2014 (3) TMI 311 - AT - Central Excise

Tribunal affirms CENVAT Credit eligibility for purchased plant structures

COMMISSIONER OF CENTRAL EXCISE Versus SONHIRA SSK LTD

COMMISSIONER OF CENTRAL EXCISE Versus SONHIRA SSK LTD - 2014 (306) E.L.T. 519 (Tri. - Mumbai) ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit is admissible on supporting structures supplied with a sugar plant when those structures were purchased as part of the plant rather than fabricated and permanently erected/embedded at the manufacturer's factory/site. 2. Whether items described as cane carrier, cane unloader, gantry girder assembly, centrifugal machinery, boiler, sugar mill, juice tank and sugar storage bins qualify as supporting structures excluded from CENVAT credit or as plant/machinery/components eligible for credit. 3. Whether earlier judicial pronouncements denying credit for materials used to fabricate and permanently affix supporting structures are binding and applicable where supporting structures were supplied as part of an integrated plant package. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of CENVAT credit on supporting structures supplied as part of plant Legal framework: CENVAT credit admissibility must be examined in light of the statutory scheme and Rule 57AA of the Central Excise Rules, 1944 which distinguishes capital goods and their components for purposes of credit. Administrative guidance (Board Circular) and established tests on whether an item becomes immovable by virtue of being embedded/erected are relevant. Precedent Treatment: A higher-court decision held that joints, channels, angles and MS beams purchased for fabrication and on-site erection of supporting structures that became embedded in the earth are not eligible for CENVAT credit. Conversely, tribunal authority has held that structures supplied as part of a plant package are eligible for credit. Interpretation and reasoning: The Court examined the factual distinction between (a) components bought to fabricate and erect supporting structures in situ (which become immovable and are treated differently for credit purposes) and (b) structures supplied as part of an integrated plant/machinery supply. Where supporting structures are purchased as integral parts of plant equipment supplied under contract (not fabricated and embedded at the purchaser's site), they retain character as part of plant/machinery and do not convert into immovable property by virtue of the supplier's supply. The Court relied on the agreement and factual matrix showing supply as part of the plant rather than separate erection of structures at site. Ratio vs. Obiter: The ratio is that supporting structures supplied as part of a plant package (not fabricated/embedded on site) qualify for CENVAT credit. Distinguishing the higher-court authority that denied credit for materials used to fabricate on-site supporting structures is a binding aspect of reasoning on facts but not an overruling of that precedent. Conclusion: CENVAT credit is admissible on supporting structures when they are purchased as part of the plant supply and not fabricated/erected so as to become immovable property at the purchaser's site; therefore credit in respect of such supplied supporting structures cannot be denied on that ground. Issue 2 - Characterisation of specific items as plant/machinery vs. supporting structures Legal framework: Eligibility for credit depends on the legal character of the goods (capital goods, components, parts of machinery) and whether they are integrated into taxable manufacturing operations or have become immovable property. Precedent Treatment: Tribunal authority has treated items that are part of plant/machinery supplied for a manufacturing unit as eligible for credit even if they perform a support or conveying function, distinguishing them from materials used solely to construct site-embedded civil/structural works. Interpretation and reasoning: The Tribunal examined the list of items for which credit was claimed and found that several-cane carrier, cane unloader, gantry girder assembly, centrifugal machinery, boiler, sugar mill, juice tank, sugar storage bins-are functional plant and machinery components rather than mere civil supporting structures. The factual record did not show these items were erected on site as embedded supporting structures; instead they were part of the plant package supplied. For items described as 'structure and part of sugar machinery and equipment,' there was no evidence they were supporting structures for on-site erection. Ratio vs. Obiter: The holding that the listed items are plant/machinery components eligible for CENVAT credit is the operative ratio as applied to the facts. Any general observations about borderline classifications are obiter to the extent they do not resolve the factual characterisation in this case. Conclusion: The listed items cannot be characterised as excluded supporting structures and are properly treated as plant/machinery/components eligible for CENVAT credit; denial of credit on that basis is unwarranted. Issue 3 - Applicability of prior decisions denying credit for on-site fabricated supporting structures Legal framework: Judicial precedents must be applied to cases with matching facts; factual distinctions permit distinguishing otherwise applicable authorities. Administrative circulars and tribunal decisions interpreting the statutory provisions inform application. Precedent Treatment: A higher-court decision denied credit where items were used to fabricate supporting structures that became immovable. Tribunal authority and an earlier circular have supported granting credit where structures were supplied as part of the plant. Interpretation and reasoning: The Court distinguished the higher-court precedent on the ground that in that precedent the materials were purchased to fabricate and erect structures embedded in the purchaser's premises, whereas in the present case the supporting structures were supplied by the plant vendor as part of the plant package. Because the factual matrix differs materially, the higher-court conclusion denying credit was not held to control the present matter. The Tribunal's earlier decision holding that supplied structures as part of plant qualify for credit was followed. Ratio vs. Obiter: Distinguishing the higher-court precedent is ratio to the extent it establishes that the denial of credit in that precedent does not extend to supplied plant components delivered as part of the plant package. The higher-court rule remains binding where its factual prerequisites are met. Conclusion: Prior decisions denying credit for materials used to fabricate and erect site-embedded supporting structures are inapplicable where supporting structures were supplied as integral parts of a plant; such precedents are distinguished rather than followed, and tribunal authority holding for credit in analogous supplier-supplied plant cases is followed. Final Disposition Applied to Present Case On the facts examined (supply of supporting structures as part of the sugar plant, absence of fabrication/erection resulting in embedded immovable property, and characterisation of several claimed items as plant/machinery), the Tribunal upheld the order allowing CENVAT credit. The appeal by revenue challenging the allowance of credit was dismissed.