2015 (2) TMI 835 - HC - Central Excise

High Court allows Modvat credit on capital goods used in mines, emphasizes integration with factory

M/s. The India Cements Ltd. Versus The Customs, Excise & Service Tax Appellate Tribunal

The High Court set aside the orders denying Modvat credit on capital goods used in captive mines, remanding the matter for reconsideration in line with ... Modvat credit on capital goods used in captive mines - Captive mines/ Integrated mines or other mines - Held that:- The Apex Court in Vikram Cement case [2006 (2) TMI 1 - Supreme court], in para-5 of the said judgment, observed that for availing Modvat credit on capital goods, if the mines are captive mines, they constitute one integrated unit together with the concerned cement factory. Therefore, Modvat/Cenvat credit on capital goods will be available to the assessee so long as the goods are used by the assessee. However, where the goods are supplied to other cement companies of different assessees, the credit is not available. The abovesaid view of the Supreme Court was reiterated in a subsequent decision in the case of Madras Cements Ltd. [2010 (7) TMI 179 - SUPREME COURT]. In view of the above law laid down by the Supreme Court, the question of fact as to whether the capital goods were utilised in the own factory or in an integrated mine of the assessee or in other mines is the core issue to be decided. From a perusal of the order passed by the Tribunal, it is evident that the Tribunal has not gone into the issue whether the capital goods were utilised in the own factory of the assessee or in an integrated mine of the assessee or in other mines. That being the core issue, there being no finding on the said aspect by the Tribunal, the orders of the Tribunal in disallowing credit on capital goods to the assessee cannot be sustained. Therefore, this Court, without going into the questions of law as raised by the appellant, is inclined to set aside the said orders and remand the matters back to the Original Authority for reconsideration. Decided in favour of appellant. Issues:- Denial of modvat credit on capital goods used in captive mines- Applicability of certain judgments in the caseAnalysis:1. The appellant, engaged in cement manufacturing, availed Modvat credit on capital goods used in captive mines. A show cause notice was issued seeking to deny credit on goods used outside the factory. The Deputy Commissioner confirmed the demand and imposed a penalty.2. The Commissioner (Appeals) reversed the order, allowing the credit. However, the Revenue appealed to the Tribunal, which relied on the Jaypee Rewa Cements case to deny the credit for goods used in off-factory mines.3. The appellant argued citing the Vikram Cement cases that Rule 57A does not require goods to be used within factory premises for credit eligibility. The Supreme Court in the Vikram Cement cases emphasized that credit is available if mines are part of an integrated unit with the factory.4. The High Court noted that the Tribunal did not determine if the capital goods were used in the appellant's factory or integrated mine, a crucial aspect. Therefore, the orders disallowing the credit were set aside, and the matter was remanded for reconsideration in line with the Vikram Cement cases and Madras Cements Ltd. case.5. The High Court disposed of the appeals, remanding the matters back to the Original Authorities for a fresh decision based on the Supreme Court precedents. No costs were awarded in the circumstances.