2010 (4) TMI 133 - AT - Central Excise

2009 amendment not retrospective; CENVAT credit disallowed for cement and structural steel; Section 37(1) limits rule power

Vandana Global Ltd. Versus CCE

CESTAT held the 7.9.2009 amendment clarified the scope of 'input' and was not retrospective, so it cannot be read to permit CENVAT credit for periods ... Cenvat Credit - levy and collection of excise duty - definitions of 'capital goods' and 'input' - definition of input could be considered as input under the legal provisions in force before the amendment of 7.7.2009 - Can the amendment of 7.7.2009 be considered to be retrospective? - HELD THAT:- We find that the aforecited amending Notification No. 22/09-CE (NT) dated 7.9.2009 was issued as a part of the Budget proposals of the Finance Minister. The said notification along with other Budget notifications, the Finance (No.2) Bill, 2009 and the accompanying Memorandum explaining the provisions in the Finance (No. 2) Bill, 2009 (popularly known as the 'Pink Book' because of its colour, which has remained the same over several decades) were laid on the Table of the Parliament. It is evident that the intention behind the 2009 amendment to Explanation 2 to Rule 2(k) was merely to clarify the coverage under the expression 'input' used in the CENVAT Credit Rules, 2004. There was no indication whatsoever that the 2009 amendment was made to change the scope of the Rules or to introduce any new provision. The argument that the rule making authority had used the general rule making power under Section 37(1) of the Central Excise Act, 1944 to extend CENVAT credit in respect of the impugned items to carry out the general purpose of the Act must be dispelled. When it is clear from the Explanatory Memorandum etc. that the Government never intended to allow CENVAT credit on the impugned items, it cannot be argued that the Government had used its general powers under Section 37(1), in excess of the specific powers under Section 37(2)(xvia) to grant such credit for the earlier period prior to the amendment. We, therefore, have no hesitation in discarding such a proposition that powers under Section 37(1) was used to grant credit in respect of goods for which credit cannot be otherwise allowed under specific powers under Section 37(2)(xvia). The Parliament has not authorized credit of input tax paid on all goods and services purchased by an assessee as all his output may not be taxable. Under the scheme of excise law, the power to grant credit of excise duty paid on goods by a manufacturer is limited and is governed by the rule making power under Section 37(2)(xvia). Hence, we answer the questions referred to the Larger Bench as follows:- (a) The term 'capital goods' has been defined in the CENVAT Credit Rules, which in turn have been framed under the rule making powers conferred under Section 37(2) of the Act. The said Section refers to credit of duty paid on goods used in, or in relation to the manufacture of excisable goods. Hence, 'capital goods' defined in the CENVAT Credit Rules in the context of providing credit of duty paid, have to be excisable goods. Whether a particular plant or structure embedded to earth can be considered as excisable goods or not has to be determined in the light of the decisions of the Hon'ble Supreme Court on the issue, which is no longer res integra. (b) Goods like cement and steel items used for laying 'foundation' and for building 'supporting structures' cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules for the impugned period. In respect of one appeal under reference, the learned counsel has argued that the impugned steel items have been used not for building supporting structures but for fabricating parts of machinery. This argument has to be examined by the jurisdictional Bench in the light of the facts of that case. Thus, we also hold that the view taken by the Division Bench in the case of Bhushan Steel and Strips Ltd. [2007 (12) TMI 49 - CESTAT, MUMBAI] is not the correct view in law. The individual appeals under reference are directed to be returned to the jurisdictional Benches for final hearing and disposal. Issues Involved:1. Whether the term 'capital goods' can include plant, structures embedded to earthRs.2. Whether goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures can be treated as 'inputs' in relation to their final products or as inputs for capital goodsRs.3. Whether credit can be allowed in respect of goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures and plantRs.Detailed Analysis:Issue 1: Whether the term 'capital goods' can include plant, structures embedded to earthRs.The Tribunal examined whether structures embedded to earth can be considered 'capital goods.' The definition of 'capital goods' under the CENVAT Credit Rules includes machinery items, components, spares, accessories, and certain specifically listed items like pollution control equipment, moulds, dies, refractories, tubes, pipes, and storage tanks. The Tribunal concluded that foundations and supporting structures embedded to earth may be categorized as capital assets but do not qualify as 'capital goods' under the CENVAT Credit Rules. The Tribunal emphasized that the definition of 'capital goods' must be adhered to strictly and cannot be expanded to include structures embedded to earth.Issue 2: Whether goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures can be treated as 'inputs' in relation to their final products or as inputs for capital goodsRs.The Tribunal considered whether steel items used for laying foundations and building supporting structures could be treated as inputs. The Tribunal concluded that these items cannot be treated as inputs for capital goods or final products. The main definition of 'input' under Rule 2(k) includes goods used in or in relation to the manufacture of final products, but the Tribunal clarified that this does not extend to goods used for laying foundations or building supporting structures. The Tribunal also rejected the argument that the value of these items contributes to the value of the final product, thereby entitling them to credit.Issue 3: Whether credit can be allowed in respect of goods like angles, joists, beams, channels, bars, flats used in fabrication of such structures and plantRs.The Tribunal examined whether credit could be allowed for steel items used in the fabrication of structures and plants embedded to earth. The Tribunal concluded that such structures and plants, being immovable property, are not 'goods' and therefore cannot be considered either as excisable goods or capital goods under the Central Excise Rules or the CENVAT Credit Rules. The Tribunal emphasized that the CENVAT scheme is designed to grant credit for excisable goods used in the manufacture of final products and not for immovable property.Conclusion:The Tribunal concluded that structures embedded to earth cannot be considered 'capital goods,' and goods like angles, joists, beams, channels, bars, flats used in the fabrication of such structures cannot be treated as inputs for capital goods or final products. Consequently, no credit of duty paid on these items can be allowed under the CENVAT Credit Rules for the impugned period. The Tribunal also held that the view taken by the Division Bench in the case of Bhushan Steel and Strips Ltd. was not correct in law. The individual appeals were directed to be returned to the jurisdictional Benches for final hearing and disposal.