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Cenvat credit on MS Angles & Channels used to construct kiln cannot be denied where amended definition of inputs allows credit on capital goods further used in manufacture process: CESTAT

2019-TIOL-2188-CESTAT-MAD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, CHENNAI
COURT NO. III

Excise Appeal No. 40961 of 2013

Arising out of Order-in-Appeal No. 12/2013, Dated: 15.2.2013
Passed by the Commissioner of Central Excise (Appeals), Madurai

Date of Hearing: 10.4.2019
Date of Decision: 10.4.2019

M/s MADRAS CEMENTS LTD
RAMASAMY RAJA NAGAR POST
VIRUDHUNAGAR – 626204

Vs

COMMISSIONER OF GST AND CENTRAL EXCISE
LAL BAHADUR SHASTRI MARG
C R BUILDINGS, MADURAI – 625002

Appellant Rep by: Shri R Parthasarathy, Consultant
Respondent Rep by: Shri L Nandakumar, AC (AR)

CORAM: Sulekha Beevi C S, Member (J)

CX – The assessee-company manufactures Cement – It availed Cenvat credit of duty paid on inputs, capital goods and service tax paid on input services – It entered into an agreement with M/s CECL for providing WCS for civil construction of new kiln for manufacturing Cement – M/s CECL paid service tax on composition scheme under works contract service as per Notification 32/2007-ST – The Revenue opined that the assessee was ineligible for credit on cement, MS angles, channels used for constructing the kiln – It opined that after construction, the inputs & capital goods became immovable property, due to which the credit on such items was not available – SCN was issued proposing to recover Cenvat credit with interest & to impose penalties – On adjudication, the demands were confirmed with interest, but penalty was dropped – Such findings were upheld by the Commr.(A) – On appeal, the Tribunal remanded the matter – On re-adjudication, the duty demands & interest were re-iterated – Hence the present appeal.

Held: The Tribunal remanded the matter with directions to examine the applicability of the decision in Vandana Global Ltd. Vs. Commissioner of Central Excise – However, this decision was overruled by the Gujarat High Court in Mundra Ports & Special Economic Zone Ltd. Vs. Commissioner of Central Excise and by the Chattisgarh High Court in Vandana Global Ltd wherein it was held that such items were eligible for credit – Moreover, Explanation (2) to the definition of ‘inputs’ during the relevant period (April 2009 to June 2009) states that inputs include goods used in the manufacture of capital goods which are further used in the manufacture of factory – It was amended w.e.f. 07.07.2009, so as to restrict the use of cement, angles & channels for construction as well as for making support structures of capital goods – Hence the denial of credit is unjustified & the O-i-A in challenge is quashed: CESTAT

Assessee’s appeal allowed

Case laws cited:

Vandana Global Ltd. Vs. Commissioner of Central Excise – 2010-TIOL-624-CESTAT-DEL-LB… Para 1

Vandana Global Ltd – 2017-TIOL-2853-HC-CHATTISGARH-CX… Para 2

Mundra Ports & Special Economic Zone Ltd. Vs. Commissioner of Central Excise – 2015-TIOL-1288-HC-AHM-CX… Para 2

FINAL ORDER NO. 40662/2019

Per: Sulekha Beevi:

Brief facts are that the appellants are engaged in manufacture of cement and are registered with the Department. They are availing CENVAT credit of duty paid on inputs, capital goods and service tax paid on input services. They entered into an agreement with M/s. Coromandel Engineering Co. Ltd. (herein after referred to as CECL) for providing works contract service for civil construction of new kiln at the factory premises for manufacture of cement. The said CECL paid service tax on composition scheme under works contract service as per Notification 32/2007-ST dated 22.5.2007. It therefore appeared to the department that the appellants are not eligible for the credit of the materials namely cement, MS angles, channels etc. used for construction of kiln. The department was also of the view that after construction, the said inputs/capital goods became immovable property therefore the credit on such items is not available. Show Cause Notice was issued alleging the above and also for recovering the CENVAT credit to the tune of Rs.1,56,354/- along with interest and also for imposing penalties.. After due process of law, the original authority confirmed the demand and interest but however dropped imposing penalty. In appeal, Commissioner (Appeals) upheld the same. The appellant approached the Tribunal and vide Final Order dated 21.12.2012 remanded the matter to the original authority to reconsider the issue in light of the decision of the Tribunal’s Larger Bench in the case of Vandana Global Ltd. Vs. Commissioner of Central Excise – 2010 (253) ELT 440 (Tri. LB) = 2010-TIOL-624-CESTAT-DEL-LB. In such denovo adjudication, the original authority confirmed the demand and interest. In appeal, Commissioner (Appeals) upheld the same. Hence the appellants are once again before the Tribunal.

2. On behalf of the appellant, ld. consultant Shri R. Parthasarathy submitted that the Tribunal had remanded the matter to relook into the issue on the basis of the decision in Vandana Global Ltd. (supra). The said decision is no longer good law and the Hon’ble High Court of Chattisgah in the case of Vandana Global Ltd. reported in 2018 (16) GSTL 462 (Chatt.) = 2017-TIOL-2853-HC-CHATTISGARH-CX as well as the Hon’ble High Court of Gujarat in the case of Mundra Ports & Special Economic Zone Ltd. Vs. Commissioner of Central Excise – 2015 (39) STR 726 (Guj.) 2015-TIOL-1288-HC-AHM-CX have held that the decision of the Larger Bench of the Tribunal is without proper analysis of the law. It is also submitted by the ld. consultant that the jurisdictional High Court in the appellant’s own case has held that the impugned items which are used for construction of support structures and foundations for capital goods would be eligible for credit during the disputed period. He referred to Explanation (2) in the definition of ‘inputs’ during the relevant period and submitted that the Explanation makes it clear that input includes goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Kiln is a type of machinery required for manufacture of cement. He referred to the amendment brought forth in the definition of capital goods wherein Explanation (2) was amended to restrict the use of cement, angles, channels etc. for the use of construction in factory shed, building or laying of foundation. The ld. consultant thus argued that prior to 7.7.2009, there was no restriction for the use of cement, angles, channels etc. for construction of shed or laying of foundation. He thus argued that credit is eligible.

2.1 It is also submitted by the ld. consultant that the main allegation in the show cause notice is that the service provider has remitted the service tax under the works contract service under composition scheme and that therefore the appellant is not eligible for credit. This is an erroneous interpretation of the provisions of law. Even though the service provider opts to pay service tax under composition scheme, credit is ineligible only to the service provider and not to the appellant who has used the inputs for the construction of kiln. He therefore prayed that credit may be allowed.

3. The ld. AR Shri L. Nandakumar supported the findings in the impugned order. He submitted that the appellant has availed credit on cement, MS angles and channels etc. which are used for construction of kiln. The said items were supplied free of cost by the appellant to the contractor namely CECL. The said contractor has paid service tax under the composition scheme. As per Notification 32/2007-ST dated 22.5.2007 while paying service tax under composition scheme CENVAT credit cannot be availed. Since the appellants have supplied the materials free of cost, they are not eligible to avail the credit on the same. It is also submitted by the ld. AR that after construction, the kiln is an immovable property, therefore the credit availed on the impugned items are not eligible. To support his argument, he relied upon Vandana Global Ltd. – 2010 (253) ELT 440 (Tri. LB) = 2010-TIOL-624-CESTAT-DEL-LB

4. Heard both sides.

5. The appellant is aggrieved by the disallowance of credit on items such as cement, MS angles, channels etc. It is not disputed that the items were used for work relating to installation of a new kiln in the factory. The appellant had procured duty paid TMT rods, steel rods, TOR steel, TMT bars, TMT rebar coil, steel structures etc. and supplied the same free of cost to CECL for construction of civil structure as well as supporting structures. The first allegation is that since the service provider namely CECL remitted service tax opting for composition scheme, the appellant cannot avail the credit. The second allegation is that after construction the kiln is embedded to earth and is an immovable property and therefore the goods that are used for such construction of immovable property which is non-excisable is not eligible. The Tribunal had in its earlier order remanded the matter directing to look into the issue on the basis of the Tribunal’s Larger Bench decision in Vandana Global Ltd. (supra). However, the said decision is now held to be no longer good law as rendered by the Hon’ble High Court of Gujarat in the case of Mundra Ports & SEZ Ltd. (supra) as well as the Hon’ble High Court of Chattisgarh in the latest decision in the case of Vandana Global Ltd. (supra) wherein it has been held that such items are eligible for credit. Moreover, Explanation (2) to the definition of ‘inputs’ during the relevant period (April 2009 to June 2009) states that inputs include goods used in the manufacture of capital goods which are further used in the manufacture of factory. An amendment was brought to Explanation (2) with effect from 7.7.2009 whereby a restriction was introduced for use of cement, angles, channels etc. for construction as well as for making support structures of capital goods. From the amendment, it can be safely concluded that prior to the amendment, the eligibility of credit on cement, MS angles, channels etc. used for construction, they are not ineligible.

6. From the foregoing discussions, I hold that the disallowance of credit is unjustified. The impugned order is set aside and the appeal is allowed with consequential relief, if any.

(Dictated and pronounced in open court)

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