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Judgment
This appeal has been filed by M/s Nayara Energy Limited (Formerly known as Essar Oil Limited.)
Learned Counsel for the appellant pointed out that they are engaged in the manufacture of Motor Spirit, High Speed Diesel, Liquefied Petroleum
gas etc. They have a refinery at Vadinar. The Refinery was registered in the year 2006 and the appellant had submitted the ground plan for at the
material time. The appellant has crude oil tank farm located some distance away from the factory premises. The tank farm is connected through
pipeline to the factory premises. The tank farm is further connected to Single Buoy Mooring (SBM) located some distance away in sea. In the year
2006, the appellant sought for registration under the Central Excise Rules, 2002 which was granted to it on 08.11.2006. Subsequently, the appellant
vide letter dated 25.11.2006 submitted the revised ground plan by including the area under crude tank and Single Buoy Mooring (SBM) and pipeline
connecting the refinery to the tank farm and the SBM. The appellant has applied for registration of the refinery by including the extended area i.e.
pipeline corridor area connecting crude oil tanks and refinery area and the area from crude oil tank to Single buoying Area (SBM) in the sea.
2.1 The revenue asked the appellant to furnished documents, evidences, ownership of land /area through which the pipeline passed vide letter dated
25.11.2006. The appellant had, vide letter dated 18.01.2007, submitted the following:-
(i) Order issued by the chief Conservator of Forest Wild Life permitting the Appellant to lay pipeline and construct a jetty in the marine
sanctuary and national park, Jamnagar. The said order grants the Appellant the right of way for laying pipelines and construction of jetty
and
(ii) Copies of sanad and kabulat signed by the competent authority for the adjoining villages in respect of pipeline corridor area approach
road connecting crude oil tank showing title of the land.
2.3 The Counsel informed that vide letter dated 09.07.2007 the jurisdictional AC informed the appellant that post facto of approval for central excise
registration under Rule 9 of Central Excise Rules was granted only for “The area excluding SBM to Essar Oil limited “. Thus the JAC denied
the request to include the area under pipeline and the SBM in the requested premises. Against the said decision the appellant filed an appeal before
Commissioner (Appeals), who rejected the same on the ground that no appeal is maintainable against the said order.
2.4 Thereafter an appeal was filed by the appellant before tribunal. Tribunal remanded the matter back to Assistant Commissioner to decide on merit.
No order has been passed till date in the remand proceeding by the Assistant Commissioner.
2.5 The appellant had meanwhile taken credit of duty paid on pipe used in transporting crude from SBM to refinery. The SBM is used to transport the
liquid cargo from very large crude carriers anchored near the SBM to their refinery. The appellant’s were issued Show cause notice seeking to
deny Cenvat credit availed by them on the pipelines used to connect the SBM with the main refinery on the ground that the said pipes did not qualify
as capital goods as defined under rule 2(a) of CCR, 2004 as they were not “Used in the factory of manufacture of final productsâ€. The learned
counsel argued that the issue regarding admissibility of credit is no longer res-integra and its covered by the decision of Hon’ble Bombay High
Court in the case of Reliance Industries Limited 2017 TIOL 1630 HC-Mum-CX. In the said order Hon’ble High court had noted that SPM is an
integral part of the factory. It held that the expression “Used in the manufactured of goods†takes within its ambit the integral process and
equipment connected with the ultimate productions of goods. The Hon’ble High Court held that merely because SBM system was not specifically
within the factory, but was outside the factory, still the same was required to treated as capital goods used for manufacture of final products.
2.6 The learned counsel also relied on the decision of the Hon’ble Apex Court in the case of Madras Cement Limited 2010 (257) ELT 321 (SC)
and the decision of Hon’ble Apex Court in the case of Birla Corporation 2007 (212) ELT 162 (SC). In the case of Madras Cement Limited it was
held that the equipments used in the captive mines of the factory would be entitled to Cenvat credit. In the case of Birla corporation Hon’ble Apex
Court held that the appellant was entitled to Modvat/Cenvat on capital goods namely spares of ropeway, that are used for conveying fresh Lime
stones from crusher (located in/ near the captive mines) to the factory where cement is manufactured.
2.7 The learned counsel further argued that the extended period of limitation has been invoked. He argued that the entire area in which the pipeline
was laid was within knowledge of revenue in as much as the appellant’s were trying to get the entire area covered by the registration. He also
pointed out that verification of documents on which credit was taken was done by the superintendent. He relied on the earlier decision of tribunal in
the instant case wherein tribunal had remanded the matter for reexamination on the issue of limitation. Furthermore learned counsel argued that the
dispute is a matter of interpretation especially since Hon’ble Apex Court in the case of Reliance Industries Ltd has settled it in their favour.
Learned Authorized Representative argued that there is the fundamental difference between the Cenvat scheme and Modvat scheme as far as
credit of capital goods is concerned. He argued that while Modvat scheme did not envisage restricting credit only to capital goods used within the
factory, the Cenvat scheme prescribed in Rule 2(a) of CCR, 2004 that credit would be admissible only to the goods used in the factory by the
manufacturer.
3.1 Learned Authorized Representative argued that capital goods as defined in the Cenvat Credit Rules,2004 do not include any goods used outside
the factory of the manufacture of final products, except those used for generation of electricity or for pumping of water for captive use within the
factory.
3.2 He argued that the decision relied upon by the appellant in the case of Reliance Industries (supra) was given in the context of old Modvat rules
wherein there was no such restriction of use within the factory of manufacture for availing Modvat credit. He also pointed out that the decision of
Hon’ble Apex Court in the case of Madras Cement Ltd and also relied on the decision in the case of Vikram Cement.
We have considered rival submissions, we find that the issue before us is if Cenvat credit of capital goods namely pipeline, used to connect the
SBM with the refinery is admissible under Cenvat Credit Rules or otherwise. The fundamental ground for denial of Cenvat credit is that the pipeline is
located outside the factory premises and the Cenvat Credit Rules do not permit Cenvat Credit of such capital goods as are used outside the factory
premises.
4.1 It is seen that the appellant had in the year 2006 sought to include the entire area including the SBM and the pipeline within the factory premises
by trying to get this ground plan approved under Rule 9 of the Central Excise Rules. Their application was rejected by the original adjudicating
authority as well as first appellate authority. Subsequently, tribunal Vide order no A/10377/2016 dated 13.04.2016 remanded the matter back to the
original adjudicating authority to decide if the area under SBM as well as the pipeline should be included in the registration of the appellant as factory
premises or otherwise. The order directs as follows:-
“In the result, the matter is remanded to the original authority who is the proper officer under the law for grant of Central Excise
registration to reconsider the issue afresh and record reasons while disposing the Application for registration in any manner, after giving
an opportunity of personal hearing to the Appellant/Assessee. The Appeal is disposed of as above.â€
The matter has not yet been decided by the jurisdictional officer and therefore it cannot be said the dispute raise before us really exist or not. Unless
the decision is taken on the application of the appellant’s with respect to their registration and inclusion of the areas covering SBM as well as
pipeline it cannot be said if the appellant’s are using the pipelines within the factory of production or outside the factory of production.
4.2 The appellant’s have relied on the decision of Hon’ble High court of Bombay in the case of Reliance Industries Limited (Supra). In the
said decision Hon’ble High court observed as follows:-
“21. SPM system is of no use, if not connected to the other equipment, machineries for bringing in the raw material as done in the
present case. SPM is integrated and integral part though situated outside the factory, but useful and helpful to produce final products. SPM
where liquid cargo is discharged from a tanker is an extension of a factory for the purposes of ‘capital goods†in question. The
Appellate Authority/Tribunal, failed to take note of the judgments cited by the appellants and so recorded in the above paragraph in this
matter. We are of the view, keeping in mind the facts and circumstances and the judgments so referred above, that appellants’ case fall
within the ambit of “Capital goodsâ€and therefore, entitled for the benefit so claimed. we are inclined to observe that the expression
“used in the manufacture of goods “take within its ambit in integral process and equipment connected with its ultimate production of
goods. The material, equipments, in question is integral part of the manufacturing process and hence falls within the ambit of “capital
goodsâ€. Merely because SPM system is not specifically within the factory, but it is outside the factory, still required to be treated as
“capital goods†used for manufacturing of final products, in the facts and circumstances of the case. Hence the order:
ORDER
(i) In view of above, we are inclined to answer the following question in law in negative:
“(a) Whether in the facts and circumstances of the case CESTAT was correct in denying the credit on SPM system under Rule 57Q of the
Central Excise Rules, 1944â€
ii) The appeal is allowed
iii) There shall be no order as to costs.â€
4.3 Learned Authorized Representative has argued that the decision in the case of Reliance Industries Limited was given after examining the Modvat
Rules and Rule 57Q of The Central Excise Rules, 1944. He argued that the capital goods were defined as follows under the said Rules, whereas the
Cenvat credit rules defined as under:
RULE 2. Definitions.- In these rules, unless the context otherwise requires,-
(a) “ Capital goods†means:-
(A) The following goods, namely:-
(i) All goods falling under Chapter 82, chapter 84, Chapter 85, Chapter 90, [heading 6850, grinding wheels and the like, and parts thereof
falling under [ heading 6804 and wagons of subheading 860692] of the First Schedule to the Excise Tariff Act;
(ii) Pollution control equipment
(iii) Components, spares and accessories of the goods specified at (i) and (ii)
(iv) Moulds and dies, jigs and fixtures;
(v) Refractories and refractory materials;
(vi) Tubes and pipes and fittings thereof;
(vii) Storage tank, [and]
(viii) Motor vehicles other than those falling under tariff headings 8702,8703,8704,8711 and their chassis [but including dumpers and
tippers]
Used
in the factory of the manufacturer of the final products, or [1A) outside the factory of the manufacturer of the final products for
generation of electricity[ or for pumping of water] for captive use within the factory; or]
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4.4 Learned Authorized representative has argued that in Rule 57Q there was no necessity of used of capital goods in the factory of the manufacture
of final product.
4.5 Learned Counsel has relied on the decision of the Hon’ble Apex Court in the case of Madras Cement Limited (Supra). In the said decision
Hon’ble Apex Court observed as follows:-
“3. As regards the Modvat/Cenvat credit on capital, goods, if the mines are captive mines so that they constitute one integrated unit
together with the concerned cement factory, Modvat/Cenvat credit on capital goods will be available to the assessee. On the other hand, if
the mines are not captive mines but they supply to various other cement companies of different assesses, and it is found that the said goods
were being used in the lime stone mines outside the factory of the assessee, Modvat/Cenvat credit on capital goods used in such mines will
not be available to the concerned assessee under the appropriate Modvat/ Cenvat Rules. In order to get a clear finding on the issue, all the
matters are remanded to the respective original authorities for decision only on the above issue.â€
4.6 Learned Counsel has relied on the decision of the Hon’ble Apex Court in the case of Vikram Cement Limited 2006 (194) ELT 3. In the said
decision Hon’ble Apex Court observed as follows:-
“21. Three reasons were given by the Court for holding that credit could be taken only on inputs received in the factory of the
manufacturer of the final product. First, the court held that the definition of input given in sub- rule(d) of Rule 57AA was “ entirely
different from the manner in which the said word had been expounded in the explanation to Rule 57A of the Modvat Rulesâ€. We cannot
agree with this reading of the Section. As we have said there was only a rearrangement of the several provisions of Rule 57B in Rule 57AA.
Rule 57AA is in fact more broadbased than Rule 57B.
Second, the Court proceeded on the basis that under the Cenvat scheme there was no provision similar to Rule 57J of the Modvat
Scheme. As we have seen, Rule 57J was replaced in substance by Rule 57AB.This provision was overlooked.
The third reason guven by the Court in J.K Udaipur Udyog for holding that the Cenvat Scheme was different from the Modvat Scheme
was Rule 57AC(1). However, that Rule is limited to inputs received in the factory of the manufacturer and does not impinge o Rule 57AB at
all.
24.The schemes of Modvat and Cenvat Credit are not therefore, different and we are unable to agree with the conclusion of the Court in J.K
Udaipur Udyog that the decision in Jaypee Rewa Cement(supra) would have no application to Cenvat Rules.
In our opinion the doubt expressed by the referring Bench about the correctness of the decision in CCE v.J.K Udaipur Udyog Limited
(Supra) was well founded. Having regard to the fact that the Cenvat Rules in effect substitute the Modvat Rules, the decision in Jaypee
Rewa Cement would continue to apply. The decision in Commissioner of Central Excise, Jaipur v. J.K.Udaipur Udyog Limited (supra)
holding to the contrary is, in our opinion, not good law. The reference is answered accordingly. All appeals and special leave petitions will
now be listed for being disposed of in the light of this judgment.â€
4.7 Learned Counsel for the appellant has contended that Hon’ble Apex Court in the case of Vikram Cement 2006 (194) ELT 3 as held that the
Cenvat Credit Rules and the Modvat scheme are not different and therefore the decision made in the context of Modvat would be equally applicable
to Cenvat Credit Rules. It is seen that the decision in the case of Vikram Cement was given by comparing the Modvat rules with thep rovision of
Cenvat credit introduced vide Notification No 27/2000- CE(NT) dated 31.03.2000 by introducing rule 57AA to rule 57AK in Central Excise Rules
1944. It is seen that the said rules were subsequently superseded by Notification No 31/2001 by which a fresh set of Rules namely Cenvat Credit
Rules, 2001 were introduced. Subsequently, these rules were also superseded by Notification No 5/2002-CE (NT) dated 01.03.2002 whereby, afresh
set of Cenvat Credit Rules, 2002 were introduced. The said rules were again superseded by Notification No 23/2004 dated 10.09.2004 which
introduced a fresh set of Cenvat Credit Rules, 2004 to replace the earlier rules. It is seen that The Hon’ble Apex Court did not have any occasion
to examine the provisions of Modvat Scheme with the Cenvat Credit Rules, 2001, or Cenvat Credit Rules, 2002, or Cenvat Credit Rules, 2004.
Therefore the argument of the Learned Counsel that the decision made with reference to earlier rules will also be applicable to the disputes involving
of subsequent Cenvat Credit Rules, is misplaced. The Cenvat Credit Rules have evolved over the period 2000 to 2004 and the ratio of the decision
made with reference to ‘Cenvat’ introduced vide Notification No 27/2000(NT) cannot be straight away applied to the subsequent rules without
due examination.
4.8 Hon’ble Apex Court never had the occasioned to compare the Modvat Rules with Cenvat Credit Rules, 2004 under which the present dispute
lies.
5 As detailed in Para 4.1 above the root of the dispute is if the pipeline and Single Buoy Mooring (SBM) are part of factory or not. This fundamental
issue if the area under pipeline and SBM lies in the factory premises or otherwise is also pending before original adjudicating authority. Thus, the
impugned order is set aside and matter is remanded to original adjudicating authority to decide afresh, after a decision is taken on the issue of
registration which has been remanded by tribunal to the original Adjudicating Authority vide order No A/10377/2016 dated 13.04.2016.
The appeal is allowed by way of remand. The matter has come to the tribunal for the second time and it is directed that the issue should be decided
quickly, preferably within a period of 3 Months from the date of the order.
(Pronounced in open court on 06.07.2021)