Bannari Amman Sugars Limited vs The Commissioner of Central Excise

Aravind Kumar, J.—The assessee on being denied the Modvat credit facility by the Original Authority, Appellate Authority and as confirmed by the Tribunal is before this Court challenging the order of the Tribunal by formulating the questions of law which at the time of admission of appeal on 3-7-2006 was re-framed as follows:

(i) whether under the facts and in the circumstances of the case, the Tribunal was right in ignoring the definition of "capital goods" set out in Rule 57AA(a) of the Central excise Rules, 1944 and Rule 2(b) of the Cenvat Credit Rules, 2001 wherein "storage tanks" are specifically stated to be capital goods?

(ii) Whether under the facts and in the circumstances of the case, the Tribunal was right in ignoring the definition of "inputs" set out in the 57AA(d) of the Central Excise Rules, 1944 and Rule 2(f) of the Cenvat Credit Rules, 2001, as per which inputs include goods used in the manufacture of capital goods, which are further used in the factory of the manufacturer?

(iii) Whether under the facts and circumstances of the case, the Tribunal''s order having held at para 6 that storage tanks are not immovable property, is correct in denying Cenvat Credit on the basis of self contradictory findings?.

The appellant contends that Tribunal was in error in confirming the order of the first Appellate Authority by denying the Modvat Credit facility of credit inputs used in the manufacture of molasses storage tank in the sugar factory of the assessee on the ground that erection of the storage tank as per pollution laws was mandatorily required for the appellant to instal the said storage tank by using of steel as input.

We have heard Sri. Ravishankar, learned Counsel appearing for the appellant assessee and Smt. Veena Jadhav, learned standing counsel for the Central Government.

Sri. Ravishankar would contend that the first Appellate Authority as well as the Tribunal were in error in not considering Rule 57AA in its proper perspective and word storage tank has been inserted in the said rule by way of an amendment by issuing of notification No. 6/2001 C.E (N.T), dated 1-3-2001. He would submit that on account of non-consideration of this vital aspect by the Appellate Authority has resulted in denial of Modvat Credit. He would also submit that Appellate Authority well as the Tribunal have mis-construed the interpretation of the rule and the denial of the Modvat credit to the assessee. Elaborating his submission he would contend that in respect of the very same issue i.e., with regard to extending the Cenvat/Modvat credit facility in respect of the storage tank in the case of KCP Ltd. v. Commissioner of Central Excise, Guntur decided on 13-10-2008. The very same Tribunal has granted the relief and hence the present order of the Tribunal suffers from infirmity and there is no justification for the appellant being singled out. He would also submit that in the explanation to Rule 57AA it is clarified that the capital goods do not include any equipment or appliance used in the office and it has to be held that all other goods would fall within the category of capital goods and particularly with reference to the storage tank.

Per contra Smt. Veena Jadhav would contend that the authorities were justified in rejecting the Modvat credit in respect of the inputs used in the storage tanks since the capital goods which are used in the factory in the storage tank is embedded to the earth and the inputs used for erection of the said tank having been affixed to the earth cannot be held as "goods for levy of tax" u/s 3 of Central Excise Act 1944 and since the storage tank in question is attached to earth it is to be treated as an "immovable property" and not liable to duty and thus contends that both the Appellate Authorities were justified in rejecting the claim of the assessee. In support of her submission she has relied upon the following decision.

(i) Thungabhadra Steel Products Ltd. Vs. Union of India and Others,

(ii) Collector of C. Ex. Vs. Damodar Ropeways and Construction Co. (P) Ltd.,

(iii) Pragathi Paper Mills Ltd. v. Commissioner of C.Ex. Ghaziabad 2004 (176) E.L.T. 464 (Tri-Del).

(iv) Commissioner of C. Ex. Vs. Josts Engineering Co. Ltd.,

(v) Mittal Engineering Works (P) Ltd. Vs. Collector of Central Excise, Meerut,

(vi) Collector of Central Excise, Pune Vs. Nikhil Equipments Pvt. Ltd.,

Having heard the learned Counsel for the parties, it would be necessary to extract the relevant provision of Central Excise Rules namely Rule 57AA and the same reads as follows:

Rule 57AA: Definitions : For the purpose of this Section:

(a) "capital goods" means-

(i) all goods falling under Chapter 82, Chapter 84, Chapter, Chapter 90, heading No. 68.02 and sub-heading No. 68.01 of the First Schedule to the Central Excise Tariff Act, 1985:

(ii) Components, spares and accessories of the goods specified...above;

(iii) Moulds and dies;

(iv) refractories and refractory materials;

(v) tubes and pipes and fittings thereof, used in the factory and

(vi) pollution control equipment;

(vii) [storage tank]

used in the factory of the manufacturer of the final products.

Explanation : for removal of doubts, it is hereby clarified that "capital goods" do not include any equipment or appliances used in an offi....

(b) "exempted goods" means goods which are exempt from the...duty the duty of excise leviable thereon, and includes goods which are chargeable to "Nil" rate of duty;

(c) "final products" means excisable goods manufactured or produced from inputs, except matches;

(d) "input" means all goods, except high speed diesel oil and motor ....commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether, trained in the final product or not, and includes accessories of the final products cleared along with the final product, goods used paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production, and also includes lubricating oils, greases, cutting oils and coolants.

(Explanation 1) the high speed diesel oil or motor spirit commonly known as petrol, shall not be treated as an input for the purpose whatsoever.

(Explanation 2.- Inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacture.)

It is to be noticed that the storage tank is inserted under the definition of capital goods by notification No. 6/2001-C.E.(N.T), dated 1-3-2001 and the period involved in the present case being 12-5-2001 to 3-1-2002 namely the period for which the Cenvat/Modvat credit has been denied would definitely be applicable in the instant case. The Tribunal in identical circumstances having noticed the said amendment and having extended the benefit in respect of storage tank for final product under the Cenvat Credit Rules which is also in para materia with the Central Excise Rules, 1957 we are of the opinion that the Tribunal as well as the First Appellate Authority were not justified in rejecting the claim of the assessee for availing the Modvat credit.

In so far as the judgments relied upon by learned Counsel for respondent revenue it is seen that in Damodar Rope ways, Pragati Paper Mills Ltd., and Thungabhadra Steels cases were all prior to the insertion of "storage tanks" under the head capital goods in Rule 57AA. Hence, this definition of storage tank not being under consideration in those judgments, we are not persuaded to accept the said judgments relied upon by the learned Counsel for the revenue. Thus, we hold the said judgments would not be applicable to the facts of the case.

The definition of the capital goods itself being explicit and clear we are of the opinion that the Tribunal was in error in ignoring the definition ''capital goods'' as enumerated in Rule 57AA. In view of the above, we are of the opinion that the substantial question which had been formulated by this Court have to be answered in favour of the appellant assessee and against the revenue in so far as question Nos. 1 and 2 are concerned. In so far as question No. 3 is concerned the Tribunal having itself come to the conclusion that the storage tanks are not moveable property, it could not have held that the assessee would not be entitled to the benefit of Modvat credit. In so far as this finding of the Tribunal is concerned Smt. Veena Jadhav would hasten to add that it is an error in the order of the Tribunal.

Be that as it may, since we are holding that by virtue of insertion of ''storage tank'' under the definition ''capital goods'' question No. 3 does not arise for our consideration considering the facts and circumstances of the case. In view of the above finding, the following order is passed:

ORDER

The appeal is allowed. Questions 1 and 2 are answered in favour of the assessee-appellant and against the revenue. No costs.