2019 (12) TMI 527 - AT - Central Excise

Tribunal sets aside demands & penalties on Cenvat credit, iron articles, waste clearance duty.

The Tribunal allowed the appeal, setting aside the demands and penalties on all four issues regarding the admissibility of Cenvat credit on capital goods ... CENVAT Credit - capital goods installed within the CPP - electricity generated from such capital goods was captively consumed for the manufacture of dutiable final products - applicability of Rule 6 of the CCR - Circular dt. 23 December 2013 - HELD THAT:- The electricity generated using the capital goods, in that case, acquires the nature of an intermediate product and even if such intermediate product is exempt from excise duty, Cenvat credit on the capital goods cannot be denied in terms of para 3 of the Board Circular dated 25 September 2002 - credit allowed. CENVAT Credit - input services used in the Captive Power Plant - Rule 6(5) of the CCR - CBEC Circular Nos. 137/203/2007 dt. 1 October 2007 and 868/6/2008-CX dt. 9 May 2008 - HELD THAT:- The Board at para 2 of its Circular dated 1 October 2017 has clarified that the purpose of identifying the 17 specified services for special dispensation is these services are similar in nature to capital goods, that cannot be apportioned for maintaining separate records. Since these input services were undisputedly used in the manufacture of electricity further used, inter alia, in the manufacture of dutiable goods within the factory premises, it cannot be said that such services were exclusively used in the manufacture of exempted goods - the treatment to these services in so far as credit is concerned can be no different than capital goods - credit allowed. CENVAT Credit - iron and steel articles used for repair and maintenance of capital Goods - time limitation - HELD THAT:- Having audited the records for the relevant period earlier and accepted the orders dropping the demand raised during the said period, full facts were within the knowledge of the department and Revenue now cannot claim suppression on the part of the Appellant while issuing the subsequent Notice dated 30 April 2014, with which we are concerned in the present proceedings, to justify invocation of extended period of limitation. The Commissioner misdirected himself in negating the challenge to invocation of extended period on the ground that the same set of invoices were not covered by the earlier proceedings - the demand on this count is set aside being barred by limitation. Scope of SCN - CENVAT Credit - clearance/Sale of scrap and waste - Rule 3(5) of the CCR - HELD THAT:- The Commissioner has clearly travelled beyond the Notice in so far as he holds that even if it is assumed that sold waste and scrap were not capital goods and the provision of Rule 3(5A) was not applicable still the Appellant was liable to pay duty under Section 11A of the Central Excise Act. In the absence of any allegation in the Notice that such waste and scrap was the result of the manufacturing process, the demand for central excise duty could not sustain - demand set aside. Appeal allowed - decided in favor of appellant. Issues Involved:1. Admissibility of Cenvat credit on capital goods used in the Captive Power Plant (CPP).2. Availability of Cenvat credit on input services used in the CPP.3. Eligibility of Cenvat credit on iron and steel articles used for repair and maintenance of plant and machinery.4. Liability to pay duty on the clearance of waste and scrap under Rule 3(5A) of the Cenvat Credit Rules (CCR).Detailed Analysis:First Issue – Cenvat Credit on Capital Goods in CPP:The Appellant contended that capital goods used in the CPP, which generated electricity for both internal use in manufacturing dutiable goods (Sugar and Molasses) and for wheeling out to the Bihar State Electricity Board, should not be considered as exclusively used for exempted goods. The Tribunal noted that the electricity generated was used within the factory premises for manufacturing dutiable goods, thus the capital goods could not be said to be exclusively used for exempted goods. The Tribunal referenced the Board Circular dated 25 September 2002 and the decision in HEG Ltd., which supported the view that capital goods used in generating electricity for dutiable goods cannot be denied Cenvat credit. Consequently, the Tribunal allowed the credit on capital goods used in the CPP.Second Issue – Cenvat Credit on Input Services in CPP:The Appellant argued that input services covered by Rule 6(5) of the CCR, which were used in the generation of electricity within the CPP, should be eligible for Cenvat credit as they were not exclusively used for exempted goods. The Tribunal agreed, noting that these services were used in the manufacture of electricity, which was further used in manufacturing dutiable goods. The Tribunal referenced the Board Circular dated 1 October 2017 and the Indo Rama Synthetics case, concluding that the input services could not be considered as exclusively used for exempted goods. Hence, the Tribunal allowed the credit on input services used in the CPP.Third Issue – Cenvat Credit on Iron and Steel Articles:The Appellant claimed that iron and steel articles used for repair and maintenance of capital goods should qualify for Cenvat credit. The Tribunal noted that similar demands for earlier periods had been dropped by the Adjudicating Authority and the Appellate Commissioner, and these decisions were not appealed against. The Tribunal found that the department had full knowledge of the facts from earlier audits and could not claim suppression to justify the extended period of limitation. Consequently, the Tribunal dropped the demand on this count as barred by limitation, following the decision in Nizam Sugar Factory. The Tribunal refrained from examining the merits further.Fourth Issue – Duty on Clearance of Waste and Scrap:The Appellant argued that no capital goods were cleared as waste and scrap during the relevant period, and the waste and scrap were not from capital goods. The Tribunal agreed, noting that the affidavit from the Chief General Manager and the evidence provided did not indicate that the scrap was from capital goods. The Tribunal found that the Commissioner had overstepped by holding that duty was payable under Section 11A of the Central Excise Act without any allegation in the Notice. The Tribunal referenced the UP State Sugar case, concluding that the demand for central excise duty on waste and scrap could not sustain. Thus, the Tribunal set aside the demand on this issue.Conclusion:The Tribunal allowed the appeal, setting aside the demands and penalties on all four issues. The order was pronounced in the open court on 11 December 2019.