Full Judgement
Bombay High Court
Commissioner Of Central Excise vs M/S. Larsen And Toubro Ltd. And ... on 14 January, 2022
Bench: A.S. Chandurkar, G. A. Sanap
CEL.16.2006judge.odt
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR.
CENTRAL EXCISE APPEAL NO. 16 OF 2006
Commissioner of Central Excise,
Nagpur, Central Excise Building,
Telangkhedi Road, Civil Lines,
Nagpur. .....APPELLANT
..VERSUS..
1. M/s. Larsen & Toubro Ltd.,
Awarpur.
2. The Custom Excise and Service
Tax Appellate Tribunal,
West Zonal Bench at Mumbai,
Jai Centre, 3rd floor, 34,
P.D., Mello Road, Poona Street,
Masjid Bunder (East),
Mumbai- 400 009. ....RESPONDENTS
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Mr. S. N. Bhattad, Sr. Standing Advocate for appellant
Mr. Rajesh Otswal, Adv. with Mr M. Anilkumar, Advocate for respondent No.1
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CORAM : A. S. CHANDURKAR AND G. A. SANAP, JJ.
DATE ON WHICH ARGUMENTS WERE HEARD : 02.12.2021
DATE ON WHICH JUDGMENT IS PRONOUNCED :14.01.2022
J U D G M E N T (Per : G. A. SANAP, J.)
This appeal filed by the Revenue was admitted on the following two substantial questions of law. 31.07.2017.
i} Whether the CESTAT was correct in holding that the respondent No.1 is entitled to avail the credit on goods used in CEL.16.2006judge.odt 2
erection of Captive Power Plant by two other Divisions of respondent No.1's group especially when "Rule 57Q(6) of the erstwhile Central Excise Rules, 1944 specifically stipulated that, "a manufacturer shall be allowed credit of specified duty paid on capital goods manufactured by him for the manufacture of the final products in his factory ?
ii} Whether the CESTAT was correct in holding that respondent No.1 can avail Modvat Credit on duty paid inputs or any goods used in the manufacture of Captive Power Plant without filing the declaration under Rule 57G and without following the procedures required under rule 57(T)(7) and without obtaining registration certificate as required under Rule 174 (4) of the erstwhile Central Excise Rules, 1944.
2] The facts giving rise to the above substantial questions are as follows:
The Assistant Commissioner Customs and Central Excise, Chandrapur vide order dated 26.11.1999 dis-allowed the Modvat Credit on Capital goods availed by the respondent No.1 and directed the recovery of the same with penalty. The Commissioner (Appeals) Central Excise and Customs, Bhopal vide order dated 05.02.2002 set aside the order passed by the Assistant Commissioner and held that the Modvat Credit availed by the respondent No.1 was according to the law and rules. The appeal filed by the Revenue against the order of Commissioner was CEL.16.2006judge.odt 3
dismissed by the Customs, Excise & Service Tax Appellate Tribunal, West Regional Bench at Mumbai (For short 'CESTAT') vide order dated 27.09.2005. The appellant-Revenue is in the appeal before this Court against the order passed by the CESTAT.
3] The respondent No.1-M/s. Larsen & Toubro Ltd., Awarpur are engaged in the manufacture of cement. The respondent No.1 is holder of a Central Excise Registration. The respondent No.1 for availment of Modvat Credit filed declaration with the Assistant Commissioner, Central Excise, Division Chandrapur. During the course of scrutiny of the Central Excise records for the month of October 1998, it was observed that the respondent No.1 has availed credit on the goods used for erection of the captive power plant, as a capital goods under Rule 57-Q of the Central Excise Rules, 1944 (hereinafter referred to as "the Rules 1944"). The scrutiny revealed that the respondent No.1 was not entitled to avail the Modvat Credit. The five show cause notices dated 30.04.99, 02.07.1999, 19.07.1999, 29.03.2000 were therefore, issued to the respondent No.1. It was stated in the show cause notices that the captive power plant 2 X 23 MW was erected in the premises of the noticee by the other divisions of M/s. Larsen & Toubro Ltd. namely Group-II and LTCG. M/s. Strategic ICPP planning Division/Projects of M/s. Larsen & Toubro Ltd. had placed with Group-II of M/s. Larsen & Toubro Ltd. work order for design, engineering, manufacturing, supply, procurement, CEL.16.2006judge.odt 4
construction, erection, testing or commissioning of coal based captive power plant. For said commissioning, a work order was issued by M/s. Larsen & Toubro Ltd. Group-II. The respondent No.1 has agreed to make available free of cost the following amenities.
i] Land for CPP construction and ran water storage ii] Land for project guest house, housing colony and labour colony, iii] Documentation/facilitation in seeking statutory clearnces, iv] Office space for core project team v] Construction power vi] Construction water vii] Drinking water
It is stated that this work order does not include procurement of all material i.e. capital goods and inputs required for erection of power plant. The work order revealed that the respondent No.1 is not manufacturer and the captive power plant was erected and commissioned by the Group-II and LTCG of M/s. Larsen & Toubro Ltd. Group. It is the case of the Revenue that based on such arrangement the respondent No.1 has taken Modvat Credit on the capital goods/inputs used for the construction of the captive power plant, prior to endorsing the new product to be manufactured by using the said capital goods, in the registration certificate as per Rule 174(7) of the Rules 1944 and also prior to filing a declaration of factory premises and the equipment of the power plant as per rule CEL.16.2006judge.odt 5
44(3) of the Rules 1944. It is stated that this was in a total contravention of the provisions of Rule 174 (7) and Rule 44(3) of the Rules 1944. It was further stated in the notice that, the capital goods as mentioned were installed outside the registered factory premises and as such was not entitled for Modvat Credit under Rule 57-Q of the Rules 1944. It was the specific case of the Revenue that the Modvat Credit amounting to Rs.16,09,399/- availed by the respondent No.1 was in contravention of the above Rules. As such, the Revenue called upon the respondent No.1 to show cause why the Modvat Credit availed by the respondent No.1 should not be dis-allowed and recovered and also why the penalty should not be imposed with interest.
4] The case of the respondent No.1 as can be seen from the reply to the show cause notice indicate that the respondent No.1 has denied the contents of the notices. It is the case of the respondent No.1 that they are engaged in the manufacture of Cement. The respondent No.1 installed a captive power plant 2 X 23 MW in the factory premises of the respondent No.1, by the divisions of respondent No.1 namely Group -II and LTCG. These two divisions of the respondent- company do not have any separate legal entity per se and perform their function as a part of the respondent No.1. The respondent No.1 on their own erected the power plant in the factory. The respondent No.1 have a single Central Excise registration for the entire factory and for CEL.16.2006judge.odt 6
manufacture of excisable goods. The registered ground plan of the respondent/factory covers the area where the power plant was erected. The electricity generated through this power plant is used captively within the factory for the manufacture of dutiable cement. The respondent No.1, therefore, availed Modvat credit during the period from October 1998 to December 1999 being duty paid on the capital goods used for erection of the captive power plant under Rule 57-Q of the Rules 1944. It is the case of the respondent No.1 that there was no substance in the objection raised by the Revenue. The five show cause notices issued to the respondent No.1 by the Revenue seeking recovery of the Modvat Credits were illegal. The respondent No.1 on the above grounds opposed the notices.
5] The Assistant Commissioner as mentioned above dis- allowed the Modvat Credit and ordered the recovery. The said order of the Assistant Commissioner was set aside by the Commissioner (Appeal) by holding that the Modvat Credit availed on the dutiable goods used for construction of the captive power plant was according to law and the respondent No.1 was entitled to avail the credit. The CESTAT confirmed the order of the Commissioner (Appeals). Being aggrieved by the order passed by the CESTAT the appellant Revenue is before this Court in appeal.
6] We have heard the learned Advocate for the appellant and the learned Advocate for the respondent. We have perused the CEL.16.2006judge.odt 7
record and proceedings.
7] The learned Advocate for the appellant submitted that the respondent No.1 has not obtained registration in respect of the goods manufactured by the Divisions of the respondent No.1. The learned Advocate further submitted that M/s. Larsen & Toubro Ltd. had not erected the captive power plant and therefore, was not entitled to get the credit on the goods/inputs used for the construction of the captive power plant. The captive power plant does not fall under any of the category of the goods prescribed as a 'excisable goods'. The learned Advocate submitted that therefore, the duty paid for erection of the power plant cannot be claimed as 'Modvat Credit'. The learned Advocate further submitted that the erection of the captive power plant does not amount to manufacture. In order to seek support to his submission, the learned Advocate relied upon the decisions in the case of Gajra Gears Ltd. .v/s. Commissioner of Customs & Central Excise 1 and the decision in the case of Saraswati Sugar Mills .v/s. Commissioner of C. Ex., Delhi-III 2. Relying upon these judgments the learned Advocate submitted that the CESTAT has committed error in dismissing the appeal filed by the Revenue. The learned Advocate by drawing our attention to the judgment of the CESTAT submitted that all the grounds raised by the appellant were not considered and decided.
1. 2015 (320) E.L.T. 38 (SC)
2. 2011(270) E.L.T.465 (SC) CEL.16.2006judge.odt 8
8] The learned Advocate for the respondent No.1 submitted that the respondent No.1 has single Central Excise registration for the entire factory and for manufacture of excisable goods. It is submitted that the registered ground plan of the respondent No.1/factory covers the area where the power plant has been erected. The learned Advocate submitted that other Divisions of the respondent No.1 i.e. Group-II and LTCG have erected captive power plant as a part of the respondent No.1's legal entity. These divisions are not separate legal entity. The learned Advocate submitted that as per Rule 57-Q(1) of the Rules 1944 the respondent No.1 is entitled for Modvat Credit in respect of the specified goods used in the factory of the manufacturer. The learned Advocate pointed out that goods were received within the factory of the manufacturer and therefore, the respondent No.1 has correctly availed Modvat Credit. The learned Advocate relying upon Rule 57-Q(6) of the Rules 1944 submitted that the respondent No.1 was entitled to avail the credit of a specified duty paid on capital goods manufactured by him for the manufacture of final products in his factory. In order to seek support to his submission, the learned Advocate has relied upon the decisions in the cases of Commissioner of Central Excise, Mumbai-III .v/.s N.R.C. Ltd.3, Gujrat Ambuja Cement Ltd. .v/s. Commissioner of C. Ex. Chandigarh4 , Commissioner of Central Excise, Raipur .v/s.
3. 2001(135) E.L.T.1012 (T)
4. 2001 (130) E.L.T. 129 (Tri-Del.) CEL.16.2006judge.odt 9
H.E.G. Ltd.5 and Kothari Sugars and Chemicals Ltd. .v/s. Commissioner of C.Ex., Trichy6. Relying upon these judgments the learned Advocate submitted that the credit cannot be denied on any ground including the ground that the capital goods are embedded to earth and becoming immovable property.
9] As far as the second substantial question is concerned, the learned Advocate submitted that the credit cannot be denied for want of observance of the proper procedure provided under Rule 57-G and Rule 57-T of the Rules 1944. The learned Advocate pointed out that the Revenue has not seriously resisted this issue. It is also pointed out that the Commissioner (Appeals) in the present case vide order in appeal dated 05.02.2002 has referred to the board Circular No. 441/7/99-CX dt. 23.02.1999 and observed that on account of procedural lapse the department should not deny benefits to the respondent No.1 on the ground of a procedural irregularity.
10] In order to appreciate the rival submissions we have gone through the records and proceedings and decisions relied upon by the learned Advocates for both the parties. On perusal of the record and the law laid down in the decisions, we are of the opinion that there is no substance in the appeal. The substantial question No.1 will have to be answered in favour of the respondent No.1. Few
5. 2004(177) ELT 605 (T)
6. 2007(220)E.L.T.264 (T) CEL.16.2006judge.odt 10
facts having bearing with the substantial question of law arising the appeal may be stated. The respondent No.1-M/s. Larsen & Toubro Ltd. is a legal entity. The respondent No.1 has single Central Excise Registration for the entire factory and for manufacture of excisable goods. The registered ground plan of the respondent No.1's factory covers the area where the captive power plant has been erected. It is undisputed that the power plant is within the approved ground plan of the factory. It is further pertinent to note that the entire electricity generated is used captively within the factory for the manufacture of dutiable cement. The Commissioner (Appeals) and the CESTAT have accepted the case of the respondent No.1 that the captive power plant was constructed by the respondent No.1. The perusal of record would show that the Divisions of the respondent No.1 namely Group-II and LTCG have no independent existence. They are not separate legal entity. They are the Divisions of respondent No.1. These Divisions are functioning as a part of respondent No.1 itself. The respondent No.1, therefore, availed the Modvat Credit being duty paid on the capital goods used for the erection of the captive power plant. It is further pertinent to note that there is hardly any dispute by the appellants that the goods are not falling under Rule 57-Q of the Rules 1944, being capital goods.
11] In view of this factual position, it would be necessary to appreciate the submission in the background of the law laid down in CEL.16.2006judge.odt 11
the decisions relied upon by the learned Advocates for both the parties. The CESTAT has held that Rule 57-Q sub-rule 6 of the Rule 1944 allows capital goods credit to a manufacturer in respect of his factory and since M/s. Larsen & Toubro Ltd. as a whole to be treated as a one manufacturer, there can be no objection to erection and manufacture of a power plant by another unit of the same manufacturer so long as it is used in the factory belonging to them. The CESTAT further held that the Modvat Credit in respect of a power plant was earlier allowed by the Tribunal in its earlier orders in the cases of Gujrat Ambuja Cement (supra) & C.C.E. Mumbai- III (supra). It appears that the CESTAT Mumbai has taken a view in this case consistent with the earlier view. It is pertinent to note that the decision of the appellate Tribunal in the case of C.C.E. Mumbai-III (supra) was upheld by this Court vide order dated 07.10.2008 in CEXA No. 12 of 2002. It would be necessary to state that in this case the capital goods acquired by manufacturer for use in his factory were held to be eligible for Modvat Credit. Para Nos.5, 6 and 7 of the decision in the case of C.C.E. Mumbai-III (supra) decided by Tribunal are relevant. The same are reproduce thus:
" 5. It is no doubt true that the immediate result of assembly or putting together of the alternator and the diesel engine resulted in the emergence of a diesel generating set To that extent, it would be correct to say that these two components were used in the manufacture of a diesel generating set, which was exempted from duty.
It is necessary at this point to take note of the significant difference in phraseology between Rule 57A, relating to CEL.16.2006judge.odt 12
modvat credit, of the duty paid on inputs (other than capital goods) used in or in relation to the manufacture of the final products, and Rule 57Q relating to credit to be taken of duty paid on capital goods. Rule 57A, specifically provides that the inputs must be used in or in relation to the manufacture of the finished product. There is no such requirement in Rule 57Q. All that it requires is that the capital goods must be used in the manufacture of the specified final products. The requirement that the capital goods must be used in or in relation to the manufacture of the final product is absent. That this difference in wordings is deliberate is clear from the circular of the Board explaining the changes made in the budget of 1994 part of which relates to credit on capital goods incorporated in the Central Excise Rules. Paragraph 71.5 of this circular emphasises that "There is no reference to the expression "used in or in relation to the manufacture of final products". It goes on to say that "capital goods acquired by a manufacturer for use in his factory are eligible to modvat credit."
6. The manufacturer, in each case, acquired the components of the generating set, not for use in the manufacture of the generating set as a final product, but to generate electricity required for the manufacture of tyre cord and other such goods, which are their final product. It would therefore not be correct to say that the components were used exclusively in the manufacture of the generating set. It would be more appropriate to say that these components were put together into a generating set for the manufacture of tyre cord and other final product. The explanation that the departmental representative tendered, if accepted, would in effect result in denying modvat credit contrary to the provisions of law, in a very large number of cases. The definition of capital goods in the Table to Rule 57Q, includes components, spares and accessories of various machines, machinery, apparatus, appliances etc specified therein. Every time any manufacture brings in a components to replace a damaged or worn out components in any of the machinery in its factory, it could be argued that the component it is not directly used in the manufacture of the final product. The component can also be said to be CEL.16.2006judge.odt 13
used to manufacture a machine in which it will be fitted as a replacement, that machine already exists even in the absence of the component. Therefore, none of the components would ever be continued to be used in the manufacture of any commodity and therefore could not be capital goods. The absurdity of this conclusion destroys the merits in the submission.
7. The second ground is also equally without merit. No doubt, the manufacturer of the generating set was M/s Wartsila NDS (India) Ltd or M/s Modi Mirrless Blackstone Ltd. However, the credit that is sought to be taken is not the credit of the duty payable, if any, on the generating set. The credit is sought to be taken on the components of the generating set. Here again, the manufacturer is some one other than the person who has taken the credit. Now if the condition is that it is only the person who paid should take the credit, it will mean that credit will only be available on capital goods, if they are solely utilised in the factory of their production. The credit in no case will be available where the capital goods are taken out for fitment or installation in any other factory. Apart from the fact that there is no such requirement in the rules, such an interpretation will totally frustrate the object of the scheme to provide modvat credit on capital goods and therefore cannot be accepted."
12] The Himachal Pradesh High Court has affirmed the decision in Gujrat Ambuja Cement case (supra). The same view has been taken in Commissioner of Central Excise .v/s. Gujrat Ambuja Cement Ltd.7. Para Nos. 5 and 6 of this decision are relevant. It would be advantageous to reproduce para Nos, 5 & 6. The same reads thus:
"5. Both the arguments raised are without any merit. There can be no dispute that excise has
7. 2010 (256) E.L.T. 356 (H.P.) CEL.16.2006judge.odt 14
been paid on some of the components of the DGPP. Since the DGPP is exempt from payment of excise no Modvat credit can be claimed by the manufacture of the DGPP, in the present case WDIL. However, there is no dispute that this DGPP is part and parcel of the factory of the respondent. It is definitely a capital good and therefore Rule 57Q is applicable. Rule 57Q enables a party to claim credit of duty paid on capital goods by the manufacturer of specified goods. Under Sr. No. 5 to the table of the said Rule, a manufacture is entitled to claim Modvat Credit on account of the excise paid on the components, spares and accessories of the goods exempt. A DGPP is a capital good. If duty is paid on the components used in its manufacture, we see no reason why the manufacturer cannot claim Modvat credit for such duty.
6. It would also be pertinent to mention that on the basis of the order passed by the CEGAT in the present case, manufacturers in other parts of the Country claim Modvat credit of the excise paid on the components of the DGPP. These matters were decided by different Bench of the CEGAT in favour of the manufacturers following the decision rendered by the CEGAT in the present case. The Revenue filed a reference petition against one such order in the High Court of Rajasthan in Jodhpur being other Tax Reference Civil Appeal No. 18 of 2003 (Union of India v. Aditya Cement and Anr.) which reference was rejected by a Division Bench of said High Court on 27-3-2008. Another case was decided by another Bench of the CEGAT in the case of M/s. Century Rayon Ltd. The Revenue challenged this order in Central Excise CEL.16.2006judge.odt 15
Application No. 12 of 2002 which has also been rejected by the Bombay High Court on 7th October, 2008. It is thus clear that two other Courts have decided this issue in favour of the manufacturers."
It is, therefore, seen that both the judgments relied upon by the CESTAT in the order have been confirmed by the High Courts.
13] The learned Advocate for the Revenue relying upon the decisions in the cases of Gajra Gears (supra) and Saraswati Sugar (supra) submitted that the law laid down in these two cases does not support the case of the respondent No.1 and based on the proposition the respondent No.1 is not entitled to avail the Modvat Credit on the capital goods. In the case of Saraswati Sugar (supra) the issue was whether the Iron and Steel structures items used in support structure would be covered by the definition of the capital goods under Rule 57-Q. In this appeal the issue involved is different. There is no dispute that the items on which credit was taken are capital goods and covered by definition of capital goods used under Rule 57-Q(1) of the Rules 1944. In the case of Gajra Gears (supra) the assessee was manufacturing "3 FAG Pallets" within the factory which were captively consumed in the manufacture of finished goods. In this background, the issue arose as to whether the appellant, in respect of 3 FAG Pallets, can claim CEL.16.2006judge.odt 16
benefit of notification No. 67/95-C.E. dt. 16.03.1995 or not. The notification exempted levy of excise duty on the intermediate goods manufactured in the factory and used captively for the manufacture of dutiable finished goods. In the present case, the dispute relates to the denial of the credit on capital goods used in the manufacture of captive power plant and the power so generated is used in the manufacture of dutiable goods within the factory. The dispute is not relating to demand of a duty on the intermediate goods whereas in the judgment of Gajra Gears (supra) demand was raised on the intermediate goods. It is further pertinent to note that the department is not demanding excise duty on captive power plant or electricity. In our view, therefore, the decisions relied upon by the learned Advocate for the appellant are not applicable in this case. The decisions relied upon by the learned Advocate for the respondent No.1 are applicable to the facts situation obtained on record in this case. We are, therefore, of the opinion that the CESTAT was right in rejecting the appeal filed by the Revenue and uphelding the order passed by the Commissioner (Appeals). In our view, on appreciation of the facts and law no other view is possible. Accordingly, we answer question No.1 in favour of the respondent No.1.
14] As far as the question No.2 is concerned in view of answer to a question No.1 it has become purely academic. Besides, the Commissioner (Appeals) has recorded a concrete finding that CEL.16.2006judge.odt 17
the procedural lapse on the part of the respondent No.1 would not be a ground to deny the Modvat credit, which the respondent No.1 is otherwise entitled. The CESTAT Mumbai has confirmed this order of the Commissioner. The reliance has been placed on Board circular No. 441/7/99-CX dt. 23.02.1999. In our view, the decision of the Commissioner (Appeals) confirmed by the CESTAT on these grounds does not warrant any interference. In our view, therefore, this question is also required to be answered in favour of the respondent No.1.
15] In view of the above, we conclude that there is no substance in the appeal filed by the Revenue. The appeal deserves to be dismissed. Hence, the following order.
ORDER
i] The Central Excise Appeal is dismissed.
ii] The parties shall bear their own costs.
JUDGE JUDGE
Namrata
Signed By:NAMRATA YOGESH
DHARKAR
P. A.
High Court Nagpur
Signing Date:14.01.2022 18:23
