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2010-TIOL-1579-CESTAT-DEL

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL


PRINCIPAL BENCH, NEW DELHI

Excise Stay Application No.3391 of 2009-Excise


Appeal No.E/3318 of 2009-Excise

COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH -I

Vs

M/s KRYPTON OUTSOURCING LTD

Date of Decision: 30.4.2010

Appellants Rep by: Shri Anil Khanna, DR


Respondent Rep by: Shri Joy Kumar, Adv.

CORAM: R M S Khandeparkar, President


Rakesh Kumar, Member (T)

Central Excise – CENVAT availed capital goods along with manufacturing facility
given on lease to another company under agreement – Contention that there was
no physical removal in terms of Rule 57S of CER 1944 not tenable – Expression
‘removal' in Rule 57S implies situations whereby control over capital goods is
divested to third party for utilization either by way of sale or lease or transfer in
some other manner – Prima facie case made out by Revenue for grant of stay

Revenue's Stay application allowed

Case laws referred:

CCE, Belgaum vs. Associated Cement Co. Ltd. (2007-TIOL-802-HC-KAR-CUS)

CCE Delhi vs. Allied Air-conditioning Corpn. (2006-TIOL-118-SC-CX)

Majestic Auto Ltd. vs. CCE, Ghaziabad [2004 (173) ELT 145 (Tri-Delhi)]

Jamna Auto Industries Limited vs. CCE, Indore [2001 (130) ELT 181 (Tri-Delhi)]

Metzeller Automotive Profiles India P. Ltd. vs. CCE, Ghaziabad [2004 (167) ELT

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208 (Tri-Delhi)]

Sri Chamundeshwari Sugars Ltd. vs. CCE, Mysore [2007 (217) ELT 65 (Tri-Bang)]

STAY ORAL NO.395/2010-EX

Per: R M S Khandeparkar:

Heard ld. DR for the appellants and ld. Advocate for the respondent.

2. This appeal arises from the Order dated 1/10/2009 passed by the Commissioner (Appeals),
Chandigarh . By the impugned order, the Commissioner (Appeals) has set aside the order
passed by the Addl. Commissioner, Chandigarh on 25.06.2004 by which order, the Addl.
Commissioner had confirmed the demand of Rs.7,59,728/- under Rule 57 U of the Central
Excise Rules, 1944 read with Section 11 A of the Central Excise Act, 1944 and also ordered
recovery of interest and penalty of equal amount besides penalty of Rs.50,000/- against the
Executive Director, Shri M.K. Kapoor. The demand was confirmed on account of removal of
the capital goods in violation of Rule 57 S (1) (ii) of the said Rules.

3. Ld. DR placing reliance in the judgement of the Karnataka High Court in the matters of
CCE, Belgaum Vs. Associated Cement Co. Ltd. reported in 2009 (236) ELT 240 (Karnataka) =
(2007-TIOL-802-HC-KAR-CUS) , of the Apex Court in Commissioner of Central Excise, Delhi Vs.
Allied Air-conditioning Corpn. (Regd.) reported in 2006 (202) ELT 209 (SC) = (2006-TIOL-118-
SC-CX), and of the Tribunal in the matter of Majestic Auto Ltd. Vs. CCE, Ghaziabad reported in
2004 (173) ELT 145 (Tribunal-Delhi) submitted that the Commissioner (Appeals) erred in
setting aside the order passed by the Addl. Commissioner, Chandigarh ignoring the mandate
of Rule 57 S (1) of the said Rules.

4. On the other hand, ld. Advocate appearing for the respondent drawing our attention to the
orders of the Tribunal in the matters of Jamna Auto Industries Limited Vs. CCE, Indore
reported in 2001 (130) ELT 181 (Tribunal-Delhi), Metzeller Automotive Profiles India P. Ltd.
Vs. CCE, Ghaziabad reported in 2004 (167) ELT 208 (Tribunal-Delhi) and Sri Chamundeshwari
Sugars Ltd. Vs.. CCE, Mysore reported in 2007 (217) ELT 65 (Tribunal-Bangalore) submitted
that the materials on record including the show cause notice nowhere disclosed removal of
the capital goods from the premises of the appellant and the lease of the factory and the
capital goods would not amount to removal of the goods within the meaning of the said
expression under Rule 57 S(i) (ii) of the said rules. According to the ld. Advocate, the Rule
clearly requires actual and physical removal of the goods and in absence thereof it cannot be
said that there is violation of the said rules. Rule 57 S (i) (ii) of the said rules clearly provides
that the capital goods in respect of which the credit of the specified duty has been allowed
under Rule 57 U may be removed after intimating the jurisdictional Asstt. Commissioner of
the Central Excise and after obtaining dated acknowledgement of the same, from the factory
for home consumption or for export on payment of appropriate duty of excise leviable thereon
or for export under bond as if such capital goods have been manufactured in the said factory.

5. There is no dispute that the capital goods were received by the respondent for installation
thereof in their factory premises during the period from February, 1995 to February, 1998;
however, the said capital goods were subsequently leased out to M/s. Kamla Dials & Devices
Ltd. under lease agreement dated 24.8.98 and in consonance with the said agreement, were
handed over to the said company along with manufacturing facility on 1.4.99. It is also
undisputed fact that no duty as such was paid by the appellants in terms of Rule 57 S (1) (ii)
of the said Rules. The sole contention of the respondent is that there was no physical removal
of the goods as such and the rule clearly requires physical removal of the goods. According to
the respondent, the mere leasing out of the capital goods, even along with the manufacturing

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facility in the factory, would not amount to physical removal of the goods within the meaning
of the said expression under the said rule.

6. The Rule 57 S (1) (ii) does refer to the expression "removed" with reference to the capital
goods. However, if one reads the said rules and understand the meaning of the said
expression "removed" in proper context, it would abundantly be clear that the said
expression implies a situation whereby the control of the assessee over the capital goods is
divested in one way or other so that the goods are not utilised by the assessee himself but
are allowed to be utilised by the third party. Such utilisation of the goods would be either by
way of sale or lease or transfer in some other manner whereby the control of the assessee
over the goods gets transferred in favour of such third party. Any other meaning to the
expression, "removed" would virtually defeat the very purpose of the said provision. No
provision of law can be construed in a manner which would result in defeating the very object
which is sought to be attained by incorporating such provision of the law. If we read the term
"removed" to mean physical removal of the goods from the factory and not necessarily by
divesting the control over the capital goods, it would result in rendering the rule to be
nugatory.

7. On perusal of the orders passed by the Tribunal either in Jamna Auto Industries Ltd. or
Metzeller Automotive Profiles India Pvt. Ltd. or in Sri Chamundeshwari Sugars Ltd., the same
nowhere disclose the above aspect to have been considered. In the absence of the
consideration of the said aspect of the matter and the issue, those decisions cannot be said
to be relevant for deciding the matter in hand and in that regard, ld. DR is justified in
drawing our attention to the decision of the Apex court in the matter of Allied Air-conditioning
Corpn. (Regd.), wherein it has been clearly held that any order has to be understood in the
light of the facts of the case and no more should be read into it than what it actually decided.
Indeed the ratio of a decision is to be culled out from the facts of the case and the point
which arises for consideration and decision thereon. No order can be understood dehors the
context in which the observations are made therein. The observations are to be read with
reference to the facts of the case and the points considered. Perusal of those orders nowhere
disclose the points in issue sought to be raised in the matter was the subject matter of
adjudication or deliberation in the said cases.

8. The Karnataka High Court in Associated Cement Company case had held thus, "therefore,
in our considered view though there had been no physical removal of power unit the above
transactions between the assessee-company and M/s. Tata Electric Company certainly
amount to nothing short of physical removal of the power unit of the assessee in respect
whereof Modvat credit was availed by the assessee so as to attract the penal provisions of
the said Act and the Rules. The said transaction of sale of power unit and simultaneous lease
of premises are wisely resorted to by the assessee as a device to avoid the tax liability on it
on the ground that the power unit was not physically removed from the premises of the
assessee. Therefore, we are of the considered opinion that the Tribunal without application of
mind and without proper appreciation of the said transactions in the light of the relevant
provisions of the Central Excise Act and the Rules has allowed the appeal of the assessee-
company and set aside the Order-in-Original passed by the Commissioner of Central Excise,
Belgaum . In the circumstances, we answer the above question of law in the 'negative' and
against the assessee."

9. In Majestic Auto Ltd., the Tribunal while dealing with the issue regarding the effect of
removing the modvated capital goods from the factory premises under Rule 57 U and 57 S
held that, "as the premises in which the capital goods are installed has now been leased to
the Appellants No.2 who are now in possession of the said premises, it cannot be claimed by
the Appellants No.1 that the capital goods are used in their factory. The capital goods are no
more installed in the factory of the Appellants No. 1 and as these are now in the factory
premises of another manufacturer (i.e. Appellants No.2), the same have been removed from

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the factory for home consumption. In terms of provisions of Clause (ii) of sub-rule (1) of Rule
57S, the same should have been removed -

(a) after intimating the Assistant Commissioner of Central Excise having


jurisdiction over the factory;

(b) after obtaining dated acknowledgment of the same; and

(c) on payment of appropriate duty of excise leviable thereon as if such capital


goods have been manufactured in their factory.

Thus the Appellants No. 1 is liable to pay the duty on the impugned capital
goods. A penalty is also imposable on them as they have not complied with the
conditions specified in Rule 57 S for the utilisation of the capital goods.

We do not find any substance in learned Advocate's submission that the


Appellants No. 1, being not manufacturer, is not liable to pay duty. The
Appellants No. 1 has availed of Modvat credit of the duty paid on goods and as
such all the conditions of the Central Excise Rules in this regard would apply. The
provisions of Rule 57S, as mentioned hereinbefore, are very clear and specific
that duty has to be discharged by the manufacturer who has taken the Modvat
credit "as if such capital goods have been manufactured" in his factory. The
decision in the case of Madras Electro Castings Ltd. is applicable to the facts of
present matters. In the said case, the Appellants had lent the capital goods to the
neighboring factory on loan basis. The Tribunal has held that "The Appellants
were duty bound to have paid duty on removal of goods." There is a machinery
provided in Section 11A of the Central Excise Act for recovering the duty not
paid/short paid, etc. In view of this the decision in the case of Pushpaman
Forgings and Board's Circular dated 27-9-96 are not applicable."

10. Taking into consideration the above decisions, the provisions of law and undisputed facts
in the matter, we find prima facie case having been made out for grant of stay of the
impugned order. Indeed if the stay is not granted, the appellants are bound to suffer
irreparable loss and, therefore, in our considered opinion, the application deserves to be
allowed and impugned order is stayed till the disposal of the appeal. The application is also
disposed of and allowed in the above terms.

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