/LFJS. Appellant HIGH COURT OF CHHATTISGARH AT BILASPUR Tax Case No.09/2008 Ambuja Cements Eastern Ltd. Respondents Appellant Versus Commissioner of Central Excise, Raipur & another. And Tax Case No.52/2008 Ambuja Cements Limited. ;l,of ^ o Respondents/ Non-Applicants Versus Customs, Excise & Service Tax Appellate Tribunal, New Delhi & another. ORDER FOR CONSIDERATION Sd/- f-1 / d-4.2010 Hon'ble Shri R.N. Chandrakar, J -9 Sd/- R.N. Chandrakar Judge •fA POSTFORORDERON f3 APRIL, 2010 Sd/- Dhirendra Mishra Jadge HIGH COURT OF CHHATTISGARH AT BILASPUR Tax^ase No.09/2008 Appellant Respondents Ambuja Cements Eastern Ltd, Now Ambuja Cements Ltd., PO Rawan, Baloda Bazar, Raipur Authorized Signatory NGS Nair, Gen. Manager (Comml.) Versus 1. Commissioner of Central Excise, Kendriya Rajasva Bhawan, Civil Lines, Raipur. 2. Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Thro' Registrar West Block 2, R.K. Puram, New Delhi. And Tax Case No.52/2008 Ambuja Cements Limited, PO Rawan, Teh. Baloda Bazar, Distt. Raipur Versus 1. Customs, Excise & Service Tax Appellate Tribunal Thro' Registrar West Block 2, R.K. Puram, New Delhi-110066. 2. Commissioner of Central Excise, Kendriya Rajasva Bhawan, Civil Lines, Raipur. ^Appeals under Section 35-G ofthe Central Excise Act. 1944) Present: Shri M.P. Devnath and Shri Raja Sharma, counsel forthe appellant. Shri Bhishma Kinger, counsel for respondents. Appellant Respondents/ Non-Applicants Division Bench Hon'ble Shri Dhirendra Mishra & Hon'ble Shri R.N. Chandrakar, JJ ORDER (Passed on Jg^April, 2010) Per Dhirendra Mishra,^J The above tax cases are being disposed of by this common order as issue involved in both these appeals is common. These appeals have been admitted on the following substantial question of law:- 02. 03. 04. "Whether welding electrodes used in repairs/maintenance of plant and machinery can be considered as 'input' as defined under Rule 2(g) of Cenvat Credit Rules, 20027" Appellant - Ambuja Cement Ltd. is engaged in manufacture of clinker and cement falling under Chapter-25 of the Central Excise TariffAct, 1985. During the relevant period i.e. from November, 2001 to August, 2003 in Tax Case No.52/08 & September, 2003 to March, 2004 in Tax Case No.9/08, the appellant availed Modvat credit of Rs.8,04,036/- and Rs.1,90,075/- respectively on welding electrodes used in manufacture of parts and components of the capital goods and also in repairs and maintenance of the capital goods within the factory of production. The appellant was served with show cause notices, proposing to deny Cenvat credit on welding electrodes under Rule 12 (g) of the Cenvat Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944 and also proposing to impose penalty under Rule 1 3 of the Rules and recover interest from the appellant under Rule 12 of the Rules read with Section 11AB of the Central Excise Act, 1944. The appellant filed reply to the show cause notices and contended that welding electrodes have been used for manufacture of pari:s and components of the plant and machinery/capital goods used within the factory and some electrodes have also been used for repairs and maintenance of the plant/machinery/capital goods. However, the Dy. Commissioner of Central Excise, Raipur rejected the submission of the appellant and disallowed Cenvat credit availed by the appellant and imposed penalty of Rs.50,000/- in both the cases. The appeals preferred by the appellant before the Commissioner (Appeals) were also dismissed on merits by holding that welding electrodes used for repair and maintenance are not eligible for Cenvat credit. However, the credit availed on welding electrodes 8. 1"^ 'm 05. 06. 07. ^ \ /^' used in manufacture of capital goods was allowed and penalty imposed by the Adjudicating Authority was also reduced. On appeal before the Tribunal against the aforesaid order of the Commissioner (Appeals), the Tribunal while dismissing the appeals against disallowance and denialof credit on welding electrodes used in repairs and maintenance and confirming the order of the Commissioner (Appeals), partly allowed the appeals and set aside the penalty imposed. Shri M.P. Devnath and Shri Raja Sharma, learned counsel appearing for the appellant, would argue that the welding electrodes used in repairs/maintenance of the plant and machinery can be considered as input as defined under Rule 2(g) of the Cenvat Credit Rules, 2002, as in the instant case, the welding electrodes have been used for repair/maintenance of the capital goods, which are, in turn, used in the manufacture of final products i.e. clinker and cement falling under Chapter-25 of the Central Excise TariffAct, 1985. The appellant has availed Cenvat credit on the welding electrodes used in relation to manufacture of final products. Apart from being used in the manufacture of parts and components of the plant and machinery, welding electrodes have also been used in repairs/maintenance works of the plant in filling up metal cracks of the machines, cutting and removing damaged part, fixing new parts in machine, removing worn out parts, liner etc. ofthe machinery. Reliance is placed on the decisions of the Supreme Court in the matters of CCE, Coimbatore Vs. Jawahar Mills Ltd. , Jawahar Mills Ltd. Vs. CCE, Coimbatore , Union oflndia Vs Hindustan Zinc Ltd.3; Jaypee Rewa Plant Vs. CCE, Raipur4; J.K. Cotton Spg. & Wvg. Mills Co. Ltd. Vs Sales Tax Officer, Kanpur'; ,CCE, Tiruchirappalli Vs. India Cements Ltd. , CCE, Raipur 2L 2) ELT 3 (SC) \) ELT 47 (Tribunal) ^LT510.(Raj.) \T553(Tri.LB) \(SC) (Mad.) ^s^. ' ^s ', ^ <»-!3Fl- T^- 08. 09. Ks. Birla Jute & Industries Ltd. , and Kunha Yammed Vs. StateofKerala8. On the other hand, Shri Bhishma Kinger, learned counsel appearing for the respondents/revenue, argued that only those items falling under the specified chapters/headings, their spare parts/components/accessory or otherwise specified and used in the factory of manufacture of final product, are entitled to be treated as 'capital goods' and no item can be treated as capital goods by adopting an interpretative process. The Tribunal has dismissed the appeals of the appellant by following the decision of the larger Bench of the Tribunal in case of Jaypee Rewa Cement, in which it was held that welding electrode, is not admissible for Cenvat credit. He further argued that Kolkata Bench of the Tribunal in the matter of Steel Authority oflndia Ltd. Vs CCE, Ranch^, relying upon the decision of the larger Bench in case of Jaypee Rewa Plant, observed that the decision of Jaypee Rewa Plant has not been appealed against or reversed, and held that the goods which are used in the process of such manufacture are eligible to Modvat credit, while denying the credit on gases and welding electrodes etc. which are used for welding, repairing and maintenance of the machineries. The aforesaid judgment was chaltenged by SAIL by filing Special Leave to Appeal (Civil) and the said SLP was dismissed by the Supreme Court.i In these circumstances, denial of Cenvat credit to the appellant on welding electrodes used in repairs/maintenance of the plant and machinery, cannot be faulted. We have heard learned counsel for the parties, perused the orders of the Forums below and the judgments cited by the parties. 5JELT280(Tri.-Del.) ^Tll(SC) y3 (Tri.-Kolkata) 10. Both the appeals have been admitted on the following substantial question of law: "Whether welding electrodes used in repairs/maintenance of plant and machinery can be considered as 'input' as defined under Rule 2(g) of Cenvat Credit Rules, 20027" 11. Rules 2(g) of the Cenvat Credit Rules, 2002 reads as under: "2(g). "inputs" means all goods, except [light diesel oil] high speed diesel oil and motor spirit, commonly known as petrol, used or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production." 12. The Tribunal has passed the impugned order by placing reliance on the decision of the larger Bench of the Tribunal in Jaypee Rewa Plan^. Learned Tribunal rejecting the argument of the appellant-assessee, based on the expression "used in or in relation to manufacture of the final products" occurring in the definition of "input" under Clause (d) of Rule 57AA of the Cenvat Scheme, held that the aforesaid argument cannot be accepted in view of the ruling of the Apex Court in J.K. Cotton Spinning , wherein the Apex Court has interpreted the expression "in the manufacture of goods" (occurring in Section 8(b) of the Central Sales Tax Act, 1956) as under: "The expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process, would, in our judgment, fall within the ;.\ expression 'in the manufacture ofgoods'." /1.^-'. 13. The decision in Jaypee Rewa Plant came into consideration before the Rajasthan High Court in the matters of Hindustan Zinc Ltd., 2008 (228) ELT 517 (Raj.), involving similar issue - "whether welding electrodes used for repair and maintenance of plant and machinery are eligible for Cenvat credits, both as capital goods as well as inputs?" The High Court relying upon the decision of the Supreme Court in case of Jawahar Mills Ltd. , in Paras 11 & 12 observed thus: "11. In our view, the judgment of Hon'ble Supreme Court, in JK Cottons SPG & WVG Mills Co. Ltd Vs. Sales Tax Officer, Kanpur. reported in 1997 (91) E.L.T. 34, has a material bearing on the controversy involved in the present case. It may be noticed, that the tribunal in J.P. Rewa case has referred to this judgment of Hon'ble Supreme Court in JK Cotton's case, by reproducing a part of the head note, but then, the very significant continuing next sentence has been omitted from consideration, inasmuch as the sentence following the portion quoted by the tribunal, is as under: "They need not be ingredients or commodities used in the processes, nor must they be directly and actually needed for "turning out or the creation of goods." 12. In that case, the Hon'ble Supreme Court even went to the extent of holding, that use of electrical equipments, like lighting, electrical humidifiers, exhaust fan etc. were also taken to be necessary equipment, to effectively carry on the manufacturing process. Thus, with the above, if the quoted part of the judgment in JK Cotton's case is read, it becomes clear, that the expression "in the manufacture of goods" should normally encompass entire process carried on by the dealer, of converting raw materials into finished goods, where any particular process, or activity, is so integrally connected with the ultimate production of the goods, but for that process, manufacturing, or processing of the goods would be commercially inexpedient, goods required in that process would, fall within expression "in the manufacturing of goods". ••-:a^adi:.^.. £ fc^" ~^ ft vfSssh. '^•^s^'ss^" 14. The Madras High Court in India Cements Ltd. , while dealing the similar issue, relying upon the decision of the Supreme Court in Jawahar Mills Ltd. and Commissioner Vs. Birla Jute & Industhes Ltd. , decided the question of law in favour of the assessee and held that the Tribunal is correct in holding that the welding electrodes used for repairs and maintenance are covered under the definition of capital goods in terms of Rule 57Q of the Central Excise Rules, 1944. 15. In Hindustan Zink Ltd., Division Bench of the Rajasthan High Court while considering the substantial question of law - "whether the learned Tribunal is right in law in allowing the Modvat credit on the item MS/SS plates in the maintenance and repair work of the machinery" - held that such goods, which are necessary for running of plant and up-keeping of the machinery directly involved in the manufacturing and products are eligible to avait Modvat credit. The revenue preferred petition for Special Leave to Appeal (Civil) No. CC 8147 of 2006 against the above judgment of the Rajasthan High Court and the same was dismissed by the Supreme Court vide order dated 6.11.2006. 16. The northern Bench of the Tribunal, New Delhi, in the matter of Birla Jute & Industries Ltd. , held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (Welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil Appeals preferred by the revenue against the above order were again dismissed by the Supreme Court with an observation that the civil appeals have to be dismissed in view of the judgment of this Court in Jawahar Mills Ltd. (Commissioner Vs. Birla Jute & Inds. Ltd.10.) 17. The Kolkata Tribunal in the matter of SAIL9 held that Modvat Credit on goods and welding electrodes etc. which are used for 10 2002 (139) ELTA93(SC) ^........ .•:•>7? &.-.^ " % \..J '..r'-^" 18. 19. welding, repair and maintenance of machineries, is not admissible. Relying upon the decision in Jaypee Rewa Plan^, it has been observed that the decision in this matter has not been appealed against or reversed. SAIL filed a petition for special leave to appeal against the above decision and dismissing the SLP, the Supreme Court passed the following order: "Delay condoned. On the facts ofthis case, matters stand dismissed." [Steel Authority oflndia Ltd. Vs. Commissioner- 2008 (229) E.LT. A127 (S.C.)] In case of Birla Jute & Industries Ltd. , the Tribunal has held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (Welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. The civil appeals preferred by the revenue have been further dismissed by the Supreme Court in Commissioner Vs. Birla Jute & Industries in view of its judgment in Jawahar Mills Ltd. Learned counsel for the appellant relying upon the judgment of the Supreme Court in Kunha YammecP argued that refusing of special leave by a non-speaking or speaking order does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed. Whereas, where an appeal or revision is provided against an order passed by a Court, Tribunat or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. 20. We have already observed in the foregoing paragraphs that the definition of "input" occurring under Rule 2(g) of the Cenvat Credit Rutes, 2002 takes in its ambit all inputs, except the specifically exctuded items und^r Rule 2(g), which have been employed in the 21. manufacturing process, whether directly or indirectly and whether contained in the final product or not, and are entitled for Cenvat credit,. The civil appeals against the decision of the Delhi Tribunal in Birla Jute & Industries Ltd. , wherein it has been held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (Welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944, have been further dismissed by the Supreme Court confirming the observations of the Delhi Tribunal, in viewof judgment of the Supreme Court in JawaharMills Ltd. Shri Bhishma Kinger, learned counsel for the respondents/revenue, vehemently argued that in the matter of SAIL, the Tribunal at Kolkata relying upon the decision in Jaypee Rewa Plant has held that Modvat credit on goods and welding electrodes etc. which are used for welding, repairing and maintenance of machineries, is not available under Rule 57A of the erstwhile Central Excise Rules, 1944. SAIL's Special Leave Petition against the above order of Kolkata Tribunal has been further dismissed and therefore, the view taken in Jaypee Rewa Plant is impliedly affirmed by the Supreme Court. We are unable to accept the aforesaid argument as we find that SLP against the decision of Kolkata Tribunal in SAIL has been summarily dismissed without any speaking order, whereas the Rajasthan High Court in Hindustan Zinc Ltd., after considering the larger Bench decision of the Tribunal in Jaypee Rewa Plant, has observed that the matter has been decided by selectively referring to the decision of the Supreme Court in JK Cotton's case, and decided the matter by omitting the very significant continuing next sentence. Paras 11 & 12 of Hindustan Zinc Ltd. have already been reproduced in the foregoing paragraph for ready reference. 22. Thus, decision in the matter of Jaypee Rewa Plant is not a good law in view of above judgment of the Rajasthan High Court. That apart, the MadrasHigh Court in India Cements Ltd. has held that 23. 'ffM. 10 the welding electrodes used for repairs and maintenance are covered under the definition of capital goods in terms of Rule 57Q. Similarly, in Birla Jute& Industries Ltd. also, the Delhi Tribunal held that Modvat credit is admissible for Electrodes and Calibration Gas Mixture (Welding equipments), but not admissible for explosives under Rule 57A of the Central Excise Rules, 1944. Civil appeals preferred by the revenue have been further dismissed by the Supreme Court. It is settled law that refusing of special leave to file appeal by a non-speaking or speaking order does not attract the doctrine of merger, whereas where an award, appeal or revision is provided against the order passed by the Court, Tribunal or any other authority before a superior forum and such superior forum modifies, reversesor affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law, as held by the Supreme Court in Kunha Yammec^. On the basis of aforesaid discussions, relying upon the decisions ofthe Rajasthan High Court in Hindustan Zinc Ltd., Madras High Court in India Cements Ltd., and Delhi Tribunal in Birla Jute & Industries Ltd., which have been, subsequently, affirmed by the Supreme Court,we allow both the appeals, set aside the impugned orders and 'answer the substantial question of law in favour of the appellant-assessee and hold that welding electrodes used in repairs and maintenance of plant and machinery are inputs as defined under Rule 2(g) of the Cenvat Credit Rutes, 2002 and thus, entitted for Cenvat credit. i Sd/- Dhirendra Mishra Judge Sd/- R.N. Chandrakar Judge c-'--—-- - - - Khan