The Commissioner of Central Excise and Service Tax vs Mukund Ltd.

P.S. Dinesh Kumar, J.—Revenue being aggrieved by the order passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Branch, Bangalore, in Final Order No. 27216/2013 dated 30.12.2013 holding that the CENVAT credit availed by the respondent herein was in accordance with law, is in appeal.

Briefly stated, the facts of the case are as under:

"During the search operation conducted by the Central Excise Officials in steel plants of M/s. Mukund Limited, M/s. Kalyani Steels Limited and M/s. Hospet Steels Limited and their Corporate offices found certain irregularities under the Central Excise Act, 1944 (hereinafter referred to as the ''Act'' for short). Pursuant thereto, a show cause notice dated 29.11.2005 was issued stating inter alia that the respondent holding Central Excise Registration No. AAACM 5008 R XM 004 for the manufacture of Alloy and Non-alloy Steel Billets, Blooms and Rounds and the company M/s. Kalyani Steels Limited having entered into a "Strategic Alliance Agreement" dated 16.05.1998 for the production of steel through integrated steel plant had entered into an agreement with another company namely M/s. Hospet Steels Limited, to avail the services in the field of administration, personnel, accounts, human resource development etc., and in pursuance of the said "Strategic Alliance Agreement", the integrated steel plant was producing the envisaged product/s; a Company named M/s. Praxair India Limited having its plant next to the integrated steel plant was supplying Oxygen and Nitrogen used as raw-materials in steel plant; the respondent herein was using the said gases as raw materials and a portion thereof was used by M/s. Kalyani Steels Limited to manufacture certain items. Such diversion of oxygen and nitrogen by the respondent, in the opinion of the appellant was in violation of the Act."

During the course of search operations, statements of Executives of the Companies viz., Sri C.G. Patankar, the Executive Director, Corporate Office of M/s. Kalyani Steels Limited, Sri S.B. Jhaveri, Vice-President (Finance) Corporate Office, M/s. Mukund Limited, Sri V.N. Hegde, Manager (Finance) of M/s. Hospet Steels Limited, incharge of Excise M/s. Mukund Limited, Ginigera, Sri L. Bhaskar, Deputy General Manager of M/s. Hospet Steels Limited, incharge of excise of M/s. Kalyani Steels Limited, Ginigera and Sri R. Sampathkumar, Chief Executive Officer of M/s. Hospet Steels Limited, Ginigera, were recorded. By the show-cause notice, the Revenue had called upon the respondent, M/s. Mukund Limited, and its Officers to show cause as to why action should not be taken against them as contemplated in the show cause notice. On receipt of their reply and personal hearing, the adjudicating authority i.e., the Additional Commissioner, Central Excise, passed an Order-in-Original in C. No. V/72/15/76/2005 Adjn. Dated 31.07.2006 and confirmed the demand of CENVAT Credit, ordered for appropriation of the amount paid by the respondent herein and imposed a penalty on the companies as well as their Executives except M/s. Praxiar India Limited.

Being aggrieved by the Order in Original, four appeals were filed by the respondent, two Officers working under the respondent and an Executive working under M/s. Hospet Steels Limited before the appellate authority i.e., the Commissioner of Central Excise (Appeals), Mangalore. The appellate authority came to the conclusion that the Order-in-Original was unsustainable in law and accordingly allowed the appeals.

Being aggrieved by the order of the Appellate Authority, the revenue filed an appeal before the CESTAT only against the respondent herein. The CESTAT by the final order No. 27216/2013 dated 31.12.2013 remanded the matter to the original authority for requantification of the amount payable by the respondent herein. Challenging the order of CESTAT, the revenue has preferred this appeal under Section 35G of the Central Excise Act, 1944 contending that the issue involves a question of law for determination by this Court.

We have heard Sri Bheema Raddi, learned counsel appearing for the revenue and Sri Sangram S. Kulkarni, learned counsel appearing for the respondent.

Facts in this case are in a very narrow compass and not in dispute. M/s. Praxair India Limited was supplying oxygen and nitrogen in the pipelines to the respondent and the respondent was availing CENVAT credit on the duty paid in the invoices. The allegation of the revenue is that a portion of gases was being diverted to M/s. Kalyani Steels Limited who were using the same to manufacture the products in their company. Therefore, there was violation of provisions of the Act by the respondent which shall result in the respondent losing the benefit of CENVAT, in addition to attracting other penal actions which the appellant could initiate against the respondent. Therefore, the question that falls for our consideration in this case is:

"Whether or not the alleged diversion of the gases and use of these gases by two companies and the CENVAT credit being availed only by the respondent herein is in violation of the Provisions of Central Excise Act and Rules?"

The Principal Bench of this Court had an occasion to deal with a similar case in CEA No. 42/2011 which was disposed of on 19.06.2014. After referring to the various judgments of the Supreme Court and particularly, the case of Vikram Cement Vs. Commnr. of Central Excise, Indore, (2006) 194 ELT 3 : (2006) 1 JT 385 : (2006) 1 SCALE 327 : (2006) 2 SCC 351 : (2006) 1 SCR 465 : (2006) AIRSCW 362 : (2006) 1 Supreme 288 , the Division Bench of this Court has held that the definition of ''input'' is to be construed as within the factory of production, if the assessee owns more than one unit and they are situated at one place. In the case on hand, allegation of the appellant - revenue is that respondent herein and M/s. Kalyani Steels Limited being two different entities are using the gases indented by respondent herein. In paragraph 2 of the show-cause notice, the revenue, has referred to the Strategic Alliance Agreement dated 16.05.1998 as also the ratio in which the two companies would be manufacturing respective products. To appreciate as to what exactly the agreement defines, it is necessary to note the salient points of the agreement which are as follows:

"a) respondent manufactures alloy and non-alloy steel billets and blooms;

b) Kalyani Steels Limited manufacture pig iron (solid) and pig iron (hot metal) which is an intermediary product and in turn this intermediary product is also used by respondent for production of final product in terms of the Strategic Alliance Agreement dated 16.05.1998 is for production of steel through an integrated steel plant. Therefore, logically, the corporate entities had entered to Strategic Alliance Agreement for manufacture of steel in an integrated steel plant."

Admittedly, M/s. Praxiar India Limited has supplied oxygen and nitrogen in pipelines and the CENVAT credit has been availed of only by the respondent. After the visit of the Officers of the revenue, the respondent is said to have tendered the demand of duty even before the issuance of show-cause notice. Though the CENVAT credit was claimed only by the respondent, the input i.e., oxygen and nitrogen were used by both the companies.

The law on the point is no more res integra. In the light of the decision rendered by the Principal Bench of this Court in CEA No. 42/2011 referred to supra, which we respectfully agree, it is well settled that a manufacturing unit can have one or more units to manufacture intermediary raw materials to manufacture a final product. In the instant case, by the Strategic Alliance Agreement, the corporate entities had entered into a joint venture agreement to manufacture steel products. The records disclose that whatever was manufactured by M/s. Kalyani Steels Limited in the ratio agreed to between the parties was finally made over to the respondent herein for manufacture of final product. Therefore, it appears, the companies joined hands to manufacture the final products in terms of the Strategic Alliance Agreement. In the circumstances, we hold that CENVAT cannot be deemed on the ground that credit is being availed by one factory and material inputs are used by three factories, because the CENVAT able input is being used for common share and continuous purpose of manufacturing dutiable goods. Though there are three separate units with separate registrations, the entire raw material is being converted into final dutiable product in continuous, inter connected and integrated process conforming to the definition of a single factory under Section 2(f) of the Central Excise Act.

In the result, we hold that there are no substantial question of law as sought to be made out in this appeal. Accordingly, the appeal fails and the same is dismissed.