AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (11) TMI 782
X X X X Extracts X X X X
X X X X Extracts X X X X
....terest under Section 11AB of the Central Excise Act, 1944. (c) Penalty of Rs. 6,79,61,303/- under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. 2. The appellants have also filed a miscellaneous application for placing additional evidence on record under Rule 23 of the CESTAT (Procedure) Rules, 1982. 3. The application for bringing additional evidence on record is admitted, as the evidence produced by the appellants were available at the time of adjudication and are very much relevant for arriving at the correct conclusion in the matter. 4. M/s. JSW Power Ltd. ('JSWPL' - in short) filed an appeal against imposing of penalty of Rs. 5,00,00,000/- under Rule 26 of the Central Excise Rules, 2002 read with Rule 15 of the Cenvat Credit Rules, 2004. 5. As both the appeals have arisen from a common order and the facts are similar, therefore, both the appeals are heard together and disposed of by a common order. 6. The facts of the case are that the main appellants M/s. JSWSL are having an integrated steel plant with facilities for production of 'pig iron', 'steel billet', 'bar', 'rod....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re period is Rs. 6,79,61,303/- is on the following grounds :- (a) The capital goods have not been received by M/s. SISCOL in its premises as the land where these capital goods were received was leased out to M/s. JSWPL and the 'CPP' was not in the possession of M/s. SISCOL to take credit; (b) Rule 4 of the Cenvat Credit Rules, 2004 requires that goods should be received within the factory to take credit. The real manufacturer is only M/s. JSWPL and as the land is leased out, the owners of the land is M/s. JSWPL and not M/s. SISCOL; and (c) Possession of capital goods was with M/s. JSWPL and not with M/S. SISCOL. 11. The adjudication took place and a detailed order was passed confirming the demand of Rs. 6,79,61,303/- towards wrong credit availed by M/s. SISCOL and Rs. 6,79,61,303/- towards excise duty as M/s. SISCOL has utilised the credit for the payment of excise duty and equivalent amount of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC on the ground that M/s. SISCOL has suppressed the fact of existence of lease agreement with M/s. JSWPL and hence has suppressed fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 (79) RLT 333 (CESTAT-Del.) = 2007 (219) E.L.T. 960 (Tribunal); (ix) M/s. Sanghi Industries Ltd. v. Commissioner of Central Excise, Rajkot reported in 2006 (76) RLT 132 (CESTAT-Del.) = 2006 (206) E.L.T. 575 (Tri.-Del.); (x) M/s. Coromandel Fertilisers Ltd. v. Commissioner of Customs & Central Excise, Visakhapatnam reported in 2007-TIOL-09-CESTAT-BANG; (xi) Collector of Central Excise v. M/s. Solaris Chemtech Ltd. reported in 2007 (214) E.L.T. 481 (S.C.); (xii) M/s. Finolex Industries Ltd. v. Commissioner of Central Excise, Pune-II reported in 2003 (156) E.L.T. 96 (Tri.-Mumbai); (xiii) M/s. Chemplast Sanmar Ltd. v. Commissioner of Central Excise, Coimbatore reported in 2004 (177) E.L.T. 446 (Tri.-Chennai); and (xiv) M/s. Gujarat Ambuja Cements Ltd. v. Commissioner of Central Excise, Chandigarh reported in 2001 (130) E.L.T. 129. 16. On the other hand, Shri Alok Shukla, learned JCDR, who appeared on behalf of the Revenue, supported the impugned order and drew our attention to the impugned order. He relied on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....counter this allegation of the appellants submitted that these capital goods are installed in their factory as defined in Section 2(e) of the Central Excise Act, 1944, which is reproduced herein below :- Factory means "any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on." 21. In this case, the further dispute is that whether the land on which these capital goods installed are part of the factory or not. 22. In this regard, the learned counsel for the appellants relied on the decision of Vikram Cement (supra), wherein the Hon'ble Apex Court has held that MODVAT/CENVAT will be available to the assessees, if mines are captive mines and they constitute as one integrated unit together with the concerned cement factory. 23. In this case also, it is countered that the power plant is a 'CPP', which is to be used by the appellants for manufacturing of their final product. Similar view was also taken by the Tribunal in the case of Sanghi Industri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer. (b) The balance of Cenvat credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years. (3) The Cenvat credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire-purchase or loan agreement, from a financing company. (4) The Cenvat credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the inputs in the factory of the manufacturer or in the premises of provider of output service. As per Rule 4(b) of the Cenvat Credit Rules, it is also a condition that the goods shall be in possession of the manufacturer of the final products. So in the factual matrix of the case, it is to be seen that whether the capital goods were installed in the factory of M/s. SISCOL and are being used by them and they are having the possession of the same or not. In the case of Steel Authority of India Ltd. v. Commissioner of Central Excise, Bhubaneswar-II reported in 2007 (219) E.L.T. 960 (Tri.-Del.) wherein the facts of the case are that M/s. SAIL has a steel plant at Rourkela. That plant was having a 'CPP' also. In 1999, the steel mills received a rotor for use in its captive power plant and took MODVAT (capital goods) Credit. Subsequently, in 2001, the 'CPP' was spun off as a separate identity (subsidiary). In the subsidiary, M/s. SAIL continued to have 98% shareholding and remaining 2% went to National Thermal Power Corporation ('NTPC' - in short) . In those set of facts, it was argued by the learned counsel for the appellants that the deal was executed for business of restructuring....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot installed and used. The said matter was referred to the Larger Bench of this Tribunal but the Larger Bench of this Tribunal returned the reference as in the referral order the reason of differences were not given. Anyhow, the facts of the said case are not relevant to this case as in that case issued was that capital goods were neither installed [nor] used. In this case, the 'CPP' was installed and subsequently used by the appellants. 28. In another case of Steel Authority of India Ltd. v. Commissioner of Central Excise, Raipur reported in 2009 (236) E.L.T. 711 (Tri.-Del.), the relevant facts of the said case are that the appellants had a 'CPP' installed within their factory premises. The appellants had entered into a Joint Venture agreement with M/s. NTPC and started a subsidiary company known as M/s. Bhilai Electric Supply Company Ltd. (M/s. 'BESCL' - in short) with 99.8% of the equity company from SAIL and the balance equity coming from the joint-venture-partner namely M/s. 'NTPC'. In that case also, although the power plant was installed in the factory premises of the M/s. SAIL and it is only the 'CPP' of M/s. SAIL though the ownership of the same was transferred to M/....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts of the instant case, as in that case, the power plant installed was sold to a third party and as per Cenvat Credit Rules, the Cenvat credit is required to be reversed on the capital goods which have been cleared as such. The assessees are required to reverse the Cenvat credit availed as per Rule 4(b) of the Cenvat Credit Rules, 2004. In this case, 'CPP' was installed by M/s. JSWPL, which was merged with M/s. JSWSL and later on M/s. SISCOL was also merged with M/s. JSWSL. In that scenario, it is to be seen for what purpose 'CPP' was installed by whom and from whom. As M/s. JSWPL and M/s. SISCOL have merged with M/s. JSWSL, therefore, all the units are one and the lease agreement is for procuring the finance for installation of 'CPP' only. 32. The case law relied upon by the learned JCDR in the case of M/s. Majestic Auto Ltd. (supra) is also not relevant to the facts of this case. As in that case, M/s. Hero Briggs & Stratton Auto Pvt. Ltd., had taken on lease a part of the factory premises of M/s. Majestic Auto Ltd., who have also sold the machines and equipments on which they have availed MODVAT credit and M/s. Majestic Auto Ltd., have got manufactured the parts on job ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt on 5-11-2012) Sd/- (Ashok Jindal) Judicial Member 35. [Order per : Mathew John, Member (T)]. - I have gone through the order recorded by the Judicial Member and also considered the case records and arguments raised by both sides during hearing. Since I have a different view on this matter, I am recording this order. 36. Under the Cenvat Credit Scheme a manufacturer of excisable goods is allowed to take credit of excise duty paid on inputs and capital goods used in the manufacture of excisable goods and utilize such credit for payment of excise duty on final products manufactured by him. In this case we are concerned with taking of credit on capital goods. 37. The relevant facts are already recorded by the Judicial Member. Prima facie there can be doubt whether the facts would fit into the conditions prescribed in Cenvat Credit Rules, 2004 for taking credit. Revenue seeks to deny the credit for the reasons of not having received or possessed or used the capital goods in the factory of the appellant. Appellant seeks approval of credit taken based on liberal interpretation of rules and further extensions the principles approved in decisions of the T....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the factory of the manufacturer. Interestingly there has been amendment to Rule 2(a) and Rule 4(2)(a) by Notification 3/2011-NT, dated 1-3-2011 to the effect that in the case of captive power plants credit can be taken even if the plants are outside the factory. 40. In this case Cenvat credit was taken by SISCOL during the period Sept., 2005 to July, 2006. (From 31-8-2006, SISCOL had taken over the power plant from JSWPL). SISCOL had not paid for the value of the goods or excise duty payable thereon when credit was taken. Such payments could not be seen in the books of account of SISCOL, when credit was taken. The value of the goods and excise duty thereon were paid by JSWPL on the date on which credit was taken by SISCOL. These are two different companies. There is no relationship of one as the holding company of the other which fact existed in some of the decisions relied upon. There is no relationship of SISCOL as job worker of JSWPL which was the fact in cases where persons not paying for the goods along with duty were allowed to take credit of duty. 41. There is a dispute as to whether capital goods were received in the factory of SISCOL on the date of taking c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2007 (207) E.L.T. 470 Capital goods Yes No 43. There are other decisions of the type mentioned at S. No. 5 where the job worker was allowed to take credit notwithstanding the fact that the job worker had not paid the value of the capital goods or excise duty on the capital goods from his funds. Three such cases are,- (i) CCE v. Sunrise Chemicals Industries - 2010 (262) E.L.T. 110 (Guj.); (ii) Prolite Engineering Co. v. UOI - 1995 (75) E.L.T. 257 (Guj.); (iii) Evergreen Engineering Co. Pvt. Ltd. v. CCE - 2012 (278) E.L.T. 328 (Tri.-Mumbai). 44. In the present case SISCOL cannot be considered as a job worker of JSWPL. JSWPL was producing electricity and selling to SISCOL. In the present case the goods were neither paid for by the assessee who was taking credit nor was it used in their factory though there are some arguments on the second part of the statement. 45. Now it is time for answering the issues raised. If issue I is seen independently, then it may appear that precedent decisions support the case of the appellant. For this one has to ignore that those decisions were given in the context of a j....
X X X X Extracts X X X X
X X X X Extracts X X X X
....used by SISCOL. However such free bending of the Rules is not desirable because it can defeat some of the basic criteria in the Rules like the one that the person who purchased the goods cannot capitalize the duty amount and claim depreciation. The person who pays for the value of goods and duty may take credit and claim depreciation and another person who uses the goods can claim the credit and the department may not know about the misuse because the books of account of the owner is not audited normally as in this case wherein the owner of the goods is not a Central Excise assessee. The owner may even refuse permission for such audit and the information can be extracted only through a procedure of issue of summons. Further it can also lead to a situation where someone sets up a power plant supplies part of the electricity to a manufacturer who takes credit and sells the rest of the electricity to the public. The next step can be, for illustration, a factory of SAIL can take credit of duty paid on equipment used by NTPC in a power plant for the reason that the power from NTPC is used in the factory of SAIL at least partially. Such benefits are not intended by the scheme. So I dot a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orized by law. Such an approach will cause too many cases of re-opening of tax incidence both in favour of assessees and in favour of Revenue and is not a practicable approach. The tax liability from the date of future event can be certainly looked into. If credit was taken during a period when the assessee was not entitled to take credit, there is loss caused to Revenue at least to the extent of interest for the period for which there was no eligibility for the credit. However while deciding matters of penalty these future event can be taken into account. 50. Now there is a need to examine the main decision relied upon by the appellant which is the decision of the Apex Court in State of UP and Others v. Renusagar Power Company and others (AIR 1988 SC 1737). Here the facts were that M/s. HINDALCO had set up a, power plant through a 100% subsidiary namely Renusagar Power Co., a power plant which started producing power and supplying power to HINDALCO in 1967. Under the Electricity Duty Act, 1952 of the State of UP electricity duty was payable on electricity other than from "own source of generation". UP State demanded such duty from Renusagar Power Co. because power was being ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he ghost of Salomon's case still visits frequently the hounds of Company Law but the veil has been pierced in many cases. Some of these have been noted by Justice P.B. Mukharji in the New Jurisprudence (Tagore Law Lecture 183). 67. It appears to us, however, that as mentioned the concept of lifting the corporate veil is a changing concept and is of expanding horizons. We think that the appellant was in error in not treating Renusagar's power plant as the power plant of Hindalco and not treating it as the own source of energy. The respondent is liable to duty on the same and on that footing alone; this is evident in view of the principles enunciated and the doctrine now established by way of decision of this Court in Life Insurance Corpn of India, (supra) that in the facts of this case sections 3(1)(c) and 4(1)(c) of the Act are to be interpreted accordingly. The person generating and consuming energy were the same and the corporate veil should be lifted. In the facts of this case Hindalco and Renusagar were inextricably linked up together. Renusagar had in reality no separate and independent existence apart from and independent of Hindalco. 68. In the aforesaid view of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on on the part of JSWPL to take over SISCOL at a future date. The legal status of the companies involved cannot be done first by lifting of corporate veil and then by adopting future intentions of parties as the next criterion. 53. There is a further issue in this matter. Traditionally lifting of corporate veil has been done for denying a claim of the parties concerned which claim is set up through subterfuges of separate entities and not for granting a benefit to the parties who for their own reasons hold themselves to be different. Nevertheless the Apex Court has expanded the concept to grant a benefit by lifting corporate veils of two companies because of the peculiar facts of the case and also because the Governments themselves were considering the two companies to be one and the same in many matters. The issue to be decided was meaning of the expression "own source of generation" in which case there can be a doubt whether a subsidiary company's resources are the resources of a holding company. No such fact or law exists in this case. Indiscriminate lifting of corporate veil to grant benefits to the parties who claim themselves to be different can be disastrous. 54.&emsp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mber Dated : 10-10-2012 POINT OF DIFFERENCE IN OPINION 56. In the facts and circumstances of the case, - Whether it is proper to allow Cenvat Credit of excise duty paid on excisable capital goods paid for and used by JSWPL to be taken by SISCOL from October 2005 onwards as held by Judicial Member? Or Whether it is proper to allow Cenvat Credit of excise duty paid on excisable capital goods paid for and used by JSWPL to be taken by SISCOL from 31-8-2006 when the two companies got merged as held by Technical Member? (Pronounced on 5-11-2012) The registry is directed to take appropriate steps for resolving the above difference in views. Sd/- (Mathew John) Technical Member Dated : 10-10-2012 Sd/- (Ashok Jindal) Judicial Member 57. [Per : Pradip Kumar Das, Member (J)]. - The point of difference of opinion has already been set out above. 58. The facts of the case have also been narrated by the learned Judicial Member in his order. 59. The learned Advocate Shri Shivdass on behalf of the appellant, supported the order of the learned Judicial Member and also made the submissions at length. He has filed a written synopsis with co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pe of the decision of the Third Member is as to whether it is proper to allow Cenvat credit of excise duty paid on excisable capital goods paid for and used by M/s. JSWPL; to be proper taken by SISCOL from October, 2005 as held by the learned Judicial Member OR from 31-8-2006 as held by learned Technical Member. The learned advocate on behalf of the appellant submitted that the consequence of the order of learned Technical Member is that the appellant is liable to pay interest of Rs. 22,71,971/- for the period prior to 31-8-2006, as no depreciation was claimed by the company and penalty of Rs. 25,00,000.00. 63. The ld. Authorised Representative on behalf of the Revenue contended that in terms of lease agreement dated 17-1-2005, M/s. SISCOL leased out a portion of land to M/s. JSWPL for the purpose of setting up a Power Plant. On 31-8-2006, the lease deed was terminated and by a tripartite agreement between M/s. SISCOL, M/s. JSW Steel Ltd. and UTI Bank Ltd., the Power Plant was transferred to M/s. SISCOL. Prior to 31-8-2006, M/s. SISCOL had not received the capital goods in their factory premises. Goods were not in possession of or ownership of M/s. SISCOL. There was no relati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acturer of the inputs when removing the same." 64.1 It is also contended that M/s. SISCOL is not the owner of the capital goods. The Hon'ble Punjab and Haryana High Court in the case of CCE, Ludhiana v. Pepsi Foods Ltd. - 2010 (254) E.L.T. 284 (P&H) rejected the appeal filed by Revenue and held that ownership of the goods cannot be the criteria for denying modvat credit in view of Board's Circular dated 1-3-1999. It has further been held that the Tribunal is correct in allowing Modvat credit on capital goods received when endorsement is made in the Bill of Entry by the importer. In the present case, Cenvat invoices were consigned in favour of M/s. SISCOL. 64.2 In the case of Vikram Cement v. CCE, Indore - 2006 (194) E.L.T. 3 (S.C.), the Larger Bench of the Hon'ble Supreme Court held that Cenvat credit on explosives could not be denied on the ground that they were not used as "inputs" within the factory. The Hon'ble Supreme Court observed that on a plain reading of the phrase "within the factory of production" in Rule 57B(1)(i) of erstwhile Central Excise Rules, 1944 means only such generation of electricity power consumed which is used within the factory would qualify a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt is captive plant of appellant company. Captive plant has not been defined in the Act or Rules. However, by the terminology used, it obviously means power generation plant supply only to the parent company. "Captive generating plant is defined under Section 2(8) of Electricity Act, 2003 which reads : "Captive generating plant" means a power plant set up by any person to generate electricity primarily for its own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association. This definition also states that captive generating plant means a power plant set up by any person or company to generate electricity for his own use. In the instant case, there is no dispute between the parties because power generated by Renusagar Power Plant was exclusively supplied to the appellant company, and, therefore, in our considered view, the power plant is captive power plant of the appellant. As such, the input service used in the power plant would entitle the appellant to claim Cenvat credit because power generated in the power plant is essential for the concerned fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 65.1 The ld. AR drew the attention of the Bench to the relevant portion of the impugned order in so far as by the lease agreement, the possession of the land is taken away from SISCOL. It is contended that a lease document which affects an actual demise and operates as lease and must create a present and immediate interest in land. When there is interest and complete possession by the JSWPL on the leased land, the Lessor SISCOL cannot be held to be in possession of the leased portion of land. Further, there is no clause in the said lease agreement to support their contention that the power plant or capital goods will be in possession of Lessor i.e., SISCOL. In terms the agreement, manufacture of power plant was taken place in the hands of JSWPL. The investment by SISCOL in JSWPL is only by way of equity participation and therefore, there is no principal agent relationship between them. Further, no payments/expenditures are made by SISCOL for erection of such power plant. During the currency of the lease, the lessee pledged the land with UTI Bank to raise a huge loan; and, when, lease agreement was terminated on 31-8-2006, the said loan was transferred to a tripartite arran....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the first week of May, 2006. Thus, the permission for the CPP is sought by SISCOL and not by JSW Power Ltd. 66.1 The learned advocate also submitted that it is a captive power plant and the electricity generated was only used by M/s. SISCOL. In this context, the learned advocate submitted as under :- (a) The requirement of steam is around 230 MW per hour. There are five boilers in the entire campus; 3 boilers in SISCOL area and 2 boilers in JSW power plant area (as alleged in Show Cause Notice); to produce 274.5 MT of steam. Out of total 5 boilers, the boilers with capacity of 45 MT, 45 Mt and 25.5 MT area in SISCOL area and the other two boilers with a capacity of 32 MT and 127 MT are in the leased area. The boiler Nos. T-7282, T-7283 and BH-085 are located in SISCOL area. Boiler Nos.T-814 and T-7237 are located in leased area. (b) The above boilers, viz., Boiler Nos. T-7282, T-7283 and BH-085 operate with gas obtained as waste gas of SISCOL. The boiler T-8114 with the gas of blast furnace obtained from SISCOL. (c) Coal as sided in the coal yard of SISCOL and is then transferred to JSW Power Ltd., ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ken over Southern Iron & Steel Company Limited (SISCOL) Pottaneri, near Salem. SISCOL's current capacity is 300,000 tons per annum and as per the CDR scheme approved by their lenders, SISCOL is doubling its capacity to 600,000 tons per annum SISCOL also proposes to set up a coke oven plant with capacity of 400,000 tons per annum. The power requirement of SISCOL is 30 MW and is expected to go up to 60 MW after expansion. SISCOL had approached JPL for setting up a power plant of 2x30 MW capacity at their premises to meet their power requirements and JPL has taken up this project and work is in progress." (iv) The facts of the case, in brief, as narrated in the show cause notice dated 16-4-2007 is reproduced below :- "Both M/s. JSW Power Ltd., Unit III, Toranagallu Village, Bellari District, Karnataka and M/s. JSW Steel Ltd., Unit 3, Toranagallu Village, Bellari District, Karnataka, are separate Legal/corporate entities having their common head office at Jindal Mansion, 5-A, Dr. G. Deshmukh Marg, Mumbai-400 026. It appears that M/s. JSW Power Ltd., Unit III, Toranagallu village, Bellari District, Karnataka have expertise in constructing and operating Power plants. But, M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re (1) the parties, (2) the subject-matter, or immovable property, (3) the demise or partial transfer, (4) the term, or period, and (5) the consideration, or rent." 68.1 On perusal of the lease agreement, it is seen that the Lessor (SISCOL) requested to the Lessee (JSWPL) to set up a power plant in the premises of the Lessor (SISCOL) to take care of the power generation of the Lessor to which Lessee has agreed. The lease of the immovable property is determined for a limited period conditionally on the happenings of some events. The tenure of the lease agreement depends upon the happenings of the future events. In the instant case, it is a conditional transfer of the property with an interest created on a transfer of the property and dependent upon the fulfilment of the condition. Thus, it is clearly evident that M/s. SISCOL had provided their land to M/s. JSWPL with a condition to set up a power plant and the electricity generated would be consumed in manufacturing activities of M/s. SISCOL. 68.2 An agreement should also be examined with actual state of affairs and its implementation from the records. In the present case, it may be seen from the documents and records th....