufacture of the final product - The mere location of the capital goods outside the factory premises is no ground for denying the credit. While passing this order, Tribunal was following the ratio of Supreme Court ruling in Vikram Cement [2006 (2) TMI 1 - SUPREME COURT]. In the light of the decision, there is no merit in the contention that the rotor in question was located outside the steel mill premises. Thus, we find that the impugned order is not sustainable. It is set aside and the appeals are allowed with consequential relief, if any, to the appellants. Issues:- Challenge against confiscation of rotor valued over Rs. 10 crores, demand of duty of over Rs. 2 crores, and imposition of penalty of Rs. 2 crores.- Whether the separation of a power plant into a new company amounts to the sale of the rotor to a new entity.- Interpretation of Modvat credit availability for capital goods used outside the factory premises.Analysis:1. The appeal involved challenges against the confiscation of a rotor valued over Rs. 10 crores, demand of duty of over Rs. 2 crores, and imposition of a penalty of Rs. 2 crores. The Steel Authority of India and SAIL Power Co. Ltd. contested the impugned order based on the separation of a power plant into a new company, questioning the requirement to return Modvat credit taken on the rotor.2. The central issue revolved around whether the separation of the power plant into a new company constituted a sale of the rotor to a new entity. The Commissioner, Central Excise, held that the separation amounted to a sale, necessitating the return of Modvat credit. The appellants argued against this finding, leading to conflicting decisions and a referral to a Larger Bench for resolution.3. The appellants contended that the transfer of the power plant to a new company was part of a restructuring exercise, not a sale. They emphasized the need to lift the corporate veil to understand the transaction's true nature, drawing parallels with a Supreme Court judgment involving a dedicated power plant for manufacturing activities.4. The Tribunal analyzed the deed of transfer and assignment to ascertain the nature of the transaction, concluding that it was a transfer for business restructuring, not a sale. The power plant remained dedicated to generating power for the steel mill, akin to the scenario in the Supreme Court case referenced by the appellants.5. Another critical issue was the availability of Modvat credit for capital goods used outside the factory premises. The Tribunal considered precedents and Supreme Court rulings, emphasizing that the mere location of capital goods outside the factory did not preclude eligibility for Modvat credit, especially when intended for manufacturing purposes.6. Ultimately, the Tribunal found the impugned order unsustainable, setting it aside and allowing the appeals with consequential relief for the appellants. The decision highlighted the importance of understanding the true nature of transactions and interpreting Modvat credit provisions in line with established legal principles and precedents.