1. M/s. Jindal Steel & Power Ltd. is in appeal against Order in Appeal No. 198-199/2011 dated 30/11/2011 whereunder inter alia Cenvat Credit amounting to Rs. 2,58,570/- on the items rails and concrete sleepers has been disallowed, and further disallowed Cenvat credit on the items namely Roof Truss and Roof Girder involving the amount of Rs. 72,295; the demand of interest on reversal of Cenvat credit of Rs. 2,97000/- taken wrongly has also been confirmed.
2. Both sides have been heard.
3. The appellant has withdrawn credit claim for Cenvat credit amounting to Rs. 72,295 in respect of Roof Truss and Roof Girder, and therefore, they have reversed the said credit along with interest. Consequently the impugned order in this regard is sustained.
4. After having carefully considered the facts of the case and the submissions of both sides, it appears that the claim of Cenvat credit by the appellant on rails, concrete sleeper, Check Rail, Fish Plates amounting to Rs. 2,58,570/- is covered by the Hon'ble Supreme Court decision in the case of Jayaswal Neco Ltd. vs. CCE Raipur : 2015 (319) ELT 247 (S.C.). The Hon'ble Supreme Court in this case has observed as under:-
8. It is clear from the reading of the definition of capital goods that when machines, machinery, plants, equipment, etc., are used for producing or processing any good or bringing about any change in any substance for the manufacture of final product, it would qualify as "capital goods? and Modvat credit thereon would be permissible. Question that arises for consideration is as to in what manner such machines, machinery, plants, equipment, etc., is to be used for the purpose stated therein.
9. A direct answer to this question is given by this Court in 'M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and Another' [1965 (1) SCR 900 : 1997 (91) E.L.T. 34 (S.C.)]. In this case, the test which was enunciated by the Court is:
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 impossible or commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". For goods to answer that description, it is not necessary that they must of necessity be goods which are used as "ingredient or commodity in the creation of goods", or which are "directly and actually needed for turning out or making of the goods."
10. Though the court was concerned with the construction of Section 8(3)(b) of the Central Sales Tax Act, 1956, and Rule 13 framed under the said Act, the expression "in the manufacture or processing of goods for sale" appearing in Section 8(3)(b) came up for interpretation. Section 8(3)(b) authorises the Sales Tax Officer to specify goods intended for use by the dealer in the manufacture or processing of goods for sale or in mining, or in the generation or distribution of electricity or any other form of power. Rule 13 provides that such goods must be intended for use in the manufacture or processing of goods for sale or in mining or generation or distribution of power.
11. The aforesaid expression interpreted by the Court, therefore, becomes relevant for our case as well. The test laid down by the Court and noticed above was explained and expanded by the Court in the following words:-
"In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods "in connection with" manufacture of or "in relation to" manufacture, or which facilitates the conduct of the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a Company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within Rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for the effective operation of those vehicles were also held to fall within Rule 13. See Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar and Ors."
12. In the process, the court also explained that there is no warrant for limiting the meaning of the expression "in the manufacture of goods" to the process of production of goods only. In the opinion of the court, the expression "in the manufacture" takes within its compass, all processes which are directly related to the actual production. It noted that goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. The court further marked that drawing and photographic materials falling within the description of goods intended for use as "equipment" in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use "in the manufacture of goods".
13. The said judgment also reflects discussion on certain other material goods which are used "in the manufacture of goods? and depending upon the manner in which such materials are used, it may or may not be integrally connected with the ultimate production of goods. To exemplify the same, the court noted the use of building materials as well as electronics goods, by pointing out the aforenoted distinction in the following manner:
"Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the meaning of Rule 13, as raw materials in the manufacture or processing of goods or even as "plant". It is true that buildings must be constructed for housing the factory in which machinery is installed. Whether a building is a "plant" within the meaning of Rule 13, is a difficult question on which no opinion need be expressed. But to qualify for specification under s. 8(3)(b) goods must be intended for use of the nature mentioned in Rule 13, in the manufacture of goods. Building materials used as raw materials for construction of "plant" cannot be said to be used as plant in the manufacture of goods. The Legislature has contemplated that the goods to qualify under s. 8(3)(b) must be intended for use as raw materials or as plant, or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description. The High Court was, therefore, right in rejecting the claim of the Company in that behalf.
The expression "electricals" is somewhat vague. But in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting it would be very difficult to carry on the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would in the modern conditions of technological development normally be regarded as equipment necessary to effectually carry on the manufacturing process. We are not prepared to agree with the High Court that in order that "electrical equipment" should fall within the terms of Rule 13, it must be an ingredient of the finished goods to be prepared, or "it must be a commodity which is used in the creation of goods". If, having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale and such a test, in our judgment, is satisfied by the expression "electricals". This would of course not include electrical equipment not directly connected with the process of manufacture. Office equipment such as fans, coolers, air-conditioning units, would not be admissible to special rates under s. 8(1)."
14. Applying the aforesaid test to the facts of this case, it is apparent that the use of railway tracks is related to the actual production of goods and without the use of the said railway track, commercial production would be inexpedient.
15. In the instant case, the manner in which railway track materials have been used by the appellant was explained by the appellant before the Commissioner and veracity thereof was accepted by the Commissioner. Therefore, without any fear of contradiction, we may note the exact process that is involved:
"These railway tracks used in transporting hot metal in ladle placed on ladle car from blast furnace to pig casting machine through ladle car where hot metal is poured into pig casting machine for manufacture of pig iron. Secondly the system also helps in taking hot pigs from pig casting machine to pigs storage yard by the big wagon where hot pig iron are dumped for cooling and making ready for dispatchers. This Railway tracks are also used in handling of raw materials at wagon tippler to stacker reclaimer where stacking and reclaiming of raw material is taken place and required quantity is conveyed for further processing at stock house."
16. It reflects that the appellant has installed railway tracks within the plant which is a handling system for raw material and processed material.
17. The aforesaid process squarely meets the test laid down by this court in M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd.'s case. It is clear that the railway tracks are installed not only within the plant, but the main objective and purpose for which the capital expenditure on laying these railway tracks is incurred by the appellant is for transporting hot metal in ladle placed on ladle car from blast furnace to pig casting machine through ladle car where hot metal is poured into pig casting machine for manufacture of pig iron. It is clear from the above that the use of railway tracks inside the plant not only form the process of manufacturing, but it is inseparable and integral part of the said process inasmuch as without the aforesaid activity for which railway tracks are used, there cannot be manufacturing of pig iron.
18. We find from the order of the Commissioner that in spite of taking note of the aforesaid use of the railway tracks and accepting the same as correct, the Commissioner denied the relief to the appellant on an extraneous ground, i.e., railway tracks were used for other purposes as well, namely, apart from conveying hot metal and hot pigs, it was used for carrying raw materials and finished goods as well. This can hardly be a ground to deny the relief inasmuch as by incidental use of the railway tracks for some other innocuous purpose, it does not lose the character of being an integral part of the manufacturing process. The Commissioner has further observed in his order that the railway track is not utilised directly or indirectly for producing or processing of goods or bringing about any change for manufacture of final product. This conclusion, obviously, is completely erroneous and amounts to misreading of the process. Such an error has occurred because the Commissioner did not keep in mind the principle of law laid down by this Court in M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd.'s case, highlighted above.
19. When we read the order of the CEGAT, we find that CEGAT has not even adverted to and examined the issue from the aforesaid angle, which was the only method for arriving at a finding as to whether the railway tracks installed within the plant would come within the definition of capital goods under Rule 57Q of the Rules or not. The order of the CEGAT is stoically silent. It has affirmed the order of the Commissioner by simply observing that the Commissioner has arrived at the conclusion that these goods are not being used directly or indirectly for producing or processing the goods or for bringing about any change for the manufacture of the final product. We have already pointed out that the aforesaid conclusion of the Commissioner is not only factually incorrect and perverse but legally unsustainable as well.
20. Resultantly, we set aside the order of the Commissioner as well as of CEGAT insofar as it pertains to item "railway track material used for handling raw materials, process goods" and hold that the appellant has rightfully claimed for Modvat credit in respect of this item which credit is wrongly reversed by the authorities below. To that extent, order of the Commissioner as well CEGAT is set aside and the present appeal is allowed in the aforesaid terms. No order as to costs.
4.1 In the light of the observations of the Hon'ble Supreme Court (supra) the appellant is entitled to Cenvat credit on the subject items amounting to Rs. 2,58,570/-. The impugned order in this regard therefore
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is set aside. 5. In case of the demand of interest on late reversal of credit of Rs. 2,97,073/-, the appellant pleads that the subject matter was not in appeal before Commissioner (Appeal). Therefore, the finding given by the impugned order in this regard is beyond scope of the department's appeal before Commissioner (Appeals). The appellant further pleads that the issue had attained finality and the recovery of interest cannot be upheld. When the department has not raised the issue of charging interest on late reversal of credit in the appeal filed before Commissioner Appeals, the assessee also did not get the opportunity to defend and put up their view point on the same. Since there has been no challenge to the dropping of the demand of interest in case of late reversal of Cenvat credit as held by the lower Original Authority, by the Revenue before Commissioner (Appeal), the findings of the Original Adjudicating Authority are to be upheld. The Tribunal's decision in case of CCE Mumbai Vs. Echay Forging Pvt. Ltd: 2015 (319) ELT 127 (Tri-Mum) also supports this stand holding that when there is no challenge to the finding of lower authority before the appellate authority, finding of the lower authority is to be upheld. Consequently, the impugned order sustaining the demand of interest on the late reversal of Cenvat credit is set aside. 6. In the result, the impugned order is modified to above effect and the appeal is allowed in above terms.