S.L. Peeran, Member (J)
1. This is an appeal arises from Order-in-Original No. 15/99 dated 11.5.99 passed by the Commissioner of Central Excise, Hyderabad, confirming the amounts stated in the show cause notice dated 2.2.98 on the allegation that the appellants had irregularly availed the Modvat credit on capital goods under Rule 57Q of the Central Excise Rules, 1944. He has also imposed penalty of Rs. 1 crore under Rule 173Q1 (bb) for contravening the provisions of Rule 173B and 174 of the Central Excise Rules. The short order passed by the Commissioner in the form of findings from para 4 to 11 are re-produced hereinbelow:
4. I have carefully gone through the records of the case, the reply dated 2nd April, 1998 of ITC BPL and the submissions made by Sri C. Chidambaram, learned Consultant, during the course of personal hearing.
5. The issue for consideration is whether the capital goods used for installation of a power plant are eligible for modvat credit.
6. In the show cause notice it has been alleged that ITC BPL have manufactured ‘power plant’ which is excisable under sub-heading 8502.90 of the Central Excise Tariff Act, 1985. Since ITC BPL have not paid the appropriate Central Excise duty on the ‘power plant’, the modvat credit availed on the capital goods used for the manufacture of the said power plant is liable to be disallowed. It is further alleged that even if ITC BPL chooses to pay Excise duty on the power plant, they are not eligible to modvat credit as the product manufactured by the power plant is ‘electricity’ which is ‘non-excisable’.
7. In their reply to the show cause notice, ITC BPL contended that classification of the power plant under sub-heading 8502.90 is totally erroneous. According to them, “Power plant cannot be considered to be ‘goods’ as much as ab-initio it came into existence by being attached to the earth”.
8. During the course of personal hearing, ITC BPL argued that their final product is not electricity. Their final product being paper and paper board, the subject capital goods, which are used for installation of power plant, are eligible for modvat credit although non-excisable product, namely electricity, has emerged in the course of manufacture of the final product. In support of their contention, ITC BPL have relied upon the following case law.
(b) Oriental Carben and Chemicals Limited v. Collector of Central Excise, Meerut 1998 (25) RLT 753 (CEGAT); and
(c) IN RE: DCW Limited 1997 (96) ELT 733 (Commr. Appl.)
On examination, it is observed that the said law relates to the dispute with regard to eligibility of Modvat credit on ‘inputs’ and not on ‘capital goods’. In the instant case, the dispute relates to capital goods. Therefore, the above case law cannot be taken cognigence of. Hence, the above contention of ITC BPL cannot be accepted.
9. Reverting to the party’s contention as at para 7 above, it is observed that the assembly of the duty-paid capital goods in question has resulted in the emergence of a new product, namely, power plant. It is incorrect to contend that power plant is immovable property. In the judgment dated 11.12.1997 in Sirpur Paper Mills Limited v. Collector of Central Excise, Hyderabad the Hon’ble Supreme Court of India held than embedding the plant and machinery in a concrete base to ensure its wobble free operation does not make it immovable property. The ratio of the said judgment applies to the present case. In the instant case, the power plant cannot stand by itself without proper fixation and without necessary foundation and supporting structures. By reason of being fixed to the earth, the power plant cannot be considered as immovable property because it can be dismantled at any time and can be installed at some other place. Since a new product has emerged out of the assembly of the capital goods, the power plant can be considered as ‘goods’. As Central Excise duty was not paid on the said power plant, ITC BPL are not eligible for Modvat credit in respect of the capital goods in question. The Modvat credit availed and utilised is liable to be recovered under Rule 57U of the Central Excise Rules, 1944.
10. As alleged, ITC BPL have contravened the provisions of Rule 174 ibid inasmuch as they failed to obtain registration for manufacture of the excisable goods, namely, power plant, and also failed to file declaration under Rule 173B ibid thus making themselves liable to penalty under Rule 173Q(1)(bb) ibid.
11. Having regard to the facts and circumstances of the case, I pass the following order.
2. Learned Sr. Counsel Sri. M. Chandrasekar, assisted by the learned consultant Sri. C. Chidambaram argued for the appellants and pointed out that the order impugned is not a speaking order and all the points raised by the appellants in reply to show cause notice has (sic) [have] not been answered. It has been specifically pointed out that the finding portion given by the Commissioner in the order impugned is totally in difference to the case made out in the show cause notice dated 2.2.98. It is his contention that the appellants are manufacturers of paper and paper board and in order to set up the said unit they had imported capital goods. They had been filing regularly declarations in terms of Rule 57Q of the Central Excise Rules. The declaration clearly indicated that the duty had been paid on the imports and that the same would be used within the factory for the purpose of claiming Modvat credit in terms of the Notification issued under Rule 57Q. The appellants had got approved factory plan and the item had gone into manufacture of the power plant which was an immovable property. The power plant is a huge unit which cannot be in a CKD or SKD condition and the said plant does not come into existence and the plant itself is fixed in the civil construction. The findings given by the Commissioner that the judgment rendered by the Hon’ble Supreme Court in the case of Sirpur Paper Mills Ltd. would apply to the facts of this case is not a correct finding as during the date of issue of show cause notice, the said judgment has not been accepted by the Hon’ble Apex Court itself and it had been distinguished in the case of Quality Steel Tubes Put. Ltd. as and that of Mittal Engineering Works Pvt. Ltd. as . Both these judgments had been relied upon by the appellants in their reply and the said reply had been incorporated in para 2 of the order impugned. However. the Commissioner did not choose to look into these judgments and without giving any findings as to how power plant is treated as goods, he has merely held that the judgment of Sirpur Paper Mills would apply to the facts of the present case. Therefore, the order impugned is a non-speaking one, inasmuch as there is no question of power plant to be treated as movable goods for the purpose of denying the Modvat credit. The further contention raised in the show cause notice was that the power plant produced electricity which was goods and no duty has been paid on the power plant and hence Modvat credit cannot be extended. He points out that the electricity was not an excisable item so also, the power plant not being goods, the item on which duty paid was utilised for the manufacture of final product namely paper and paper board and such utilisation entitled them to take Modvat credit. Therefore, they had rightly taken the Modvat credit within a period of six months from the installation of the machinery and it was in order. He pointed out that they had relied upon the following three judgments which had not been adverted to and no findings had been given:
M/s. Rathi Alloys & Steel Ltd. ; M/s. Oriental Carbon & Chemicals Ltd. 1998 (25) RLT 753; &
DCW Ltd. 1997 (96) ELT 733.
Senior counsel further pointed out that in an identical matter i.e. in the case of Gujarat Ambuja Cements Ltd. as reported in 2000 (40) RLT 453, the Tribunal held that the parts used for assembly of D.G. sets which were producing electricity, which was in turn used in the manufacture of cement was entitled for the benefit of Modvat credit in terms of Rule 57Q for capital goods. He points out this ratio of the judgment would squarely apply to the facts of the present case and there is no reason for taking a different view from this judgment. He also filed a copy of the drawing of the power plant which is a part of the approved factory plan. He submits that the approved power plant is a part and parcel of the factory in terms of Rule 57Q, any item which is mentioned in column No. 2 which falls within the chapter items utilised for the manufacture of the final product and as indicated in column No. 3 used within the factory would be entitled to the benefit of Modvat credit as capital goods. He submits that there is no dispute about the power plant within the premises of the factory and the item had been declared which falls within the column No. 2 of the Notification issued under Rule 57Q which was deemed to have been utilised for the manufacture of final product i.e. paper and paperboard and hence, the said items are capital goods and eligible for the benefit of Notification. He contends that not only the appellants have made out a very good case on merits but even otherwise, the order impugned is not sustainable being a non-speaking order, written in haste without due consideration of various points urged before the Commissioner. He points out that non-consideration of the judgments cited therein and non-giving of reasons as to how the power plant is treated as goods would make the order impugned bad, calling for interference of the Tribunal.
3. Learned DR Sri S. Kannan points out that admittedly the items imported were utilised for the manufacture of power plant. The power plant itself is an independent unit which was manufacturing electricity. The electricity, although, non-dutiable but considered as goods in the erstwhile tariff. He submits that there was shortage of electricity in the country and the appellants were granted licence to set up power projects for import power clearly indicated that power plants were independent units and not part of the factory for the purpose of manufacture of final product namely paper and paperboard. He contends that electricity is not goods and therefore, the declared items cannot be considered as capital goods for the purpose of manufacture of final product namely paper and paperboard. The power plant has to be treated as goods as held by the Commissioner in the light of the judgment of Hon’ble Apex Court in the case of Sirpur Paper Mills Ltd. He contends that there is no need to give a detailed finding on its excisability and dutiability as admittedly the items were being imported in CKD condition merely because certain structures were put up for the purpose of bringing into existence of the power plant and that by itself make the power plant an immovable property. The appellants had failed to pay duty on the power plant which is dutiable item in the tariff. Therefore, the final product being electricity which is not dutiable the question of taking Modvat credit as capital goods on the imported items used for manufacturing the power plant does not arise. He contends that the plan now submitted is not authenticated by the officers and it does not show that it is a part of the approved factory plan. Merely because a portion of the factory plan includes power plant and that by itself is no ground to consider that the imported items declared which finds place in serial No. 2 of the Notification are deemed to have been utilised for the manufacture of the goods stated to be within column No. 3 of the Notification. Although column No. 3 may show paper and paperboard but 6nly those items which have gone to set up the plant for paper and paperboard would be eligible for Modvat credit. Admittedly, the items in question were not at all utilised for setting up of the plant for paper and paperboard but it was only power plant to generate electricity. He contends that HSD oil which was utilised in generating electricity was also held to be not eligible for Modvat credit in terms of the Finance Bill which has been applied by the Larger Bench of the Tribunal in denying the Modvat credit on HSD oil used in the manufacture of electricity. He contends that electricity so manufactured by the appellants was also used for other purpose like lightening the factory and was not fully utilised for the manufacture of paper and paperboard. Even on this ground, they are not eligible to take Modvat credit for import of capital goods. Learned DR submits that there is no mistake in the order impugned and therefore, he seeks for dismissal of the appeal and confirmation of duty and penalty in the matter.
4. Countering the contention of learned DR, the learned senior counsel points out that the judgments of Tribunal in the case of Gujarat Ambuja Cements Ltd. is directly applicable to the facts of the present case, as in that case the Tribunal noticed that the items imported were for commissioning of D.G. sets and D.G. sets were only producing electricity and the electricity was used for the manufacture of cement, hence it was clearly laid down that Modvat credit has to be extended.
5. On a careful consideration of these submissions and considering the show-cause notice and the order impugned, we are of the considered opinion that the matter is required to be remanded back to the original authority for de novo consideration for the following reasons:
(i) The show cause notice dated 2.2.98 had alleged that the assessee was filing declarations as required under Rule 57T as and when they intend to procure capital goods for existing machinery as well as installation of new project undertaken. It has been stated that the assessee had installed a power project which is capable of generating electricity to be used captively for manufacture of final product falling under Chapter 48 i.e. paper and paperboard. It has also been stated that in view of the restriction imposed vide Notification No. 1/96 issued under Rule 57Q, the assessees were taking stock of the capital goods received in the R.G. 23A Part-I and availment of credit is deferred till installation of the machinery. The show cause notice proceeded on the ground that the assessee by using duty paying components installed a power plant which is capable of generating electricity and the electricity so generated is used captively for manufacture of paper and paperboard. It has been further stated that power plant is goods, while electricity produced is non-excisable. On that basis it proceeded to observe that final product being electricity and no duty have been paid on the power plant, therefore, the availment of Modvat credit is irregular and they are required to reverse the same. The appellants had strongly taken a view that there was no intermediary products coming into existence for the purpose of duty – i.e. electricity. On this ground, the Commissioner has not given any findings but merely held that the judgment of Supreme Court rendered in the case of Sirpur Paper Mills Ltd. would squarely apply to this case. The contention raised by the appellant that this judgment was in the context of the assessee having admitted the power plant & machinery being goods, therefore, it negatived the subsequent plea that it was immovable property on the plea that the goods had already come into existence and it was embedded to earth only for the purpose of affixing the same. This view of the Apex Court has been deferred and the Hon’ble Apex Court has taken a clear cut view in the case of Quality Steel Tubes Put. Ltd. (supra) Mittal Engineering Works P. Ltd. (supra) and in the latest case of Triveni Engineering & Inds. Ltd. as that the goods have to come into existence prior to the same being affixed to the ground and becoming part and parcel of the immovable property. There is no finding given by the Commissioner as to how the power plant was coming into existence prior to installation or erection as part and parcel of the immovable property. On the aspect whether power plant is goods or not, the Commissioner has not given any finding but having applied the ratio of the judgment of Sirpur Paper Mills, the order impugned is not a speaking order, which is required to be interfered at this stage itself. It is seen that electricity is not goods and if both the items on prima-facie consideration i.e. power plant and electricity held to be not goods, then we are required to examine as to whether the declared items find their place in Column No. 2 of Notification issued under Rule 57G and whether they are used in the factory for manufacturing the final product. The learned senior counsel emphasized that mere use of the inputs within the factory itself would be sufficient for treating it as capital goods and this point which has not been examined by the Commissioner in the order impugned. The impugned order has not proceeded in the light of the provisions of Rule 57Q and 57T. The Commissioner ought to have analysed the entire provisions of Rule 57Q and 57T and the terms of the Notification. Failure to examine the very crux of the issue i.e. whether the items on which duty has been paid had been utilised within the factory for setting up the power plant i.e. paper and paperboard has rendered the order impugned a non-speaking order.
(ii) It is further pleaded that the appellants have referred the Tribunal’s judgment rendered in the case of Gujarat Ambuja Cements Ltd. and also the three other decisions rendered in the cases of M/s. Rathi Alloys & Steel Ltd. (supra), M/s. Oriental Carbon & Chemicals Ltd. (supra) and DCW Ltd. (Supra). All these judgments have not been referred to by the Commissioner and no finding has been recorded by the Commissioner, therefore, on this ground also the order impugned is not a speaking order.
(iii) The Commissioner has not given any reasons as to why such huge penalties imposed on the appellants? There has to be a clear cut finding as to how Section (sic) [Rule] 173Q(1)(bb) is attracted and as to whether there is an intention to evade duty in the matter and as to whether the provisions of Rule 173Q(1) has been violated or not? Without examining the provisions, and merely proceeded to impose such a huge penalty would call for interference from the Tribunal and for remanding the matter for de novo consideration.
6. In view of the above, we are constrained to set aside, the impugned order and remand the matter to the original authority for de novo consideration in the light of the findings recorded above. The appellants shall be given full opportunity of hearing for proper adjudication of the issue in question. A detailed speaking order shall be recorded on all grounds .raised by the appellants. Thus the appeal is allowed by way of remand.