2026-VIL-1729-CESTAT-CHE-CE
  1. Home
  2. 2026-VIL-1729-CESTAT-CHE-CE

CENTRAL EXCISE CESTAT Cases

Central Excise - Cenvat credit on capital goods supplied by contractors for a plant set up within the factory - Splitting of a works contract into supply and erection orders - Passing of property in goods - Appellant took credit of the excise duty on the manufacturers' and dealers' invoices naming the contractor as buyer and the Appellant as consignee at its factory - Revenue contended that the contracts were composite works contracts for a plant which is immovable, that the Appellant had taken credit on non-excisable inputs in the guise of capital goods, and that the contracts were deliberately split to facilitate credit - Whether the contracts are in substance a single works contract and whether the split was artificial and when property in the goods passed - HELD - A split into two instruments is recognised only where the agreements are in truth separate. The letter of intent accepted a single price for supply, installation, testing and commissioning, and both purchase orders incorporated the same letter, bill of quantities and tender document. They fixed a common completion schedule, took security on the combined value, withheld part of the supply price until erection and commissioning, and ran the defects liability period from commissioning - The contract with each contractor is in substance a single works contract for the design, supply, erection and commissioning of a system, falling within the Explanation to Section 65(105)(zzzza). Recording the price of goods and of erection in separate instruments reproduces the division which Article 366(29A)(b) effects by legal fiction, and nothing on record shows that the documents were not acted upon as written, so the split is not shown to be a sham or colourable device - In a works contract, the property in the goods passes when the goods are incorporated in the works, and the completion certificate is not the point at which it passes. The contractors held the goods at site for the purpose of executing their own work, and property vested in the Appellant, at the latest, on incorporation into the systems in its factory. The case of bailment fails as there was no delivery of goods by the Appellant to the contractors, and the Revenue's proposition that the Appellant received only a plant is also untenable as it acquired the very duty-paid goods as components of its plant – The appeal is allowed - Rules 2(a)(A), 3(1) and 4(2) of Cenvat Credit Rules, 2004 - Credit on capital goods received and used in the factory - Appellant took credit of duty paid on goods supplied through contractors and installed as part of systems of a new plant within its factory, and the lower authorities held that the goods were consumed by the contractors in bringing into existence an immovable, non-excisable plant and were therefore inputs of a non-excisable product on which no credit can be taken - Whether the goods are capital goods received and used in the factory of the Appellant so as to entitle it to credit under Rules 2(a) and 3(1) - HELD - The conditions of entitlement are the description of the goods, payment of duty evidenced by a prescribed document, receipt in the factory and use in the factory. None of them speaks of ownership at the point of receipt, of the person from whom the goods were bought or of the person who installs them. The requirement of receipt in the factory is one of place and not of person, and the duty-paying invoices named the Appellant's factory as the consignee. The definition of capital goods speaks of goods used in the factory and not of goods used by the manufacturer, and handling by the contractor in the course of installation is the ordinary prelude to the use of capital goods - Excisability of the product into which goods are worked is decisive for inputs claimed by the person who makes that product, and any disability on that account lay with the contractors who erected the plant as their output. The plant is not the Appellant's final product but the means by which its excisable final products are made. The Board's Order treats an erected plant as immovable and not excisable but states that its components remain dutiable and says nothing about credit. If credit were denied, the duty would stay embedded in the cost of the final goods and be borne again, causing the cascading which the credit scheme exists to remove, and since most heavy machinery is installed on foundations, a construction denying credit on that basis would empty the definition of capital goods of most of its content. The Rules exclude only civil and structural items and not machinery integrated into a plant - The goods satisfy the definition of capital goods in the Appellant's hands and the Appellant is entitled to the credit - Explanation to Rule 3 of Cenvat Credit Rules, 2004 - Rule 2A of Service Tax (Determination of Value) Rules, 2006 - Whether credit is barred where the works contractor's services are treated as works contract - Revenue contended that the value of the goods stood exempted or excluded from service tax under Notification No. 12/2003-ST or Rule 2A, that the bar on credit to the works contractor prevails over the Cenvat Credit Rules by the Explanation to Rule 3, and that the Appellant would otherwise enjoy a double benefit - Whether the credit of the Appellant is barred by the Explanation to Rule 3 - HELD - The Explanation is attracted only if there is a rule or notification granting exemption on condition of non-availability of credit, a claim to that exemption in respect of these very goods, and a condition capable of operating against the person claiming credit. The principle that classification at the supplier's end cannot be altered at the recipient's end does not prevent an authority from construing the recipient's own contracts to determine what it received, but it forbids the Revenue from attributing to a service provider a classification or valuation that it did not adopt - The value of the goods transferred in a works contract was never within the levy, and Rule 2A is a valuation provision framed under Section 94(2)(aa) and not an exemption under Section 93. Therefore, neither an exemption under Notification No. 12/2003-ST nor the deduction under Rule 2A on the value of goods can attract the Explanation. From 01.07.2012, Explanation 2 to Rule 2A is addressed only to the provider of the taxable service. For the earlier period, Rule 2A contained no restriction on credit, and a circular addressed to the provider is not a rule or notification granting exemption - The coordinate Bench decision relied upon by the Revenue is distinguishable on facts and was rendered before the Supreme Court decision holding that no question of exemption arises where there is no levy. There is no double benefit, as the duty was paid once by the manufacturers and credited once by the Appellant. An adjudicating authority which declines to follow decisions cited before it owes the assessee the reason, and the Commissioner (Appeals) wrongly inverted the burden by faulting the Appellant for not showing a valid reason for placing two sets of orders - The Explanation to Rule 3 does not bar the credit for either period - Extended period of limitation under proviso to Section 11A(1) and Section 11A(4) of Central Excise Act, 1944 - Interest and penalty under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC - Appellant contended that separate orders are an industry practice, that the credit was reflected in the returns, that the burden of proving suppression lies on the Revenue - Whether the extended period was validly invoked and whether interest and penalty are sustainable - HELD - Suppression means that correct information was not disclosed deliberately to evade payment of duty, and there must be some positive act on the part of the assessee. Non-disclosure of information which the law does not require to be disclosed is not suppression, and the requirements for a valid notice must be found in the notice
Download File
show more Judgements  

Quick Search

/

Advance Search

GST Resources

/

Gst Rate Finder

Tax Vista

Your Weekly Tax Recap

By Dr. G. Gokul Kishore

Weekly Summary

VIL Video

GST & Customs updates: Sep'26
By CA Vivek Jalan

Create Account

Security-Code
New Code?

Log In

New User ? Forgot Password ?

Forgot Password

Security-Code
New Code?
Please Note: This facility is only for Subscribing Members.

Email this page

Security-Code
New Code?

Feedback this page

Schedule a Demo

Schedule a demo to know the features and advantages of VILGST portal. Get to know the tips to find the desired results in faster way.

Security-Code
New Code?

Caselaw Request Form (CRF)

Didn’t find what you are searching for? No worries, please give us the following details and VIL will email you the desired Caselaws at the earliest:

Security-Code
New Code?