2023 (8) TMI 696 - AT - Central Excise

Tribunal allows appeal on cenvat credit for storage tanks, citing High Court rulings

The Tribunal allowed the appeal regarding the admissibility of cenvat credit on inputs used in the fabrication of storage tanks, citing previous judgments ... Wrongful availment of CENVAT Credit - Central Excise Tariff Act, 1985. A show-cause notice for the period April 2010 to June 2012 was issued to them alleging that they have wrongly availed and utilized cenvat credit on MS Plates, HR Plates, Steel Plates etc. which are used for the fabrication of huge storage tanks - period April 2010 to June 2012 - HELD THAT:- The issue is no more res integra and decided by the jurisdictional High Court in the case of COMMISSIONER OF C. EX., MYSORE VERSUS ICL SUGARS LTD. [2011 (4) TMI 1065 - KARNATAKA HIGH COURT] where it was held that assessing authority has himself extended the benefit to storage tank storing water as a component to main machinery namely, boiler, he ought to have extended the benefit to the storage tanks which are also part of the factory premises, in which the bye-products are stored and thereafter sold as a finished product, no justification to interfere with the orders passed by appellate authority. The said principle was later followed by the Hon’ble High Court in the case of SLR Steels Ltd. [2012 (9) TMI 169 - KARNATAKA HIGH COURT] and Hindalco Industries Ltd. [2012 (11) TMI 201 - KARNATAKA HIGH COURT] - demand set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit is admissible on inputs (MS plates, HR plates, steel plates, beams, tubes, pipes and fittings) used in the fabrication/installation of large storage tanks located within the manufacturing premises for the period April 2010 to June 2012. 2. Whether the adjudicating authority rightly treated such credit as irregular under Rule 3(1) of the Cenvat Credit Rules and lawfully demanded the credit with interest and penalty, invoking extended period of limitation. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of CENVAT credit on inputs used in fabrication of storage tanks Legal framework: The question turns on interpretation of the Cenvat provisions relating to admissibility of credit on inputs and the scope of 'capital goods' (and related definitions and notifications) under the Cenvat Credit Rules as prevalent for the period under consideration. Rule 3(1) (as cited) governs availment and utilization of credit on inputs. Precedent treatment: The Tribunal relied on a line of High Court decisions which examined whether components used in construction of storage tanks, though not expressly described as 'capital goods' in earlier definitions, fall within the benefit of credit. The authorities followed by the Court held that inputs used in construction of storage tanks are entitled to credit; those High Court decisions were followed rather than distinguished or overruled. Interpretation and reasoning: The Court observed that even where the definition of capital goods did not expressly include 'storage tank' for periods anterior to a later clarificatory notification, the definition nevertheless included tubes, pipes and fittings used in the factory and treated storage tanks as components related to main machinery (e.g., boiler) or incidental to the manufacturing process. The Court treated the later notification expressly inserting 'storage tank' into the definition as clarificatory of the earlier position rather than creating a new entitlement. The Tribunal reasoned that where storage tanks (and their component inputs) are integral to manufacture or related to the machinery used in manufacture, the inputs used in their fabrication are admissible for CENVAT credit. The Court relied on the ratio in earlier High Court decisions to extend the benefit to inputs used for fabrication/installation of storage tanks situated within the manufacturing premises during the relevant period. Ratio vs. Obiter: The holding that inputs used in fabrication of storage tanks installed in the manufacturing premises are entitled to CENVAT credit constitutes the ratio decidendi as applied to the facts; the discussion of the 2001 notification as clarificatory and of the nature of storage tanks as components of main machinery forms part of the core reasoning supporting the ratio. Any ancillary observations about by-products (as referenced in the cited High Court reasoning) are incidental to the principal ratio. Conclusions: The Tribunal concluded that CENVAT credit on MS plates, HR plates, steel plates, beams, tubes, pipes and fittings used in fabrication of storage tanks within the manufacturing premises for the period in question is admissible. The impugned disallowance of such credit was set aside following the precedent line of the jurisdictional High Court and other High Courts. Issue 2: Validity of demand with interest, penalty and invocation of extended period of limitation Legal framework: The law permits recovery of incorrectly availed credit with interest and, where applicable, penalty; invocation of extended limitation requires satisfaction of concealment or suppression of facts warranting extended period. Precedent treatment: The Tribunal applied High Court precedent holding entitlement to credit on inputs used in storage tanks; as the credit was held admissible, the basis for demand (irregular availment) collapses. The Tribunal did not engage in extended factual inquiry into concealment for limitation, because the primary legal impediment (entitlement to credit) was resolved in favour of the assessee by binding precedent. Interpretation and reasoning: Because the inputs were held admissible for CENVAT credit, the foundational premise for the demand (that credit was wrongly availed) no longer subsists. The Tribunal noted that the assessees had been filing periodical returns and that credit taken was reflected therein; in that factual matrix and in light of the legal entitlement recognized by higher courts, there was no sustaining basis for the demand, interest and penalty predicated on irregular credit. The Court therefore did not uphold the adjudicating authority's demand or penalties. Ratio vs. Obiter: The determination that the demand and penalties could not be sustained in view of the entitlement to credit is part of the operative ratio. Any observations regarding limitation and concealment (e.g., returns filed, lack of suppression) are supportive but not separately decisive once entitlement is established. Conclusions: The demand for Rs. 2,83,73,710/- as CENVAT credit, with interest and penalty and invocation of extended limitation, was unsustainable and set aside. The appeal was allowed and consequential reliefs granted as per law. Cross-references and consolidation The Tribunal's conclusion on admissibility (Issue 1) directly controls the outcome on validity of demand, interest and penalty (Issue 2); because the entitlement to credit is established by controlling High Court authority and followed by the Tribunal, subsequent demands premised on disallowance of that credit cannot be sustained. The Tribunal expressly followed the ratio of the cited High Court decisions rather than distinguishing them.