Commissioner of Central Excise, Belgaum vs Associated Cement Company Limited, Wadi, Gulbarga District

K.L. Manjunath, J.-This appeal is by the Revenue challenging the order passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zone, Bangalore (hereinafter referred to as "the Tribunal" for short) in Appeal No. E/27/2002, dated 1-6-2004 whereunder the Tribunal has reversed the findings of the Commissioner of Central Excise in his order in Original No. 8 of 2001, dated 29-10-2001.

Stated in nutshell the facts of the case are as under:

(a) The respondent-assessee namely the Associated Cement Company Limited is engaged in the manufacture of cement at Wadi. The assessee had installed a captive power unit comprising of two turbine generators each having rated capacity of 25 MW and three steam generators each having rated capacity of 12.5 MW for generating power required for the captive power consumption in the cement factory belonging to the assessee.

(b) During the period from 1-3-1994 to 14-1-1999 the assessee had availed MODVAT credit to the extent of Rs. 2,30,12,577/- on capital goods in the aforesaid power unit under the then Rule 57-Q of Central Excise Rules, 1944 (hereinafter as "the Rules"). Thereafter the assessee sold the entire power unit to M/s. Tata Electric Company for a total consideration of Rs. 90 crores. While so selling the power unit the assessee also leased in favour of the said purchaser the land on which the said power unit was installed for a period of 20 years from the date of the said sale.

(c) Since the said power unit in respect whereof the said credit was availed by the assessee was sold, the excise authorities issued show-cause notice dated 20-7-2000 to the assessee-company requiring it to show cause as to why central excise duty amounting to Rs. 2,34,19,661/- on the aforesaid capital goods should not be recovered from it in terms of Section 11-A(2) and proviso to Section 11-A(1) of the Central Excise Act, 1944 (hereinafter referred to as "the Act") read with Rule 57-AB(1)(b) and explanation thereto of the said rules. The assessee was also required in the notice to show cause as to why interest in terms of Section 11-AB of the Act should not be recovered on the duty proposed therein and why a penalty should not be imposed under Section 11-AC of the Act.

(d) The Commissioner of Central Excise, Belgaum, by his order dated 29-10-2001 confirmed the demand made by him in the said show-cause notice. Aggrieved by the same the assessee filed appeal before the Tribunal contending that there is no violation of MODVAT credit rules since the capital goods comprising of the said power unit was not removed from the premises of the assessee where the unit was installed and therefore it cannot be held that there was any violation of any of the said provisions of the Act and the Rules. The Tribunal, after hearing the parties, held that the assessee had not removed the said capital goods from the premises and as such there was no violation of MODVAT credit rules or any of the said provisions and accordingly allowed the appeal of the assessee. Being aggrieved by the impugned order passed by the Tribunal the present appeal is filed raising the following substantial question of law:

"Whether the Tribunal was justified in holding that the capital goods in respect whereof MODVAT credit was availed by the assessee-company were not removed by it from the premises of its factory even though it sold the entire power unit to M/s. Tata Electric Company for a consideration of Rs. 90 crores and leased to the said purchaser for 20 years the premises wherein the unit was installed and thus it did not contravene any provisions of Central Excise Act/Central Excise Rules?"

We have heard the learned Counsel for the parties. The learned Counsel for the Revenue, by producing the copy of the agreement entered into between the assessee and M/s. Tata Electric Company on 14-3-1999, contends that the entire power unit situate at Wadi, for which MODVAT credit has been availed by the assessee, has been completely transferred and sold for a total sale consideration of Rs. 90 crores and that pith and substance of the agreement entered into between the assessee and the purchaser is an out and out sale and therefore the Tribunal, without considering the facts involved in the case, has wrongly allowed the appeal of the assessee.

4.Per contra, the learned Counsel for the assessee contended that the transaction under the agreement between the assessee and M/s. Tata Electric Company could not be considered as an out and out sale of the power unit as it was only an arrangement of facilitation and that even to this date the power generated from the said power unit is being utilised by the assessee for manufacturing the cement in its factory and as such there has been no sale and no physical removal of the power unit or the capital goods so as to attract the penal provisions of the Act and the Rules.

Having heard the learned Counsel for the parties and on perusal of the agreement dated 14-3-1999 entered into between the assessee and M/s. Tata Electric Company we have no hesitation to hold that the transaction thereunder between them was an absolute sale of the power unit for a valid sale consideration of Rs. 90 crores and that the entire unit came to be handed over to the purchaser and since then the purchaser has been running the power unit at the same premises of the assessee by taking the premises in which the power unit was installed on long term lease and generating the power. Therefore, it is clear that the said purchaser, after purchasing the power unit from the assessee, has been enjoying the same as its absolute owner and has been supplying to the assessee the power generated from the said power unit on payment basis. This being so it is quite evident that the assessee-company lost its ownership and also control over the said power unit by selling it to the said purchaser for valid consideration and by giving to the purchaser on long term lease the premises in which the said unit is installed so as to enable the purchaser to run the unit at the same premises of the assessee as its absolute owner, generate power and sell the power so generated to the assessee-company itself.

Therefore, in our considered view though there had been no physical removal of power unit the above transactions between the assessee-company and M/s. Tata Electric Company certainly amount to nothing short of physical removal of the power unit of the assessee in respect whereof MODVAT credit was availed by the assessee so as to attract the penal provisions of the said Act and the Rules. The said transactions of sale of power unit and simultaneous lease of premises are wisely resorted to by the assessee as a device to avoid the tax liability on it on the ground that the power unit was not physically removed from the premises of the assessee. Therefore, we are of the considered opinion that the Tribunal without application of mind and without proper appreciation of the said transactions in the light of the relevant provisions of the Central Excise Act and the Rules has allowed the appeal of the assessee-company and set aside the Order-in-Original passed by the Commissioner of Central Excise, Belgaum. In the circumstances, we answer the above question of law in the ''negative'' and against the assessee.

In the result, this appeal is allowed, the impugned order of the Tribunal dated 1-6-2004 passed in Appeal No. E/27/2002 is hereby set aside and the order in Original No. 8 of 2001, dated 29-10-2001 passed by the learned Commissioner of Central Excise is restored. No order as to costs.