2015 (11) TMI 155 - SC - Central Excise

Supreme Court: Clarity on MODVAT/CENVAT credit for cement factories

The Supreme Court clarified that MODVAT/CENVAT credit on inputs like explosives and lubricating oils is allowed for a cement factory. Eligibility for ... Denial of MODVAT Credit - Capital goods - capital goods are used in such captive mine - capital goods used for construction of concrete structure and foundation - Held that:- Commissioner (Appeals) has not given any findings on the stand taken by the assessee that the mining area was a part of the factory premises as per the ground plan and the registration certificate. It is further discerned that if the mines from which the material is excavated and is used for manufacturing the final product by the assessee is captive mine and a part of the factory premises and the capital goods are used in such captive mine, then the assessee would be entitled to the MODVAT credit. - while making these comments, the CESTAT has erred inasmuch as even as in the show cause notice issued by the respondent-Department it was admitted that the goods are not in the nature of capital goods and these were used for construction of concrete structure and foundation on which the various heavy machineries in a cement plant was to be erected. - goods in question were captively used for the construction of the plant and had nothing to do with the mining which is accepted by the Department itself in the show cause notice. - Matter remanded back - Decided in favour of assessee. Issues:1. Interpretation of MODVAT/CENVAT credit on inputs and capital goods.2. Determining eligibility for MODVAT credit based on mines being captive or supplying to other companies.3. Reviewing CESTAT's decision to remand the case back to the Commissioner (Appeals).4. Analyzing the show cause notice's admission regarding the nature of goods used for construction.Analysis:1. The Supreme Court addressed the interpretation of MODVAT/CENVAT credit on inputs and capital goods in a case involving a cement factory. Referring to previous judgments, the Court clarified that credit on inputs like explosives and lubricating oils is allowed. Regarding capital goods, eligibility for credit depends on whether mines are captive to the factory or supply to other companies. If mines are captive and integrated with the factory, credit is available; otherwise, it is not. The Court emphasized the need for a clear determination on this issue by remanding cases to original authorities.2. The Court reviewed a case where the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) remitted the case back to the Commissioner (Appeals) for fresh adjudication. CESTAT cited a previous judgment stating that if the mining area is part of the factory premises and the capital goods are used in captive mines, the assessee is entitled to MODVAT credit. The Court noted the importance of establishing whether the mining area is part of the factory premises to determine eligibility for credit.3. The appellant argued that the goods in question were used for construction purposes, not mining, as acknowledged in the show cause notice by the Department. The Court agreed with the appellant's contention, stating that based on admitted facts, the appellant was not liable to pay any duty. Consequently, the Court set aside CESTAT's decision to remand the case, as the principle from previous judgments indicated no duty liability for the appellant.4. The Court's analysis focused on the show cause notice's admission regarding the nature of goods used for construction, supporting the appellant's argument that the goods were not related to mining activities. By applying the principles established in previous cases, the Court concluded that the appellant was not obligated to pay duty. This led to the Court overturning CESTAT's decision and allowing the appeals in favor of the appellant.