TaxTMI 
TaxTMI 
2026 (8) TMI 154
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.... 76323 of 2018. By the said order, the Tribunal allowed the appeal preferred by M/s Harinagar Sugar Mills Limited and set aside the Order-in-Original No. 02/M.P./Ayukt/2018, dated 29.01.2018, passed by the Commissioner, Central GST & Central Excise, Patna-II. 2. The Court admitted the appeal on the following Substantial Questions of Law formulated for consideration: (i) Whether the act of the Learned CESTAT, Kolkata of superseding its own decision made in the favour of the appellant in a similar matter is characterized by lack of due regard to the law or the facts and is fit to be categorized as per incuriam order, which has been decided without reference to a statutory provision or earlier judgment which would have been relevant? (ii) Whether the Learned CESTAT, Kolkata has grossly ignored and improperly correlated various relevant provisions of law, which includes several Rules under the CENVAT Credit Rules, 2004 such as Rules 2, 3 and 6 as well as its Sub-Rules with regard to the case of the Appellant herein? (iii) Whether the Learned CESTAT, Kolkata is justified in neglecting the relevant precedents set out by the Hon'ble Supreme Court as well as b....
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....rom capital goods had been cleared during the relevant period. Since a portion of the electricity generated from the Captive Power Plant was supplied outside the factory to the Bihar State Electricity Board, the Department formed the view that the respondent had contravened the provisions of the CENVAT Credit Rules, 2004 by availing credit in respect of goods and services allegedly used in relation to generation of exempted goods. 7. Consequently, a Demand-cum-Show Cause Notice dated 30.04.2014 came to be issued by the Commissioner of Central Excise & Service Tax, Patna proposing recovery of CENVAT credit together with interest and penalty. Broadly stated, the notice proposed: (i) recovery of CENVAT credit amounting to Rs. 3,16,59,172/- availed on capital goods and input services used in the Captive Power Plant; (ii) recovery of CENVAT credit amounting to Rs. 33,32,155/- in respect of certain iron and steel items alleged to be ineligible for credit; (iii) recovery of Central Excise duty amounting to Rs. 4,05,110/- in relation to clearance of waste and scrap; besides consequential interest and penalty under the provisions of the Central Excise Act, 1944....
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.... 1944 contending that the Tribunal has misinterpreted the provisions of the CENVAT Credit Rules, 2004 and has erroneously extended the benefit of CENVAT credit to the respondent in circumstances where, according to the Revenue, such benefit was not admissible under law. It is these rival claims which fall for consideration in the present appeal. 12. Pursuant to the audit conducted in respect of the respondent's records for the financial years 2009-10 and 2010-11, the Department formed an opinion that the respondent had wrongly availed CENVAT credit in contravention of the provisions of the CENVAT Credit Rules, 2004. On the basis of the audit objections, a Demand-cum-Show Cause Notice dated 30.04.2014 was issued calling upon the respondent to explain why the CENVAT credit alleged to have been wrongly availed, together with interest thereon, should not be recovered and why penalty should not be imposed under the provisions of the Central Excise Act, 1944 and the CENVAT Credit Rules, 2004. 13. The show cause notice broadly proceeded on four allegations. First, it alleged that the respondent had availed CENVAT credit amounting to Rs. 3,16,59,172/- on capital goods and specified i....
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....m the Captive Power Plant was admittedly cleared outside the factory, the adjudicating authority concluded that the respondent was not entitled to avail CENVAT credit in respect of such capital goods and input services and confirmed the demand, subject only to a minor correction on account of a clerical error. 17. While dealing with the second issue, namely the admissibility of credit on iron and steel items, the Commissioner observed that the goods in question, namely joists, angles, channels, plates and similar structural items, were essentially structural materials of general use employed in repair, maintenance or support structures and did not satisfy the definition of either "capital goods" or "inputs" after the amendment to the Rules with effect from 07.07.2009. On that reasoning, the adjudicating authority disallowed the credit claimed by the respondent on those goods. 18. In respect of the third issue relating to waste and scrap, the Commissioner held that the respondent had admittedly cleared waste and scrap arising from capital goods during the relevant period and was, therefore, liable to discharge duty under Rule 3(5) of the CENVAT Credit Rules, 2004. The demand o....
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.... to capital goods used in the Captive Power Plant, the Tribunal noticed that it was not disputed that a substantial part of the electricity generated in the Captive Power Plant was consumed within the factory in the manufacture of dutiable final products, namely sugar and molasses. Proceeding on that admitted factual position, the Tribunal held that the capital goods installed in the Captive Power Plant could not be regarded as having been used exclusively in the manufacture of exempted goods so as to attract the embargo contained in Rule 6(4) of the CENVAT Credit Rules, 2004. The Tribunal observed that electricity generated in the Captive Power Plant assumed the character of an intermediate product to the extent it was captively consumed in the manufacture of dutiable final products and, therefore, denial of CENVAT credit on the entire capital goods was not legally justified. While arriving at the said conclusion, the Tribunal placed reliance upon CBEC Circular No. 665/56/2002-CX dated 25.09.2002 and the decision of the Chhattisgarh High Court in Union of India v. HEG Ltd. 24. In relation to the second issue concerning input services covered by Rule 6(5) of the CENVAT Credit Ru....
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....ons of the CENVAT Credit Rules, 2004 as well as the law laid down by the Hon'ble Supreme Court governing the admissibility of CENVAT credit. It was urged that the Tribunal failed to appreciate both the statutory scheme and the factual matrix in their proper perspective. 29. Learned counsel for the appellant submitted that the respondent had admittedly supplied a portion of the electricity generated in its Captive Power Plant to the Bihar State Electricity Board. Electricity being exempted goods, the capital goods used for generation of such electricity could not, according to the appellant, qualify for CENVAT credit to the extent contemplated by the CENVAT Credit Rules, 2004. It was contended that the Tribunal erred in holding that Rule 6(4) of the Rules had no application merely because a substantial quantity of electricity was consumed captively within the factory. The decisive factor, according to the appellant, was that the capital goods were also used for generation of electricity cleared outside the factory and, therefore, the restriction contained in the Rules stood attracted. 30. Elaborating the submission, learned counsel argued that the Tribunal misdirected itself i....
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....ng to waste and scrap. It was submitted that the waste and scrap had arisen from capital goods on which CENVAT credit had been availed and, therefore, the respondent was liable to discharge duty under Rule 3(5) of the CENVAT Credit Rules, 2004. The Tribunal, according to the appellant, committed an error in setting aside the demand without properly appreciating the statutory provisions governing such clearances. 35. Referring to the Order-in-Original, learned counsel submitted that the adjudicating authority had examined each issue independently, analysed the relevant statutory provisions and recorded detailed reasons while confirming the demands. The Tribunal, however, reversed those findings without adequately dealing with the reasoning adopted by the adjudicating authority and without assigning cogent reasons for taking a contrary view. Such an approach, it was submitted, renders the impugned order legally unsustainable. 36. Lastly, it was contended that the appeal raises substantial questions relating to the interpretation of the CENVAT Credit Rules, 2004, particularly the scope of Rule 6(4), Rule 6(5) and Rule 3(5), and the applicability of the law declared by the Hon'bl....
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....cted. 40. Learned counsel submitted that the Department has proceeded on an erroneous assumption that the entire electricity generated in the Captive Power Plant is an exempted final product. According to the respondent, electricity generated and captively consumed in the manufacturing process constitutes an intermediate product and forms part of the continuous process of manufacture. It was argued that only the surplus electricity is supplied to the Bihar State Electricity Board and such incidental clearance cannot result in denial of CENVAT credit on capital goods which are otherwise validly used in relation to the manufacture of dutiable final products. 41. In support of the above contention, learned counsel placed reliance upon the CBEC Circular No. 665/56/2002-CX dated 25.09.2002 and submitted that the circular itself clarifies that credit on capital goods is not liable to be denied merely because a part of the electricity generated is supplied outside the factory, provided the capital goods are not used exclusively for manufacture of exempted goods. It was further submitted that the Tribunal has rightly relied upon the decision of the Chhattisgarh High Court in Union of....
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....ming up the submissions, learned counsel contended that the impugned order is based upon a correct interpretation of the CENVAT Credit Rules, 2004 and a proper appreciation of the evidence on record. It was argued that the appeal seeks nothing more than a re-appreciation of the factual findings recorded by the Tribunal, which is impermissible in an appeal under Section 35G of the Central Excise Act, 1944. Learned counsel, therefore, prayed for dismissal of the appeal with costs. 47. We have given our anxious consideration to the rival submissions advanced on behalf of the parties and have carefully examined the pleadings, the impugned Final Order passed by the learned Tribunal, the Order-in-Original, the statutory provisions as well as the authorities relied upon by the respective parties. The substantial questions of law being interconnected, they are taken up together for consideration, though the issues arising therefrom shall be dealt with separately for the sake of convenience. 48. The first and foremost issue which falls for consideration is whether the learned Tribunal was justified in holding that the respondent was entitled to avail CENVAT credit on the capital goods....
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....ated therein was substantially utilized in the manufacture of dutiable final products, the requirement of exclusive use contemplated under Rule 6(4) cannot be said to have been satisfied. 52. The aforesaid interpretation also finds support from Circular No. 665/56/2002-CX dated 25.09.2002 issued by the Central Board of Excise and Customs, wherein it has been clarified that CENVAT credit on capital goods used in the manufacture of exempt intermediate goods cannot be denied where such intermediate goods are captively consumed in the manufacture of final products chargeable to duty. Though the Revenue has sought to distinguish the said Circular by contending that electricity supplied outside the factory loses the character of an intermediate product, the Circular unmistakably proceeds on the principle that the decisive consideration is whether the capital goods are employed as part of an integrated manufacturing process culminating in dutiable final products. 53. Considerable reliance has been placed by the learned counsel for the appellant on the decision of the Hon'ble Supreme Court in Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III, (2009) 9 SCC 193. We have c....
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....terprets the expression "used exclusively" occurring in Rule 6(4) governing capital goods. The two decisions operate in distinct statutory settings and cannot be treated as laying down conflicting propositions of law. Consequently, the appellant cannot derive assistance merely by contending that the Tribunal ought to have applied Maruti Suzuki Ltd. in preference to HEG Ltd. without first demonstrating that the factual and statutory foundation of both cases was identical. 57. The appellant has further contended that the Tribunal committed an error in treating electricity generated in the Captive Power Plant as an intermediate product. In our opinion, the correctness of the Tribunal's conclusion cannot be examined in isolation. The Tribunal has not proceeded on the premise that electricity is invariably an intermediate product. The finding recorded by it is founded upon the admitted factual position that the electricity generated in the Captive Power Plant was substantially consumed within the respondent's factory in the manufacture of dutiable final products and only the surplus was supplied to the Bihar State Electricity Board. The expression employed by the Tribunal has to be u....
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....n of electricity supplied outside the factory. On the contrary, the admitted factual position is that the electricity generated in the Captive Power Plant was substantially consumed in the manufacture of the respondent's dutiable final products and only the surplus electricity was supplied to the Bihar State Electricity Board. In such circumstances, it cannot be held that the specified input services were used exclusively in relation to exempted goods so as to attract the restriction contemplated under Rule 6(5). 63. The view taken by the Tribunal also finds support from CBEC Circular No. 137/203/2007-CX.4 dated 01.10.2007, wherein the Board clarified that the specified services enumerated under Rule 6(5) constitute common services which ordinarily cannot be co-related or apportioned to any particular output and that the benefit of full credit is intended to be available in respect of such services unless they are used exclusively for exempted goods or exempted services. The said Circular, being binding upon the departmental authorities, could not have been ignored while determining the respondent's entitlement to credit. 64. We are, therefore, of the considered opinion that ....
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....r repair and maintenance of the existing capital goods and machinery forming part of the manufacturing unit. The Revenue has not been able to demonstrate from the materials on record that the said finding is either unsupported by evidence or suffers from perversity. In an appeal under Section 35G of the Central Excise Act, interference with such factual findings is permissible only where they are shown to be perverse or based on no evidence. Mere disagreement with the appreciation of evidence by the Tribunal does not give rise to a substantial question of law. 69. We also find that the adjudicating authority proceeded largely on the assumption that the goods were structural items and, therefore, ineligible for credit after the amendment introduced with effect from 07.07.2009. Such an approach overlooks the settled principle that the actual use of the goods constitutes the determinative test while examining the admissibility of CENVAT credit. The Tribunal, having examined the nature of utilization of the goods and having arrived at a factual conclusion that they were consumed in repair and maintenance of the existing manufacturing machinery, cannot be said to have committed any e....
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....ry provisions, taken note of the circulars issued by the Central Board of Excise and Customs as well as the judicial precedents governing the field, and thereafter recorded findings supported by reasons. The appellant-Revenue has not been able to demonstrate that the Tribunal ignored any binding statutory provision or applied an incorrect principle of law while arriving at its conclusions. 75. The grievance of the appellant, in substance, is directed against the appreciation of facts and the conclusions drawn by the Tribunal therefrom. Such a grievance, by itself, does not give rise to a substantial question of law within the meaning of Section 35G of the Central Excise Act, 1944. Once the findings recorded by the Tribunal are found to be based upon the evidence available on record and are consistent with the statutory framework, this Court would not be justified in substituting its own view merely because another interpretation may also be possible. 76. For the reasons recorded hereinabove, each of the substantial questions of law framed at the time of admission is answered against the appellant-Revenue and in favour of the respondent-assessee. We hold that the learned Custo....