2010 (6) TMI 202 - AT - Central Excise

Asset Transfer to Subsidiary Disqualifies Captive Status; Tribunal Cites Rule 6(3)(b) Compliance with Bombay HC in Nicholas Piramal Case.

STEEL AUTHORITY OF INDIA LTD. Versus COMMISSIONER OF C. EX., RAIPUR

STEEL AUTHORITY OF INDIA LTD. Versus COMMISSIONER OF C. EX., RAIPUR - 2010 (256) E.L.T. 737 (Tri. - LB), [2011] 32 STT 91 (New Delhi - CESTAT), 2011 (21) ... Issues Involved:1. Whether the power plant can be treated as a captive power plant despite the transfer of assets by way of sale to the newly formed company.2. Whether the transfer of goods to the newly formed subsidiary company should be treated as a sale or otherwise.3. Whether the provisions of Rule 6 (3)(b) of the Cenvat Credit Rules, 2002 are applicable.Detailed Analysis:Issue 1: Captive Power Plant Status Post-Asset Transfer- Background: The appellant, an integrated steel plant, had a captive power plant within its factory premises. Upon entering a joint venture with NTPC and forming a subsidiary (BESCL), the power plant's ownership was transferred to BESCL. Despite this, the power generated was primarily sold back to the appellant.- Arguments: The appellant argued that the power plant should still be considered captive, as it remained within the factory premises and continued to serve the same purpose. They relied on a previous decision involving their Rourkela plant, which held that such transfers were not sales but assignments.- Tribunal's View: The Tribunal expressed a prima facie view that once a new company is formed and assets are sold, the power plant cannot be considered captive. They noted a contrary finding in a previous case but were not in agreement with it.- Legal Precedents: The Tribunal referred to the Supreme Court's decision in Vikram Cement, which discussed the eligibility of Modvat/Cenvat credit for capital goods used in captive mines, suggesting that the power plant, post-transfer, might not qualify as captive.Issue 2: Treatment of Goods Transfer to Subsidiary- Background: The appellant transferred certain common inputs (lubricating oil, greases, chemicals) to BESCL, which used them to produce steam and electricity, primarily sold back to the appellant.- Arguments: The appellant contended that these transfers were not sales but internal assignments to ensure the subsidiary had sufficient resources. They cited a previous decision that similar transactions were not considered sales.- Tribunal's View: The Tribunal held a prima facie view that the goods transferred to the subsidiary should be treated as sales, given the formation of a new company and the transfer of assets.- Legal Precedents: The Tribunal noted previous decisions, including those involving Haldia Petrochemicals and Sanghi Industries, which held that capital goods located outside the factory premises but used for manufacturing purposes could still qualify for Modvat credit.Issue 3: Applicability of Rule 6 (3)(b) of Cenvat Credit Rules, 2002- Background: The appellant did not maintain separate accounts for inputs used in the manufacture of both dutiable and non-dutiable products. Upon investigation, they reversed the proportional credit for inputs used in exempted products.- Tribunal's View: The Tribunal noted that this issue had already been addressed by the Bombay High Court in Commissioner of Central Excise vs. Nicolas Piramal (India) Ltd., which held that Rule 6 (3)(b) applies when the proportional credit is reversed before the removal of exempted final products.- Legal Precedents: The Tribunal referred to the Nicholas Piramal case, which clarified the applicability of Rule 6 (3)(b) when proportional credit is reversed.Conclusion:The Tribunal returned the reference to the Division Bench, stating that the referral order lacked a reasoned disagreement with the previous decisions. They emphasized that references to a Larger Bench should be based on a thorough analysis and reasoned order, not merely on a prima facie view. The Tribunal underscored the importance of continuity, certainty, and predictability in judicial decisions, as highlighted by the Supreme Court in Union of India vs. Paras Laminates (P) Ltd. and Pradip Chandra Parija vs. Pramod Chandra Patnaik.