2023 (5) TMI 236 - AT - Central Excise

Appellant entitled to credit for duty on capital goods used in refinery construction.

Bharat Petroleum Corporation Ltd Versus Commissioner of Central Excise, Kochi

The tribunal held that the appellant was entitled to avail credit of duty discharged on capital goods used in the erection of the oxygen plant and boiler ... Eligibility to avail credit of duties of central excise - components and parts cleared to the appellant for erection and commissioning of ‘capital goods’ in the refinery of the appellant at Ambalamugal, Kochi - HELD THAT:- The decision of the Hon’ble Supreme Court, in CCE, INDORE VERSUS VIRDI BROTHERS & ORS. [2006 (12) TMI 3 - SUPREME COURT] and continuing the stand in several others in disputes on excisability of equipment, assembled on-site for embedding in the earth, under Central Excise Act, 1944, has held such, being immoveable property, to be excluded from the ambit of ‘goods’ intended by section 3 of Central Excise Act, 1944 and, therefore, not amounting to manufacture. The circular cited in the orders of the lower authorities, and referred to by Learned Authorized Representative, also issued under section 37B of Central Excise Act, 1944 identifies facets of manufacture of goods that crystallize duty liability under Central Excise Act, 1944; it does not address anything beyond uniformity of approach, in the light of judicial exclusion of activity as manufacture, to dutiability of on-site erection and certainly not to the scheme of CENVAT credit in such situations. The context of the cited decision and the circulars is, thus, limited to dutiability of such assembled equipment. There is no allegation that the goods procured for the erection of the oxygen plant and the boiler at the refinery of the appellant have not been subjected to duties of central excise or that they were not utilized in the erection of ‘capital goods’ to be used for manufacture of excisable goods. Intuitively, eligibility for taking credit of duty liability discharged on these goods received in the factory is not to be denied. The error that lower authorities have fallen into is in entertaining the conviction that ‘capital goods’ has a connotation which, upon ‘embedding in the earth’, is excluded from the ambit of Central Excise Act, 1944. Indeed, the statute, concerned with taxability on ‘manufacture’ of ‘goods’, does not acknowledge ‘capital goods’ at all and it is common knowledge that ‘capital’, as appellation, has more to do with accounting treatment than manufacture - As duty discharged on ‘capital goods’, in the manner defined for the purposes of CENVAT Credit Rules, 2004, is entitled to be availed as credit, and as it is not ‘capital goods’ in the form conceptualized by the lower authorities that is required to have discharged duty liability to be eligible but the parts thereof deployed for such assembly and installation, there is no valid ground for recovery of such credit. The notice has not made any other proposition for ineligibility to avail such credit - the impugned order does not sustain - Appeal allowed. Issues Involved:1. Eligibility to avail credit of duties of central excise for capital goods embedded in the earth.2. Interpretation of CENVAT Credit Rules, 2002/2004 regarding capital goods.3. Applicability of judicial decisions and circulars on excisability of capital goods.Summary:1. Eligibility to Avail Credit of Duties of Central Excise for Capital Goods Embedded in the Earth:The central excise authorities alleged that capital goods, once embedded into the earth, are immunized from excisability and beyond the ambit of CENVAT Credit Rules, 2002/2004. The appellant contended that such goods, being unquestionably capital goods used in the factory of manufacture, should be eligible for credit under the rules. The tribunal noted that there was no allegation that the goods procured were not subjected to duties of central excise or not utilized in the erection of capital goods for manufacturing excisable goods.2. Interpretation of CENVAT Credit Rules, 2002/2004 Regarding Capital Goods:The tribunal emphasized that the CENVAT Credit Rules, 2004, define capital goods broadly to include components, spares, and accessories used in the manufacture of excisable goods. The lower authorities erred in their conviction that capital goods embedded in the earth are excluded from the ambit of the Central Excise Act, 1944. The tribunal clarified that the scheme of CENVAT credit aims to neutralize the duty on goods procured for manufacturing excisable goods, whether they are capital goods or inputs.3. Applicability of Judicial Decisions and Circulars on Excisability of Capital Goods:The tribunal observed that the decision of the Hon'ble Supreme Court in Virdi Brothers and other cases pertained to the excisability of equipment assembled on-site and embedded in the earth, which was deemed immovable property and excluded from the definition of goods under the Central Excise Act, 1944. However, these decisions and circulars did not address the scheme of CENVAT credit. The tribunal relied on the decision in JSW Ispat Steel Ltd, which held that capital goods credit should be allowed on machinery, equipment, and components assembled at the site for manufacturing purposes.Conclusion:The tribunal concluded that the appellant was entitled to avail credit of duty discharged on capital goods used in the erection of the oxygen plant and boiler at the refinery. The impugned order denying such credit was set aside, and the appeals were allowed. The tribunal highlighted that the purpose of allowing capital goods credit is to relieve the burden of the cascading effect of taxes, and the law should be interpreted reasonably to achieve this objective.