2025 (3) TMI 1340 - AT - Central Excise

Tribunal rules no reversal of CENVAT credit needed for mine development supplies under Rule 3(5) CENVAT Credit Rules.

M/s HINDUSTAN ZINC LTD. Versus Commissioner Central Goods & Service Tax, Udaipur (Rajasthan)

The Tribunal concluded that the appellant was not required to reverse the CENVAT credit on inputs and capital goods provided to contractors for mine ... Reversal of cenvat credit on inputs and capital goods such as explosives, detonators, lubricants, components, items, etc. provided on non-chargeable basis to contractors for mine development work/or production in terms of Rule 3(5) of Cenvat Credit Rules, 2004 - extended period of limitation - interest - penalty - HELD THAT:- Consistent views have been taken time and again not only by the Tribunal and the High Courts but also by the Apex Court that the judicial discipline and proprietary demands that the Adjudicating Authority or the Appellate Authority should follow the binding decisions of the Tribunal. The Apex Court in Union of India Vs. Kamlakshi Finance Corporation Ltd. [1991 (9) TMI 72 - SUPREME COURT] has categorically held that the order of the Tribunal is binding upon the Assistant Collector and the Appellate Collectors, who function under the jurisdiction of the Tribunal and they should be followed unreservedly by the subordinate authorities. It was further held that mere fact that the order of the Appellate Authority is not acceptable to the Department in itself is an objectionable phrase and is no ground for not following it unless the operation of the said order has been suspended by a competent court. The logic in holding so has been stated that if this rule is not followed, there will be undue harassment to the assesses and chaos in administration of the tax laws. The present case clearly reveals this, though not only one but four orders of the Tribunal and specially in the case of the appellant are on record on the same issue but the Authorities below have chosen not to follow. There is no sale and no removal of inputs and capital goods when the assessee supplied the same to the contractor, which was used for mine development activity and, therefore, the provisions of Rule 3(5) are not applicable. In the circumstances, the appellant was not required to reverse the credit availed in respect of the impugned items. Extended period of limitation - interest - penalty - HELD THAT:- Merely providing the inputs and capital goods to the contractor for use within the captive mines for mine development works of the appellant does not amount to removal and thereby, do not attract the provisions of Rule 3(5) of CCR. Since the issue has been decided on merits in favour of the appellant, the question of extended period of limitation, levy of interest and penalty does not survive. Conclusion - The appellant is not liable to reverse the CENVAT credit on the inputs and capital goods provided to contractors for mine development activities. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered was whether the appellant was required to reverse the CENVAT credit on inputs and capital goods such as explosives, detonators, lubricants, and other items provided on a non-chargeable basis to contractors for mine development work or production, under Rule 3(5) of the CENVAT Credit Rules, 2004 (CCR).ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework revolves around Rule 3(5) of the CENVAT Credit Rules, 2004, which pertains to the reversal of CENVAT credit when inputs or capital goods are removed as such from the factory premises. The Tribunal's previous decisions, including those in the cases of Hindustan Zinc Ltd., Bhilai Steel Plant, and Steel Authority of India Ltd., served as precedents. These decisions established that the supply of inputs and capital goods for use within the mining area does not constitute 'removal' under Rule 3(5).Court's Interpretation and ReasoningThe Tribunal emphasized that the issue was not novel and had been addressed in previous decisions, which consistently held that the supply of inputs and capital goods to contractors for use in mine development activities does not amount to removal. The Tribunal criticized the Adjudicating Authority and the Appellate Authority for not adhering to these binding decisions, highlighting the importance of judicial discipline and the need for lower authorities to follow higher judicial decisions.Key Evidence and FindingsThe Tribunal noted that the inputs and capital goods were consumed within the mining area and were not removed from the factory premises in a manner that would trigger the application of Rule 3(5). The Tribunal found that the appellant's actions did not constitute a sale or removal of goods, thus negating the requirement for CENVAT credit reversal.Application of Law to FactsThe Tribunal applied the legal principles established in previous cases to the facts at hand, concluding that the appellant's provision of inputs and capital goods to contractors for mine development within the captive mines did not equate to removal. Consequently, Rule 3(5) was deemed inapplicable, and the appellant was not required to reverse the CENVAT credit.Treatment of Competing ArgumentsThe Tribunal acknowledged the arguments presented by the Revenue but noted that the learned Authorised Representative conceded that the issue was covered by earlier decisions. The Tribunal highlighted the improper conduct of the Adjudicating Authority and the Appellate Authority in ignoring binding precedents, labeling such actions as contemptuous and contrary to judicial discipline.ConclusionsThe Tribunal concluded that the appellant was not required to reverse the CENVAT credit, as the supply of goods to contractors for use within the mining area did not constitute removal under Rule 3(5). The Tribunal set aside the impugned order, allowing the appeals.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Tribunal reiterated that 'judicial discipline and proprietary demands that the Adjudicating Authority or the Appellate Authority should follow the binding decisions of the Tribunal.' It emphasized that 'any act or decision, by an officer, lower in judicial hierarchy to the Tribunal... which is contrary to the law laid down by the Tribunal, is not only ex facie unsustainable, but is also contemptuous of the Tribunal.'Core Principles EstablishedThe Tribunal reinforced the principle that the supply of inputs and capital goods for use within a captive mining area does not amount to removal under Rule 3(5) of the CCR. It also underscored the necessity for lower authorities to adhere to binding judicial decisions to maintain consistency and avoid undue harassment of assessees.Final Determinations on Each IssueThe Tribunal determined that the appellant was not liable to reverse the CENVAT credit on the inputs and capital goods provided to contractors for mine development activities. The Tribunal set aside the impugned order and allowed the appeals, affirming that the provisions of Rule 3(5) were inapplicable in this context.