2018 (5) TMI 305 - HC - Central Excise

Capital goods classification: earth embedded structures and foundation materials are not automatically capital goods; amendment not retrospective.

Capital goods do not automatically include structures embedded in earth; classification depends on whether the structure qualifies as excisable goods ... Capital goods - inputs - CENVAT Credit Rules - retrospective effect of amendments - rule making power under Section 37 of the Central Excise Act, 1944Capital goods - CENVAT Credit Rules - The term 'capital goods' does not exclude plant or structures merely because they are embedded to earth for the purposes of CENVAT credit. - HELD THAT: - The Court accepted the Tribunal's formulation that 'capital goods' as defined under the CENVAT Credit Rules must be understood in the context of credit of duty paid on goods used in, or in relation to, the manufacture of excisable goods. Whether a particular plant or structure embedded to earth qualifies as excisable goods depends on established authorities of the Supreme Court; that legal framework governs the classification of such items as capital goods for CENVAT purposes. The Court endorsed the reasoning that the definition in the Rules must be applied in light of excisability and existing judicial precedents.Answered in favour of the assessees: structures embedded to earth are not ipso facto excluded from the meaning of 'capital goods' under the CENVAT Credit Rules.Inputs - CENVAT Credit Rules - Goods such as angles, joists, beams, channels, bars and flats used in fabrication of foundations or supporting structures cannot be treated as 'inputs' for capital goods (or as inputs in relation to final products) for the impugned period, and credit cannot be allowed under the CENVAT Credit Rules for those goods. - HELD THAT: - The Tribunal held, and this Court accepted, that materials used for laying foundations and building supporting structures serve a distinct purpose and are not to be treated as inputs to capital goods or inputs in relation to the final excisable product for the relevant period. On that basis the Court concluded that the CENVAT credit on such items could not be allowed for the period under challenge, adopting the Tribunal's interpretation of the Rules as applied to those categories of goods.Answered in favour of the assessees: credit of duty paid on such construction and structural materials cannot be allowed under the CENVAT Credit Rules for the impugned period.Retrospective effect of amendments - CENVAT Credit Rules - rule making power under Section 37 of the Central Excise Act, 1944 - The amendment to the CENVAT Credit Rules effected by the CENVAT (Amendment) Rules, 2009 is not clarificatory and therefore is not to be given retrospective effect to cover matters arising before 07.07.2009. - HELD THAT: - The Court followed the reasoning in earlier High Court decisions that an amendment will not be treated as clarificatory in the absence of a clear legislative indication to that effect in the amending notification. Although Section 37 confers rule-making power and includes a power to give retrospective effect in specified contexts, neither the statutory power nor the impugned amendment itself rendered the 2009 amendment clarificatory. Consequently the amendment operates prospectively from its commencement on 07.07.2009 and cannot be applied to alter rights or liabilities arising before that date.Answered in favour of the assessees: the 2009 amendment is not clarificatory and does not apply retrospectively to matters before 07.07.2009.Final Conclusion: The appeals of the assessees are allowed and the Tribunal's impugned decision is set aside; the Revenue's appeals are dismissed. No order as to costs. Issues: (i) Whether the term 'capital goods' excludes structures embedded in earth; (ii) Whether items such as angles, joists, beams, bars, plates used in fabrication of such structures qualify as 'inputs' in relation to final products or as inputs for capital goods; (iii) Whether Rule 2 of the CENVAT (Amendment) Rules, 2009 is clarificatory and therefore retrospective in effect for matters arising before 07.07.2009.Issue (i): Whether the term 'capital goods' excludes structures embedded in earth.Analysis: The definition of 'capital goods' arises under the CENVAT Credit Rules framed under Section 37 of the Central Excise Act, 1944, which limits credit to duty paid on goods used in or in relation to manufacture of excisable goods. The characterisation of a plant or structure as excisable goods requires application of the established legal tests and precedent; the question whether an earth-embedded structure amounts to excisable goods is determined by those principles rather than by a blanket inclusion within 'capital goods'.Conclusion: It is concluded that 'capital goods' does not, as a matter of automatic inclusion, encompass structures embedded in earth where such structures cannot be characterised as excisable goods; the issue is decided in favour of the assessee.Issue (ii): Whether items like angles, joists, beams, bars, plates used in fabrication of such structures qualify as 'inputs' as inputs for capital goods or in relation to final products.Analysis: The CENVAT Credit Rules permit credit for inputs used in or in relation to manufacture of excisable goods. Where goods such as steel items and cement are employed for laying foundations or building supporting structures that do not qualify as capital goods or excisable goods, they cannot be treated as inputs in relation to capital goods or final excisable products for the purpose of cenvat credit. The applicable legal framework and authorities on the nature of inputs and capital goods govern this classification.Conclusion: Such items used for foundations and supporting structures are not to be treated as inputs for capital goods or as inputs in relation to final excisable products; the issue is decided in favour of the assessee.Issue (iii): Whether Rule 2 of the CENVAT (Amendment) Rules, 2009 is clarificatory and retrospective to matters arising before 07.07.2009.Analysis: Rule-making power under Section 37(2) of the Central Excise Act, 1944 includes limited power to give retrospective effect in specified circumstances, but an amendment will be treated as clarificatory and retrospective only where the legislative instrument or accompanying notification explicitly indicates an intention to clarify existing law. Absent clear legislative indication, an amendment introducing new provision or explanation operates prospectively. Precedents addressing identical amendments support treating the 2009 amendment as not clarificatory.Conclusion: Rule 2 of the CENVAT (Amendment) Rules, 2009 is not clarificatory and does not have retrospective effect; the issue is decided in favour of the assessee.Final Conclusion: The appeals filed by the assessees are allowed and the Tribunal's contrary decision is set aside; the appeals filed by the Revenue are dismissed.Ratio Decidendi: An amendment to the CENVAT Credit Rules is not to be treated as clarificatory and given retrospective effect unless the amending instrument expressly indicates an intention to clarify the pre-existing law; classification of goods as capital goods or inputs depends on whether they are excisable goods within the statutory framework under Section 37 of the Central Excise Act, 1944.