M/S. Sadguru Sri Sri Sakhar Karkhana Ltd vs Commissioner Of CGST

Ajay Sharma, Member (J)

This appeal has been filed assailing the order dated 4.9.2018 passed by the Commissioner (Appeals-I) Central Tax, Pune by which the learned Commissioner upheld the demand of Rs.14,77,770/- alongwith interest and penalty.

The issue to be decided herein is whether the Cenvat credit availed by the appellants on the structural steel used for erection of poles for transmission of electricity from MSEB feeder to factory and vice versa and for supporting other capital goods is admissible?

The facts leading to the filing of the instant appeal are stated in brief as follows. The appellants are engaged in the manufacture of Sugar and its by-product Molasses. During the period 2011-12 to 2013-14 they availed CENVAT credit of the structural material used for erection of structural towers outside the factory premises for transmission of electricity and for laying of foundation for making of structures for support of capital goods. The anti-evasion wing of the department visited the appellant’s premises in the month of March, 2014 and raised objection on the availment of credit and the appellant immediately reversed the credit of Rs.22,45,310/- on 11.3.2014 which they had availed on the structural steel used for erection of poles for transmission of electricity from MSEB feeder to factory and vice versa and on the steel material which is used for fabrication of supporting structures of capital goods. Thereafter as per the direction of Anti-evasion officers, the appellants reversed the credit of Rs.2,49,920/- on 11.2.20215 which they availed on MS Beam, MS channels which were used as structure for supporting the machinery in the factory. Despite reversal, since as per department the same was inadmissible as per the definition of input service appearing in Rule 2(l) of Cenvat credit Rules, 2004, a show cause notice dated 29.4.2016 was issued to the appellant proposing to deny and recover the Cenvat credit of Rs.24,95,230/- by invoking extended period of limitation, which culminated into Order-in-Original dated 28.2.2018 by which the Adjudicating Authority disallowed the credit of the said amount and ordered for its recovery alongwith interest and equal penalty. On appeal filed by the Appellant, the learned Commissioner (Appeals) vide impugned order dated 4.9.2018 although allowed the credit of Rs.10,17,460/- which was availed on MS Beams, MS Channels as support for erection of capital goods (machinery) but disallowed the same for the credit availed of Rs. 14,77,770/- being not covered under the definition of the ‘capital goods’ in terms of Rule 2(a) of CCR, 2004.

I have heard learned Counsel for the appellant and learned Authorised Representative for the Revenue and perused the case records including the synopsis & case laws placed on record by the learned counsel. No justification has been provided by the department regarding the delay in issuing the show cause notice. Although the alleged irregularity has come to the notice of the department in the month of March, 2014 and the statement were also recorded during that month only, but still the show cause notice was issued much belatedly on 29.4.2016 without assigning any reasons for delay in issuance. In view of precedents by virtue of various decisions of this Tribunal the same ought to have issued within one year from the date of the knowledge about the alleged irregularity. Another hurdle for the department here is that extended period has been invoked by them whereas it is the specific case of the appellants that the availment of Cenvat credit has been duly declared by them in their books of accounts, Cenvat credit registers and ER-1 returns as well which they filed from time to time. Therefore no suppression can be alleged against the appellant and extended period cannot be invoked nor the penalty be imposed on that count. Since complete information was given in statutory returns the normal period of one year would be applicable whereas the proceedings are initiated at a later date and hence the demand is barred by limitation.

So far as the issue on merits is concerned, in a nutshell the entire credit availed by the appellants on MS Angles, MS Beams, MS channels and poles for wire for transmission of electricity from MSEB feeder to the factory manufacturing sugar and vice versa has been denied on the ground that it is outside factory premises and not eligible capital goods. It is not disputed that the poles etc. were used for supplying electricity in the factory for the purpose of manufacture sugar and it’s by product molasses etc. For running the machinery electricity is essential without which there will be no production. The poles might be outside the factory but for the purpose of manufacturing activity inside the factory. The location is not of much relevance here but the purpose. It is directly related to manufacture of final product in the factory. Therefore the obvious conclusion is that the goods, in issue, even though it is used outside the factory, since it is used in or in relation to the manufacture of final product, the credit of Rs.12,27,850/- in respect of the goods in issue is admissible in terms of Rule 2(a) ibid. So far as steel items are concerned, it is the case of the appellant that they have been used for supporting structure of the machinery and also for erection of poles for transmission of electric energy from MSEB feeder to factory and vice versa and since nothing contrary has been produced on record anywhere therefore in my view the same is treatable as accessories and would fall within the definition of capital goods as provide by Section 2(a) ibid being the components/ parts/accessories of the capital goods which are specifically covered within the definition irrespective of its classification. Therefore the credit of Rs.2,49,920/- availed on MS Beam, MS channels is also admissible.

In view of the discussions held hereinabove the demand is set aside on merits as well as on the ground of limitation and accordingly the impugned order is set aside. The appeal is allowed with consequential relief, if any, as per law.