Commissioner, Central Excise, Customs And Service Tax vs. M/S Salasar Sponge And Power Limited

Held

The High Court held that the CESTAT's verdict was not correct or sustainable and required reconsideration. The Court found that the CESTAT had not properly discussed the exigibility to duty, correctness of Input Tax Credit/Services availed, or the reversal of credit. There was insufficient discussion on the manufacturing process of Sponge Iron, how 'Iron Ore Fines' are generated, and whether they could be declared a 'by-product' based on Apex Court yardsticks. The Court noted that the Commissioner had found 'Iron Ore Fines' to be distinct goods with separate tariff classifications and marketability, unlike waste. The Court also observed that the CESTAT's decision did not adequately address the sale of Electricity and the reversal of credit. Consequently, the matter was remitted to the CESTAT for fresh consideration on all relevant aspects, including the nature of 'Iron Ore Fines' and the applicability of Rule 6(3)(b) and related provisions. The appeal was allowed in part to the extent of remitting the matter.

Facts

The Revenue appealed against an order of the Customs, Excise, Service Tax Appellate Tribunal (CESTAT) that had set aside an order passed by the Commissioner of Central Excise, Customs & Service Tax, Raipur. The Respondent-Company manufactured Sponge Iron and availed CENVAT credit. During an audit for September 2005 to March 2007, it was noted that the company had not maintained separate accounts for inputs and input services used for dutiable and exempted goods, specifically 'Iron Ore Fines' and sold 'Electricity'. The company was liable to pay 10% of the value of exempted goods removed. The company disputed that 'Iron Ore Fines' were exempted goods and argued that they were a by-product. They also claimed to have reversed service tax credit on transportation of coal used in their power plant. The Commissioner held that 'Iron Ore Fines' were distinct goods and not a by-product, and that the company had realized significant sums from their sale without paying the requisite 10% amount.

Key Issues

1. Whether 'Iron Ore Fines' sold by the Respondent-Company qualify as 'exempted goods' under Rule 2(d) of the CENVAT Credit Rules, 2004, thereby attracting the provisions of Rule 6(3)(b) of the said Rules, which mandates payment of an amount equal to 10% of the value of such goods? The Revenue argued that 'Iron Ore Fines' are distinct excisable goods, not a by-product, and their sale without payment of the 10% amount is a violation. The Respondent-Company contended that 'Iron Ore Fines' are not exempted goods, nor manufactured products, but a by-product of their manufacturing process, and thus Rule 6(3)(b) is not applicable. They relied on the fact that they had purchased duty-paid Iron Ore concentrate. 2. Whether the Respondent-Company is liable to pay an amount equal to 10% of the value of 'Electricity' sold, considering they had reversed the Service Tax Credit availed on 'Goods Transport Agency' services attributable to the transportation of coal used in their power plant? The Revenue argued for recovery of the 10% amount. The Respondent-Company claimed that since they reversed the credit with interest on GTA services for coal transportation, the 10% liability on electricity sale would not arise. The Court also considered the applicability of various Supreme Court judgments like National Mineral Development Corporation Ltd. Vs. State of Madhya Pradesh and Another, Swadeshi Polytex Ltd. v. CCE, and CCE v. GAIL.