TaxTMI 
TaxTMI 
2026 (8) TMI 1748
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....he provisions of the Companies Act and is, inter alia, engaged in the manufacture of finished goods, being particularly, paper, paperboards and allied excisable goods (henceforth, "finished goods") at its manufacturing facility situated at Tribeni, District Hooghly, West Bengal. 2.1. The manufacture of the appellant's final products is an energy-intensive continuous process requiring uninterrupted availability of steam and electrical power for the operation of paper machines, process heaters, pumps, auxiliaries and other manufacturing equipment. With a view to ensuring a reliable and efficient captive source of both electrical energy and process steam for use in its manufacturing operations, the appellant undertook the establishment of a Captive Cogeneration Power Plant (hereinafter referred to as the "said CCPP") within its factory premises. The said CCPP was designed as an integrated manufacturing utility, whereby high-pressure steam generated by the boiler is utilised for generation of electricity through a steam turbine, while medium-pressure and low-pressure steam extracted therefrom is simultaneously supplied for captive consumption in the appellant's manufacturing....
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....Agreement. ... Article 1 - Contract, Commencement and Completion 1.6 Project Site means mill premises of the Company at PO Chandrahati, District Hooghly, West Bengal State, India, where the Equipment is to be supplied under this Agreement. ... 1.8 Equipment means 12MW Coal-based Thermal Power plant and any part thereof to be supplied under this Agreement. ... Article 8 - Transfer of Risks and Title of Goods 8.1 The transfer of title in risks relating to the Equipment and Materials furnished under this Agreement shall be passed to the Owner upon delivery of the Equipment at the Project Site. ... Article 38 - Reimbursement of Taxes and Duties The Owner shall pay to the Contractor the cenvatable and local vatable taxes and duties as per the following limits computed at currently applicable rates of excise duty, VAT and CST. a) Excise Duty: Rs. 370 lacs b) West Bengal VAT: Rs. 28 lacs c) Central Sales Tax: Rs. 72 lacs The Contractor hereby undertakes to submit cenvatable documents for the aforementioned taxes/duties. The Contractor hereby agrees that in....
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....d from the said EPC contractor to the appellant. 3. Subsequently, proceedings were initiated against the appellant by issuance of a Show Cause Notice dated 24.07.2017 alleging that CENVAT credit amounting to Rs. 5,02,42,749/- availed during the period from 2012-13 to 2015-16 (up to December, 2015) upon the capital goods forming part of the said CCPP was inadmissible principally on the ground that the appellant was not the manufacturer or purchaser/owner of the said capital goods, the procurement having been undertaken by the said EPC contractor in the course of execution of the said EPC Contract. 3.1. The appellant submitted a detailed reply dated February 16, 2018 denying and disputing the allegations contained in the said show cause notice. The appellant, inter alia, contended that the said capital goods had been directly received within its factory under cover of valid duty-paying documents prescribed under the Rules; that the appellant was reflected as the consignee in the invoices issued by the respective manufacturers; that under the terms of the said Equipment Supply Agreement, the title and risk in the said capital goods stood transferred to the appellant upon deliver....
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.... procured through the EPC contractor for establishment of the said captive cogeneration power plant and, therefore, the appellant could not lawfully avail credit thereon. The said conclusion proceeds upon considerations which are wholly extraneous to the statutory scheme of the CENVAT Credit Rules, 2004 and is liable to be rejected. (ii) Rule 2(a) of the Rules defines "capital goods" with reference to the nature of the goods and their use in the factory of the manufacturer of the final products. Rule 3(1) entitles a manufacturer of final products to take CENVAT credit of the specified duties paid on capital goods received in the factory of manufacture of the final products. Rule 4 prescribes the stage at which such credit may be taken, while Rule 9 stipulates the prescribed duty-paying documents upon which such credit may be availed. Collectively, the Rules prescribe an exhaustive code governing the admissibility of credit upon capital goods. (iii) The legislative intent is further evident from Rule 4(3) of the Rules, which expressly permits availment of CENVAT credit even where the capital goods are acquired on lease, hire purchase or loan agreement. The Rule thu....
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....disentitle the manufacturer from availing CENVAT credit. The Tribunal held that the mere fact that the capital goods had been procured, supplied or installed through an EPC contractor engaged for establishment of the plant did not affect the manufacturer's entitlement to avail CENVAT credit under the Rules. The identity or role of the contractor in executing the project was held to be irrelevant once the statutory requirements governing availment of credit stood satisfied by the manufacturer. (ix) The CENVAT Credit Rules do not require direct procurement from the original manufacturer or supplier. The Tribunal observed that the Rules nowhere prescribe that the manufacturer claiming CENVAT credit must himself place the purchase orders upon, or make payment directly to, the original manufacturer or supplier of the capital goods. The mode of procurement adopted by the parties was regarded as a matter of commercial arrangement having no bearing upon the statutory entitlement to credit. (x) Receipt of duty-paid capital goods in the factory of the manufacturer constitutes the material statutory requirement. The Tribunal emphasised that the relevant enquiry under the....
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....odity intended for clearance or sale. It functioned solely as an integral captive utility supplying electricity and process steam for uninterrupted use in the manufacture of the appellant's paper and paperboard products. The subject capital goods accordingly retained an immediate and direct nexus with the manufacture of the appellant's said finished goods throughout the relevant period. (xv) The procurement, assembly, erection and commissioning activities undertaken by the said EPC contractor constituted nothing more than the contractual mode adopted for establishment of the said CCPP. Such activities neither altered the character of the subject capital goods nor introduced any intervening manufacturing activity capable of severing the statutory nexus recognised under the Rules. The role of the said EPC contractor concluded upon establishment of the said CCPP, whereafter the entire facility formed part of the appellant's manufacturing facility and was exclusively employed in the manufacture of the said finished goods. (xvi) The approach adopted in the said impugned order effectively treats the said EPC contractor as having manufactured an intermediate ....
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....ubject capital goods within the appellant's factory under valid duty-paying documents, CENVAT credit could not be availed until the said CCPP had been fully completed, commissioned and formally handed over by the said EPC contractor to the appellant. The aforesaid finding is wholly unsupported by the statutory scheme of the Rules and introduces a condition for availment of credit which the legislature has not incorporated or imposed upon the appellant. (xx) Rule 4(2)(a) of the Rules specifically governs the stage at which CENVAT credit upon capital goods may be taken. The Rule provides that CENVAT credit in respect of capital goods received in a factory at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year, with the balance credit becoming available in any subsequent financial year provided that the capital goods continue to be in the possession of the manufacturer. The legislative focus is therefore upon the receipt of the capital goods in the factory and not upon completion of the plant, commencement of commercial production therefrom, or formal h....
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....misdirection in law. In construing the appellant's entitlement to CENVAT credit, the learned Commissioner has failed to appreciate the true scope and ambit of Rules 2, 3, and 4 of the Rules, and has instead imported considerations relating to ownership of the subject capital goods, direct procurement thereof, contractual arrangements governing the establishment of the said CCPP, and completion, commissioning and formal handover of the facility, none of which constitutes a statutory condition for availment of CENVAT credit. The learned Commissioner has further failed to appreciate that the statutory nexus between the subject capital goods and the appellant's manufacture of the said finished goods remained wholly unaffected by the procurement, erection and commissioning activities undertaken by the said EPC contractor, and that the appellant became entitled to avail CENVAT credit immediately upon receipt of the subject capital goods in its factory under valid duty-paying documents, in accordance with the provisions of the Rules. The findings recorded in the said impugned order, being founded upon considerations extraneous to the provisions of the Act and the Rules thereunder,....
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.... the precise facts upon which the subsequent demand came to be founded. Notwithstanding such knowledge, the said show cause notice was issued only on July 24, 2017. The extended period cannot be invoked to overcome departmental inaction after all relevant facts had already come to the knowledge of the jurisdictional authorities through audit. (xxx) There was, in any event, no suppression, wilful misstatement, fraud, collusion or contravention with intent to evade payment of duty on the part of the appellant. The appellant had availed credit upon disclosed duty-paying documents, after receipt of the subject capital goods within its factory and upon the bona fide understanding that such credit was expressly admissible under Rules 2, 3 and 4 of the Rules. The dispute raised by the Department concerns only the legal effect of the procurement arrangement with the said EPC contractor and the stage at which credit upon capital goods could be availed. A dispute involving interpretation of the Rules and the legal consequences of disclosed contractual arrangements cannot, without anything further, furnish the ingredients necessary for invocation of the extended period. (xxx....
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....the entirety of the demands fall beyond the normal period of limitation of 2 years, the same are barred by limitation and are hence, liable to be set aside on this ground alone. (xxxvi) The penalty imposed under Rule 15(2) of the Rules read with Section 11AC of the Act is also liable to be set aside. In the absence of any short payment of duty, as aforesaid, there can be no scope for imposing penalty under the stated provisions. (xxxvii) Furthermore, without prejudice to the aforesaid, given the absence of any fraud, misstatement, suppression or intent to evade payment of tax on the part of the appellant herein, there can also be no basis for imposing penalty under the stated provision, the condition precedent therefor, not being satisfied in the present case. 4.2. Therefore, the Ld. Counsel appearing on behalf of the appellant have prayed that the said impugned order be set aside in entirety, with all consequential relief made available to the appellant. 5. On the other hand, the Ld. Authorized Representative of the Revenue reiterated the findings in the impugned order. 6. Heard the parties and considered their submissions. 7. Upon hearing the parties....
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....no requirement that the capital goods at the time of receipt must be owned by manufacturer or that the same would cease to be capital goods, if they are installed in the factory and become fixed to earth. In fact, most of the capital goods the machinery, equipment or instruments covered by Chapters 84, 85 & 90, pipes and tubes, pollution control equipment refractories, and storage tanks are required to be installed and after installation, the same put together constitute a manufacturing plant, which is a fixed to earth structure. Just because after being installed in the factory, the capital goods put together become a plant which is a fixed to earth structure, the Cenvat credit cannot be denied on the basis that the plant which is fixed to earth structure, is not excisable. This preposition of the Department is, in fact absurd, as there is not such condition in Rule 2(a) for capital goods. For capital goods Cenvat credit, the items must be among those mentioned in this Rule and should have been used in the factory of the manufacturer and how the items are not used relevant. The words used in Rule 2(a) are "used in the factory of manufacturer of the final product" not "used in the ....
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.... the machines/equipments are not relating to manufacture of final products. The only case of the Revenue is that these machines/equipments lose their identity as they became a part of the set up plant and have to work along with other machines/equipments to manufacture final products. This submission of the subject equipment/machines losing its identity in the sugar plant is contrary to the show cause notice as it proceeds on the basis that it is capital goods, as it restricts the allowance only to 50% of the credit for each year of use. Rule 3 of the Cenvat Credit Rules, 2002 requires the receipt of the capital goods in the factory for use in or in relation to manufacture of final products. The subject equipments/machines are undoubtedly used in or in relation to the manufacture of final products. Thus, the literal rule of interpretation when applied to the Cenvat Credit Rules, 2002 would entitle the respondent to the benefit of Cenvat credit on the duty paid equipment/machines (capital goods). 19. The reliance by the appellant on the decision of the S.S. Engineers (supra), Triveni Engineering & Industries Ltd. (supra) would have no application to the facts which arise fo....
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....justify its inapplicability to the present facts. In the face of the aforesaid decision taken by the Central Board of Indirect Taxes & Customs, we are unable to understand why the Revenue is agitating this issue before us when in another case, decided by the Tribunal, raising an identical issue, the decision of the Tribunal has been accepted. 22. We are of the view that Rule of law prevailing in this country is one of the key elements to determine ease of doing business. The Rule of law inter alia ensures absence of arbitraries in taking decisions, which would mean equal applicability of law to all concerned. Therefore, an issue as raised herein (being a pure question of law), would have all India implication not only before the Court but at various levels of adjudication under the Act. Therefore, where at the highest level i.e. at the level of the Central Board of Indirect Taxes and Customs, the Revenue has accepted a particular view on a pure question of law, then in all such cases, the Revenue should withdraw the show cause notices and/or pending proceedings. This would bring certainty in the minds of the trade as well as the Department and leading to reduction of litig....