TaxTMI 
TaxTMI 
2020 (1) TMI 539
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.... of Rs. 5,00,000/- imposed upon TSL; filed by TSL. 2. The period involved in the first appeal is from April 2000 to March 2002. The period involved in the second appeal is from May to June 2002. 3. In both the appeals the issues involved relate to eligibility of cenvat credit of items under the relevant provision of the Cenvat Credit Rules in force during the respective periods. These items were used by TSL at its steelworks in Jamshedpur. 4. One of the items which is common in both the appeals is ingot moulds, which were declared as "capital goods". According to the Revenue, TSL was not eligible to avail cenvat credit of the balance 50% of the duty paid on ingot moulds in the subsequent year since they were not in TSL's possession and therefore availment of the said balance 50% of the cenvat credit and utilisation thereof was irregular. This has been contested by TSL, according to whom the cenvat credit of the balance 50% availed on ingot moulds in the subsequent year was valid, proper and in accordance with the provisions of the Cenvat Credit Rules. 5. The second appeal involved several other items which have been listed in Annexure-1 of the show cause notice dated Ma....
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....ot process of steel making, an ingot mould is an essential accessory without which steel product making is not possible. In support of this reliance is placed upon: (a) An article entitled "The Making, Shaping and Treating of Steel", 10th Edition/Latest Technology, published by The Association of Iron and Steel Engineers, USA, relevant extracts from Chapter 20; (b) "Introduction to Modern Steelmaking [A Text Book for Engineering Students]" by Dr. R.H. Tupkary, relevant extracts from paras 24.4 and 24.5; (c) IS Specification bearing Nos. IS:3005 (part I) - 1979 and (Part II) - 1979; (d) Definition of "ingot mould" in Chambers' Science & Technology Dictionary. The contention of the Revenue that steel making is possible without the ingot mould in the ingot process of steel making is misconceived, which is evident from the abovestated literature. (iii) TSL has a L.D.-1 shop wherein iron is melted. The ingot mould is required to give shape to liquid steel, to solidify liquid steel by absorbing temperature. There are two types ingot moulds namely T.P. 5 on top pouring and bottom pouring moulds. The ingot mould is used in bottom Bogey ....
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...., being the subject matter of the Appeal No. E/76127/2014, it was submitted on behalf of TSL as under: (i) The Commissioner had wrongfully rejected that TSL had failed to establish that the goods covered by Sl. Nos. 1 to 9, 10, 16 to 20, 22, 29, 30, 32, 34, 35 and 43 of Annexure-I to the show cause notice had been used in or in relation to the manufacture of finished goods and hence, even as input materials, they were not eligible to cenvat credit. Annexure to the reply to the show cause notice filed both in the instant proceedings, being a chart prepared, vis-à-vis Annexure-1 of the show cause notice, against each item the manner in which the subject materials were used in or in relation to the manufacture of dutiable final products in the steelworks are stated, establishing the correctness of the availment of cenvat credit and utilisation thereof. They have not been considered. (ii) Even though initially declarations were made that the subject goods were capital goods, TSL cannot be denied benefit of input credit on such goods as input materials once it is established, as the case is, that the said goods were used in or in relation to the manufacture of f....
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....359) ELT 313 (Chattisgarh), affirming the Tribunal's decision in Singhal Enterprises Pvt. Ltd. Vs. Commr. of Cus & C.Ex., 2016 (341) ELT 372 (T). TSL had therefore correctly availed cenvat credit of the duty of Rs. 7,83,542/- paid in respect of the said imported electrodes. (v) The Commissioner, inspite of coming to the conclusion that the office equipments referred to in Sl. No. 15 of Annexure-1 of the show cause notice formed a part of the Distributed Control System ("DCS") and were used in connection with production of steel and hence credit on the same was available and holding accordingly, did not deduct the same from the demand made in the Order part of the order and, on the contrary, confirmed the same, thereby erroneously denying the credit of Rs. 5,43,414/- to which TSL was duly eligible to. Confirmation of demand of this amount is ex-facie unsustainable. (vi) There being no contravention by TSL of any provision of the Cenvat Credit Rules nor any irregular or wrongful availment of cenvat credit by it, imposition of penalty of Rs. 5 lakhs under Rule 13 of the Cenvat Credit Rules is untenable and unsustainable. 10. On behalf of the Revenue, on the issue ....
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....r 16, 2008 passed by the Commissioner (Appeals) is liable to be set aside and the adjudication order dated December 22, 2006 of the Additional Commissioner restored in the first appeal and the appeal of TSL against the impugned order dated March 26, 2014 of the Commissioner is liable to be rejected. 11. In respect of the other items involved in Appeal No. E/76127/2014 filed by TSL, the Revenue reiterated the findings of the Commissioner in the impugned order dated March 26, 2014. 12. The contentions of both the parties have been considered. 13. Availability of cenvat credit on the balance 50% of the duty paid on ingot moulds during the subsequent year in the absence of the said moulds being unavailable with TSL. 13.1 Rule 57AA(a) of the Central Excise Rules, 1944 is as follows: "57AA. Definitions.- For the purpose of this section,- (a) "capital goods" means- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Central Excise Tariff Act, 1985; (ii) components, spares and accessories of the goods specified at (i) above; (i....
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....6, 2001 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2001-2002, and the balance in subsequent years." 13.5 In the Circular of CBEC dated May 5, 2000, it has been observed as follows: "(c) In terms of the provisions of Rule 57AC, an assessee can avail credit in respect of duty paid on capital goods to the extent of 50 percent of such duty in the financial year in which he receives the capital goods. The balance credit may be taken in a subsequent financial year subject to the capital goods still being in the use and possession of the assessee. It had been represented that this condition could not be satisfied in respect of certain capital goods like components, spares and accessories, grinding wheels, refractory materials. These representations have been considered, and Rule 57AC has been amended to allow credit in respect of the balance 50 percent of the duty in respect of these capital goods (namely, components, spares and accessories, refractories and refractory materials and goods falling under Heading 68.02 and sub-heading 6801.10) in a subsequent financi....
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....ational Dictionary as follows: "all objects or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else". Other meanings given there are: "supplementary or secondary to something of greater or primary importance"; "additional"; "any of several mechanical devices that assist in operating or controlling the tone resources of an organ". "Accessories" are not necessarily confined to particular machines for which they may serve as aids. The same item may be an accessory of more than one kind of instrument." This decision was relied upon by the Supreme Court in the case of Pragati Silicons Pvt. Ltd. Vs. CCE, Delhi, 2007 (211) ELT 534 (SC), para 21, while dealing with what is a "parts" and an "accessory" in the subject Central Excise Tariff and came to similar conclusion. 13.7.2 The expression "accessory" in erstwhile Rule 57Q of the 1944 Rules also came up for interpretation before the Rajasthan High Court in the case of Union of India Vs. Rishabhdev Textiles, 2001 (141) ELT 352 (Raj). Upon reviewing the law on the issue, including decision of other High Courts, it was observed and held as follows: "In view o....
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....Tribunal in the case of Banco Products (India) Ltd. Vs. Commissioner of C.Ex., 2009 (235) ELT 636 (T-LB), para 14, has also held that an "accessory" may or may not be required for essential working of main unit; it is an object used for convenience and effectiveness of main unit and is not designed to be used in a particular machine only. The Larger Bench was dealing with the word "accessory" in Rule 2(b) of the Cenvat Credit Rules, 2002, a similar provision. 13.7.5 From these decisions it is clear that a capital goods as defined in Rule 57AA(a)(ii) of 1944 Rules/Rule 2(b)(ii) of the Cenvat Credit Rules, 2001 can be both used in an independent manner by itself as well as an accessory of another capital goods covered under clause (i) of both the said Rules and that the ingot moulds, in the instant case, on an application of the principles laid down in the aforesaid decisions, is an "accessory" of the LD Converter, which undisputedly is capital goods under clause (i) of the said Rules. 13.8 The technical literature and IS Specification produced by TSL also establish that in the ingot process of steel making an ingot mould is an essential accessory without which steel product ma....
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....g, Shaping and Treating of Steel", 10th Edition / Latest Technology, published by The Association of Iron and Steel Engineers, USA also show that ingot mould is an essential accessory: INGOT SOLIDIFICATION Ingots - After a heat of steel is properly refined either in an oxygen-steel-making furnace, an open-hearth furnace, or an electric furnace, the liquid steel is tapped into a refractory-lined open-topped vessel called a steel ladle. Alloying materials and deoxidizers may be added during the tapping of a heat. The steel ladle has an off-center opening in its bottom, equipped with a nozzle. Some ladles are equipped with a stopper-rod assembly and a mechanism called the ladle rigging for raising and lowering the stopper rod vertically to open and close the bottom hole. Other ladles employ a sliding gate mechanism by which the flow of steel from the ladle can be controlled externally by sliding a refractory plate with an opening to align the opening in the plate with the opening in the ladle bottom to permit steel to flow; flow can be stopped by sliding the plate so that the solid part of the plate covers the bottom opening. The ladle is moved by an overhead crane t....
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....t the goods form part of DCS system is acceptable as at the time of verification by the Department, the departmental officer observed that the goods were found to part of the DCS system and are being used in connection with production of steel. Hence, credit on the same is available to them. I hold accordingly." From Annexure-1 of the show cause notice against this Sl. No. 15 the amount of credit stated is a total of Rs. 5,43,414/- (Rs. 4,21,635/- + Rs. 73,444/- + Rs. 1,83,345/-). As per the impugned order itself, credit of this amount is available to TSL and therefore had been correctly availed and utilised. However it is seen that in the "ORDER" part credit of this amount has not been allowed by the Commissioner while allowing cenvat credit on three other items. This amount of Rs. 5,43,414/- contained in the total demand of Rs. 50,70,524/- confirmed by the impugned order is thus unsustainable. 14.3 In so far as electrodes covered under Sl. Nos. 36 and 37 of Annexure-1 of the show cause notice, we find, upon consideration of the submission made on behalf of TSL and upon perusing the sketch illustrating the above contained in the records of the present proceedings, that....
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....t credits, both as capital goods, as well as inputs. At this juncture, we also deem it fit to consider the Judgment of Chhattisgarh High Court, as to how the decision in SAIL case has been distinguished. At Paragraph Nos.13, 14, 16, 17, 21 and 22 and ultimately, at paragraph 23, relying on the decision of the Rajasthan High Court in Hindustan Zinc Ltd. v. Union of India reported in 2008 (228) E.L.T. 517 (Raj.), Commissioner of Central Excise vs. India Cements Limited reported in 2009 (238) E.L.T. 411 (Mad.) and the decision of the Delhi Tribunal in Birla Jute & Industries Limited reported in 2002 (139) E.L.T. A93, and subsequently, confirmed by the Hon'ble Apex Court, the Chhattisgarh High Court, allowed the appeals of the assessee, and answered the substantial question of law, raised therein viz., whether the welding electrodes used in repairs/maintenance of plant and machinery can be construed as input, as defined under Rule 2(g) of the Cenvat Credit Rules, 2002. The Hon'ble Division Bench of the Chhattisgarh High Court further held that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rul....
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....er v. Birla Jute & Industires Ltd., decided the question of law in favour of the assessee and held that the Tribunal is correct in holding that the welding electrodes used for repairs and maintenance are covered under the definition of capital goods in terms of Rule 57Q of the Central Excise Rules, 1944. .................. ................... 16. The Northern Bench of the Tribunal, New Delhi, in the matter of Birla Jute & Industries Ltd., held that modvat credit is admissible for Electrodes and Calibration Gas Mixture (welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil Appeals preferred by the revenue against the above order were again dismissed by the Supreme Court with an observation that the civil appeals have to be dismissed in view of the judgment of this Court in Jawahar Mills Ltd. (Commissioner v. Birla Jute & Inds. Ltd.). 17. The Kolkata Tribunal in the matter of SAIL held that modvat Credit on goods and welding electrodes etc. which are used for welding, repaid and maintenance of machineries, is not admissible. Relying upon the decision in Jaypee Rewa Plant, it has been....
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....quipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944, Civil appeals preferred by the revenue have been further dismissed by the Supreme Court. It is settled law that refusing of special leave to file appeal by a nonspeaking or speaking order does not attract the doctrine of merger, whereas where an award, appeal or revision is provided against the order passed by the Court, Tribunal or any other authority before a superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law, as held by the Supreme Court in Kunha Yammed. 23. On the basis of aforesaid discussions, relying upon the decision of the Rajasthan High Court in Hindustan Zinc Ltd., Madras High Court in India Cement Ltd., and Delhi Tribunal in Birla JUte & Industries Ltd., which have been subsequently affirmed by the Supreme Court, we allow both the appeals, set aside the impugned orders and answer the substantial question of law i....
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....se of Collector of Central Excise, New Delhi v. M/s.Ballarpur Industries Ltd. reported in (1989) 4 SCC 566 the difference between the expression "used in the manufacture" and "used as input (raw material)" was highlighted. In that judgment, it was held that undoubtedly the said two expressions are distinct and separate, but, when an ancillary process (like electricity generation) aids the making of an end product, then, the ancillary process gets integrally connected to the end product. In the said judgment, this court applied what is called as "the dependence test". It may, however, be noted that in the definition of "input" the expression "used in or in relation to the manufacture of final product" is not a standalone item. It has to be read in entirety and when so read id reads as "used in or in relation to the manufacture of final product whether directly or indirectly and whether contained in the final product or not". These words "whether directly or indirectly" and "whether contained in the final product or not" indicates the intention of the legislature. What the legislature intends to say is that even if the use of input (like electricity) in the manufacturing process is n....
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....it direct or indirect as also absence of the input in the final product on account of the use of the expression "used in or in relation to the manufacture of final product". Similarly, we are of the view that consideration such as input being used as packing material, input used as fuel, input used for generation of electricity or steam, input used as an accessory and input used as paint are per so also not relevant. All these considerations become relevant only when they are read with the expression "used in or in relation to the manufacture of final product" in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is "used in or in relation to the manufacture of final product". It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression "used in or in relation to the manufacture" have many shades and would cover various situations based on the purpose for which the input is....
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....oducts or not. Judicial pronouncements extracted supra, make it abundantly clear that welding electrodes used for repair and maintenance of machineries, in relation to manufacture of the final product, namely sugar, is eligible for cenvat credit. 19. Though Mr. A. P. Srinivas, learned Senior Standing Counsel for Central Excise made submissions to sustain the order of the Tribunal impugned before us, in the light of the discussion and decisions extracted, directly applicable to the case on hand, we are not inclined to accept the same. 20. The substantial question of law raised in the appeal whether the Hon'ble Customs, Excise and Service Tax Appellate Tribunal committed an error of law in disallowing the cenvat Credit on welding rods/electrodes used by the appellants when, in fact, the same were used in and/or in relation to manufacture of the final produce as required by Rule 2(k) of the Cenvat Credit Rules, 2004?, is answered, in the affirmative, in favour of the appellant/assessee." 14.4.1 In the case of ACC Limited Vs. Commissioner of Central Excise, 2018 (361) ELT 343 (Bom) the Hon'ble Bombay High Court has referred to and followed the decisions of the ....