Over 2 lakh Indian cases. Search powered by Google!

Case Details

UNION OF INDIA versus M/S HINDUSTAN ZINC LTD.

High Court of Rajasthan

Case Law Search

Indian Supreme Court Cases / Judgements / Legislation

Judgement


UNION OF INDIA v M/S HINDUSTAN ZINC LTD. - CEA Case No. 75 of 2006 [2007] RD-RJ 3872 (9 August 2007)

-1-

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN

AT JODHPUR

JUDGMENT

D.B. CENTRAL EXCISE APPEAL NO.75/2006

(Union of India Vs. M/s Hindustan Zinc Limited & Anr.)

D.B. CENTRAL EXCISE APPEAL UNDER

SECTION 35G OF THE CENTRAL EXCISE

ACT, 1944. 09th August, 2007

Date of Judgment :

PRESENT

HON'BLE MR. JUSTICE P.B.MAJMUDAR

HON'BLE MR. JUSTICE DEO NARAYAN THANVI

Mr. V.K.Mathur for the appellant.

Mr. Dinesh Mehta for the respondents.

BY THE COURT : (PER MAJMUDAR,J.)

REPORTABLE

By filing this Appeal, the appellant Union of India has challenged the final Order No.137-38/06-EX dated 30.01.2006 passed by the Customs, Excise and Service Tax Appellate

Tribunal, New Delhi. By the same, the Tribunal has set aside the order denying Cenvat Credit to the respondent and has allowed the appeal filed by the respondent-assessee. A show cause notice dated 20.01.2005 was issued by the Additional

-2-

Commissioner, Central Excise Commissionerate, Jaipur-II asking the respondent-assessee as to why the amount of

Rs.37,29,625/- availed by the respondent- assessee as irregular

Cenvat Credit should not be recovered from it under Rule 12 of the Cenvat Credit Rules, 2002 (hereinafter referred to as the

Rules of 2002) read with Section 11A of the Central Excise Act, 1944. The respondent-assessee was also asked to show cause as to why penalty should not be imposed upon it under Rule 13 of the Rules of 2002 read with Section 11AC of the Central

Excise Act, 1944. The respondent-assessee was also asked to show cause as to why penalty should not be imposed upon it under Rule 25 of the Central Excise Rules, 2002 as well as to show cause as to why interest should not be recovered from it under Rule 12 of the Rules of 2002 read with Section 11AB of the Central Excise Act, 1944. The said show cause notice was issued on the ground that the respondent-assessee, which is engaged in manufacture of Lead, Zinc and other material appears to have wrongly availed Cenvat Credit to the tune of

Rs.37,29,625/- on cement, explosives and oil & lubricants used in the mining area treating them as inputs under Rule 2(g) of the

Rules of 2002 during the period between January, 2004 to June, 2004. The details of the same were given in the said show cause notice. As per the said show cause notice, Cenvat Credit amount to the tune of Rs.37,29,625/- has been taken regarding

-3- cement, explosives and oil & lubricants, but the same has not been used in the factory premises of the respondent-assessee as defined in Section 2(e) of the Central Excise Act, 1944, but the same was used in the mining area for excavation of ores and as per Rule 2(g) of the Rules of 2002, inputs must have been used within the factory of production. The another ground mentioned in the show cause notice was that the Ordinary Portland Cement has been used in the mining area located at the depth of 100 mtrs. to 600 mtrs. below the ground level for the purpose of filling the gaps in the form of cut and fill the same for excavation of ores so as to provide strength and safety to the roof of mining area. The cement has been used as a construction material so as to provide safety to the roof of mining area. Being a construction material, cement is not eligible as input for taking

Cenvat Credit under Rule 2(g) of the Rules of 2002. Therefore, the credit taken on cement is irregular and is liable to be recovered under Rule 12 of the Rules of 2002. According to the said show cause notice, the respondent-assessee has wrongly availed Cenvat Credit to the tune of Rs.37,29,625/- on cement, explosives and oil & lubricants during the period between

January, 2004 to June, 2004 used in the mining area treating them as inputs. The respondent-assessee was accordingly asked to show cause as to why the said amount should not be recovered with interest as per the Rules. The respondent-

-4- assessee submitted his detailed reply on 04.05.05 challenging the said show cause notice on various grounds and requested that the case may be dropped. It is the case of the respondent- assessee that it is not necessary that the inputs might be used within the factory premises and even if it is used in the mines, such mines should also be considered as factory for the purpose of Cenvat Credit.

The Additional Commissioner, Central Excise

Commissionerate , Jaipur-II after considering the material on record, ultimately came to the conclusion that the respondent- assessee has availed Cenvat Credit by misconstruction and misinterpretation of law and, accordingly, disallowed the Cenvat

Credit of Rs.37,29,625/-, as it was found that the same was wrongly availed. The Additional Commissioner, Central Excise

Commissionerate, Jaipur-II accordingly passed the order for recovery of the said amount with interest and penalty of the same amount was also imposed upon the respondent-assessee.

Being aggrieved by the said decision, the respondent- assessee herein preferred an appeal before the Commissioner

(Appeals), Customs and Central Excise, Jaipur-II. The Appellate

Authority by its order dated 5th October, 2005 upheld the order in connection with demand of Rs.37,29,625/-. However, the

-5-

Appellate Authority set aside the order of penalty imposed under

Section 11AC of the Act, 1944.

Being aggrieved by the same, the respondent-assessee filed an appeal before the Customs, Excise and Service Tax

Appellate Tribunal, New Delhi. The Tribunal vide its final order dated 30.01.2006 set aside the order passed by the

Commissioner (Appeals), Customs and Central Excise, Jaipur-II and allowed the appeal filed by the respondent-assessee. The

Tribunal found that the issue in question is covered by the decision of the Hon'ble Supreme Court in the case of Vikram

Cement Vs. CCE, reported in 2006-TIOL-04-CE.

Being aggrieved by the said decision of the Tribunal, the appellant has filed this Central Excise Appeal under Section 35G

(1) of the Central Excise Act, 1944. The appeal was admitted on the following substantial question of law:

"Whether Cement, used as construction/building material in the mines is eligible as input for the purpose of availment of

Cenvat Credit under the provisions of the

Cenvat Credit Rules 2002/2004?"

Learned counsel Mr. V.K.Mathur, appearing on behalf of appellant submitted that the Tribunal has gravely erred in allowing the appeal of the respondent-assessee by relying upon

-6- the decision of the Hon'ble Supreme Court in Vikram Cement's case (supra). It is submitted that the said decision is not applicable to the facts of the present case.

On the other hand, learned counsel Mr. Dinesh Mehta appearing on behalf of respondents submitted that the use of cement is for the purpose of keeping the mines in a proper condition, without which the mines cannot be operated. He has submitted that it may be true that Vikram Cement's case (supra) may not be applicable to the facts of the present case but in any case, without use of cement, mines cannot be operated and in order to keep the mines in a proper condition, cement is the most essential article and without the same, the final product is not possible. It is submitted that as these aspects have not been considered by the Tribunal, the matter may be sent back to the

Tribunal for considering the said aspects as even if it is held that no Cenvat Credit may be available on cement as inputs, the same can be considered as capital goods.

Learned counsel Mr. V.K. Mathur has relied upon the decision of the Hon'ble Supreme Court in the case of J.K.Cotton

Spg. & Wvg. Mills Co. Ltd. Vs. Sales Tax Officer, Kanpur, reported in 1997(91) E.L.T. 34 (S.C.). In the said case, the

Hon'ble Supreme Court has considered the question whether a

-7- building can said to be a plant within the meaning of Rule 13 of the Central Sales Tax Act, 1956, which is corresponding to Rule 57A and 57Q of Central Excise Rules, 1944 relating to Modvat

Credit? The said case is in connection with the provisions of

Central Sales Tax Act, 1956. Learned counsel Mr. Mathur has relied upon para 11 of the said judgment, which reads as under:

"Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the meaning of Rule 13, as raw materials in the manufacture or processing of goods or even as

"plant". It is true that buildings must be constructed for housing the factory in which machinery is installed. Whether a building is a

"plant" within the meaning of Rule 13, is a difficult question on which no opinion need be expressed. But to qualify for specification under Section 8(3)(b) goods must be intended for use of the nature mentioned in Rule 13, in the manufacture of goods. Building materials used as raw materials for construction of

"plant" cannot be said to be used as plant in the manufacture of goods. The Legislature has contemplated that the goods to qualify under

Section 8(3)(b) must be intended for use as raw materials or as plant, or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description. The High Court was, therefore, right in rejecting the claim of the

Company in that behalf."

Learned counsel Mr. Mathur has also relied upon the decision of the CEGAT, Northern Bench, New Delhi in the case of

Indo Nissan Foods Ltd. Vs. Commissioner of Central Excise,

Delhi, reported in 2003 (151) E.L.T. 664 (Tri.-Del.). In the said

-8- case, the Tribunal has taken the view that steel supports provided to chimney are not eligible capital goods but they are building materials and Modvat credit is not allowable on the same. Learned counsel Mr. Mathur has also relied upon the decision of the Tribunal, South Zonal Bench, Chennai in the case of Navakarnataka Steels Limited Vs. Commissioner of C.Ex.,

Belgaum, reported in 2001(130) E.L.T. 825 (Tri. Chennai). In the said case, the Tribunal held that H.R. plates are in the nature of structural or building material hence cannot be considered as capital goods and not entitled to Modvat Credit under Rule 57Q of the Central Excise Rules, 1944. Learned counsel Mr. Mathur has also relied upon the decision of the CEGAT, Northern Bench,

New Delhi in the case of Malvika Steel Limited Vs. Collector of

Central Excise, Allahabad, reported in 1998(97) E.L.T. 530

(Tribunal). In the said case, the Tribunal has held that cement and steel structure used in erection and fabrication of blast furnace is a building material and not a capital goods and hence is not eligible for Modvat Credit.

Learned counsel Mr. Dinesh Mehta appearing for the respondents has also relied upon the decision of the Hon'ble

Supreme Court in the case of J.K.Cotton Spg. & Wvg. Mills Co.

Ltd (supra). Learned counsel Mr. Mehta has referred to Para 12 of the said judgment, wherein, it is held that in a factory

-9- manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. It has been held that without electric lighting it would be very difficult to carry on the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would in the modern conditions of technological development normally be regarded as equipment necessary to effectually carry on the manufacturing process. Relying on the same, learned counsel Mr. Mehta submitted that in the instant case, unless the mines are protected and kept in a proper condition, the respondent-assessee cannot continue his manufacturing activities and manufacture the final product at all.

It is submitted by learned counsel Mr. Mehta that in any case, since the Tribunal has not gone into this aspect that unless the mines are protected and kept in a proper condition, the final product is not possible, the matter may be sent back to the

Tribunal for decision on the said point.

The basic question which is required to be considered by us is whether the Tribunal is right in allowing the appeal of the respondent-assessee and whether the respondent-assesse is entitled to get benefit of Cenvat Credit for the use of cement as input? It is required to be noted that the only point which was argued on behalf of the respondent-assessee before the tribunal

-10- was whether cement used as construction/building material in the mines is eligible as input for the purpose of availment of

Cenvat Credit under the provisions of the Cenvat Credit Rules, 2002? The specific case of the respondent-assessee before the

Tribunal was that the Cenvat Credit is available on the use of cement which is used as inputs and in order to substantiate the same reliance was placed on Vikram Cement's case (supra).

Before the Tribunal, it was not argued on behalf of the assessee that the cement be treated as capital goods and on that count

Cenvat Credit is available. The Tribunal on the basis of Vikram

Cement's case (supra) has found that the cement which is used as inputs is eligible material for the purpose of getting Cenvat

Credit. In our view, the real question which is required to be considered is whether the cement which is used as building construction material is eligible for Cenvat Credit under Rule 2(g) of the Rules of 2002? Even Mr. Mehta has also frankly admitted that no Cenvat Credit may be available on the cement which is used as building material treating as inputs but he tried to develop his case by arguing that the same may be treated as capital goods. Learned Advocate Mr. Mathur submitted that looking to the definition of the capital goods in the Rules, the said argument is baseless and it can never be treated as capital goods. Learned counsel, Mr. Mehta, however, submitted that for the purpose of filling gaps and filling wholes in the mines, the

-11- use of cement is absolutely necessary, otherwise the mines cannot be kept in a proper condition and therefore, no mining activity is possible without the use of cement. However, though it can be said that factory and the mines may be treated as part of the same establishment, yet in our view, the cement is always used as building/construction material and, therefore, even if it is used for keeping the mines in a proper condition and that without the use of the same, the mines are liable to cave in and may crumple down, yet it can be said that it is always used as a building/construction material or for the purpose of repairing or maintaining the structure. In that view of the matter, the cement which is used as building/construction material in the mines is not eligible inputs for the purpose of availment of Cenvat Credit. According to the Oxford Dictionary, the meaning of cement is (i) a grey powder made by burning clay and lime that sets hard when it is mixed with water.

Cement is used in building to stick bricks together and to make very hard surfaces (ii) the hard substance that is formed when cement becomes dry and hard: a floor of cement (iii) a soft substance that becomes hard when dry and is used for sticking things together or filling in holes : dental cement (for filling holes in teeth), (iv) something that unites people in a common interest: values which are the cement society. Considering the said aspect, it is clear that cement is always used as building

-12- material and it is always used in construction or may be used for the purpose of filling in holes, and therefore, it is not eligible inputs for the purpose of availment of Cenvat Credit. Regarding the argument of Mr. Mehta that cement can be treated as capital goods is concerned, it is not necessary to examine this point though Mr. Mathur argued that it can never be treated as capital goods looking to the definition of the capital goods under the

Rules as this point was not argued before the Tribunal and the only point which was argued before the Tribunal was whether the

Cenvat Credit was available on the product i.e. cement which was used outside the factory in the mines and not within the factory premises. The Commissioner (Appeals) has rightly found that the Cenvat Credit is not available for the use of cement as inputs. Recently, the Division Bench of this Court in D.B. Central

Excise Appeal No.33/2007, to which one of us (Majmudar,J.) was a party, has taken a view that the material which is used for repairs and maintenance of the plant and machinery, no Cenvat

Credit is available on such material and the same cannot be treated as inputs eligible for Cenvat Credit. In the aforesaid judgment, the Division Bench has held that the welding electrodes used by the assessee for repairs and maintenance of plant and machinery cannot be said to have been used in relation to the manufacture of final product. In our view, the product in question i.e. cement cannot be considered as

-13- integrally connected material or product with the process of manufacturing of final product especially when the same is used only as a building material for maintaining or repairing the premises i.e. mines in question. In our view, it cannot be said that the cement is used in relation to manufacturing of final product as the same was not used co-extensively with the process of manufacture of final product and hence it is not integrally connected with the manufacture for final product.

Considering the decision of the Hon'ble Supreme Court in

J.K.Cotton Spg. & Wvg. Mills Co. Ltd. (supra), we do not find any substance in the argument of learned counsel Mr. Mehta that the product in question is entitled to Cenvat Credit. Regarding the question treating the cement as capital goods is concerned, the same point was never canvassed and as pointed out earlier, the matter was in fact argued on the ground whether cement which is used as construction of building material in the mines is eligible as input for the purpose of Cenvat Credit under the Rules of 2002. In fact, even a substantial question of law has also been formulated by this Court accordingly. It is not even the submission of learned counsel Mr. Mehta that any other substantial question of law is required to be formulated by this

Court. This appeal is required to be considered in the same manner as provided under Section 100 CPC and it is to be

-14- decided on substantial question of law formulated by this Court at the time of admitting the appeal. It is not submitted by learned counsel Mr. Mehta that the appeal is not required to be decided on the point formulated by this Court or that no such point arises for the determination of this Court, which was formulated at the time of admitting the appeal. This Court is, therefore, required to decide this appeal only on the substantial question of law, which is formulated by this Court at the time of admitting the appeal and not on any other points. Even otherwise, the point which is raised by learned counsel Mr.

Mehta regarding availment of Cenvat Credit as capital goods, the same was not even argued before the Tribunal and the only point argued was whether cement which was used as building material in the mines eligible as inputs for the purpose of availment of Cenvat Credit? Since, in our view, cement, which is a building/construction material and which is used in the mines as construction, repairing or maintaining the mines in a proper condition, is not eligible input for availment of Cenvat Credit and no Cenvat Credit is available on the same. In that view of the matter, the ultimate decision taken by the CIT (A) is required to be upheld. In our view, the Tribunal has committed a substantial error of law in allowing the appeal of the respondents by holding that the cement used in the mines is eligible as inputs for the purpose of availment of Cenvat Credit.

-15-

The appeal is accordingly allowed. The order dated 30.01.2006 passed by the Customs, Excise and Service Tax

Appellate Tribunal, New Delhi is set aside and the order passed in appeal by the the Commissioner (Appeals), Customs and

Central Excise, Jaipur-II is restored. No order as to costs.

(DEO NARAYAN THANVI),J. (P.B.MAJMUDAR),J. ms rathore


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

Advertisement

dwi Attorney | dui attorney | dwi | dui | austin attorney | san diego attorney | houston attorney | california attorney | washington attorney | minnesota attorney | dallas attorney | alaska attorney | los angeles attorney | dwi | dui | colorado attorney | new york attorney | new jersey attorney | san francisco attorney | seattle attorney | florida attorney | attorney | london lawyer | lawyer michigan | law firm |

Tip:
Double Click on any word for its dictionary meaning or to get reference material on it.