Dismissed

State of Kerala v. M/S. Ambuja Cements Ltd.

Kerala HC12 Nov 2019OT.Rev/60/2017

Case brief

AI extract

What is this about?

The Kerala High Court dismissed the State's revision petitions challenging the VAT Tribunal's order allowing input tax credit for silos and connected machinery at a cement terminal. The Court held that such installations, despite being made of cement and steel, are integral parts of plant and machinery rather than civil structures under the definition of capital goods.

What did the court decide?

The Tax Revision Cases were dismissed as the Tribunal's findings were well-founded and not illegal or erroneous.

State of Kerala Vs M/S. Ambuja Cements Ltd. — GST and Indirect Tax | Kerala HC (2019)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM

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THE HONOURABLE MR. JUSTICE AMIT RAWAL

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TUESDAY, THE 12TH DAY OF NOVEMBER 2019 / 21ST KARTHIKA, 1941

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OT.Rev.No.60 OF 2017

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AGAINST THE ORDER TA(VAT) 1239/2011 DATED 04-02-2016 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM

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REVISION PETITIONER/RESPONDENT/REVENUE:

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STATE OF KERALA

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BY SR.GP.SRI.V.K.SHAMSUDHEEN

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RESPONDENT/APPELLANT/ASSESSEE:

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M/S. AMBUJA CEMENTS LTD. MATTANCHERRY WHARF, W/ISLAND, KOCHI - 3.

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R1 BY ADV. SRI.K.M.FIROZ R1 BY ADV. SMT.M.SHAJNA

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OTHER PRESENT:

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SR.GP.SRI.V.K.SHAMSUDHEEN

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THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 12.11.2019, ALONG WITH OT.Rev.63/2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

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I.T.R. Nos.60 & 63/2017

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM

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THE HONOURABLE MR. JUSTICE AMIT RAWAL

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TUESDAY, THE 12TH DAY OF NOVEMBER 2019 / 21ST KARTHIKA, 1941

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OT.Rev.No.63 OF 2017

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AGAINST THE ORDER IN TA (VAT) 1240/2011 DATED 04-02-2016 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM

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REVISION PETITIONER/RESPONDENT/REVENUE:

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STATE OF KERALA

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BY GOVERNMENT PLEADER

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RESPONDENT/APPELLANT/ASSESSEE:

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M/S.AMBUJA CEMENTS LTD MATTANCHERRY WHARF, W/ISLAND, KOCHI.3.

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R1 BY ADV. SRI.K.M.FIROZ R1 BY ADV. DR.K.B.MUHAMED KUTTY SR. R1 BY ADV. SMT.M.SHAJNA

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OTHER PRESENT:

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SR.GP-SRI. V.K.SHAMSUDHEEN

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THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 12.11.2019, ALONG WITH OT.Rev.60/2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

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I.T.R. Nos.60 & 63/2017

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'C:R:'

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C.K. ABDUL REHIM, J. & AMIT RAWAL, J.

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O.T. Rev. Nos. 60 & 63 OF 2017

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DATED THIS THE 12^th DAY OF NOVEMBER, 2019

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O R D E R

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Abdul Rehim, J.:

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An interesting question of law arises in these Tax Revision Cases; “whether the 'Silos' erected by the assessee along with its connected machineries, which is made up of 'steel and cement' could be treated as a civil structure, there by making the expenditure incurred for its erection not eligible for input tax credit, as per SRO 324/2005 promulgated under Section 2 (x) of the Kerala Value Added Tax Act, 2003 ('the KVAT Act' for short)”.

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The state is in revision against a common order of the Kerala Value Added Tax Appellate Tribunal, Additional Bench, Ernakulam in TA (VAT) Nos.1239 and 1240 of 2011, dated 04-022016.

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Brief facts relevant are as follows. The

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respondent/assessee claimed input tax credit with respect to the value of capital goods, in the assessment years 2007-2008 and 2008-2009, amounting to Rs.14,80,071/- and Rs.41,84,831/-

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respectively, by producing supporting evidence of purchase invoices. But the Assessing Authority disallowed the claim on finding that, the 'civil structure' and 'immovables' are exempted from the definition of 'capital goods', defined under Section 2 (x), by virtue of SRO 324/2005, which contains a negative list of capital goods. The Assessing Authority also found that, the purchases are relating to 'steel and cement', which are 'building materials' specifically included in the negative list. The assessee took up the matter in appeal before the Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam. Out of the 9 items of capital goods with respect to which input tax credit was claimed, the first appellate authority had allowed credit with respect to two items. With respect to the remaining 7 items it was found that, those are building materials, factories, civil structures and immovable goods coming within the negative list in SRO 324/2005. Hence the claim for input tax credit was declined with respect to those items.

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In the second appeals filed before the Tribunal, findings rendered by the authorities below were reversed. It was concluded that, out of the 7 items with respect to which credit of input tax was declined, none will fall within the negative list contained in SRO 324/2005. Referring to various factors with

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respect to description of the capital goods, the Tribunal observed that, those items are forming integral part of the plant and machinery and therefore it cannot be considered as civil structure, included in the negative list. Accordingly the claim made by the assessee for input tax credit was allowed in total. It is aggrieved by the said decision the State had preferred these revision petitions.

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Section 11 of the KVAT Act provides for allowing input tax credits. It provides that, a dealer liable to pay tax under subsection (1) of Section 6 shall be eligible for input tax credit, subject to the restrictions provided therein. Sub-section (2) specifies that, with respect to capital goods purchased by the dealer, where the value of the goods exceeds such limits as may be prescribed, input tax credit will be allowed over a period of three years from the date of commencement of commercial production or from the date on which the capital goods are put to use, whichever is later, in such manner and subject to such conditions as may be prescribed. The term 'capital goods' is defined under Section 2 (x) as follows.

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“Capital goods means plant, machinery, equipments, including pollution/quality control, lab and cold storage equipments used in manufacture, processing, packing or storage of goods in the course of business and delivery vehicles but shall not include such goods and civil structure as may be notified by the Government.”

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The Notification, SRO 324/2005, was issued by the Government in exercise of the powers conferred by virtue of Section 2 (x) of the KVAT Act. The Government notified the following goods not to come within the purview of capital goods for the purpose of the Act. The goods notified are as follows;

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“(1) Air conditioners.

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(2) Civil Structure and immovable goods or properties.

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(3) Vehicles other than goods delivery vehicle.

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(4) Office furniture and fixtures and fittings and office equipments.

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(5) Elevators (lift).

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(6) Computers other than those used for the purpose in normal business.

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(7) All kinds of cranes, earth movers, JCB Excavators, Road rollers, concrete mixing machine and other similar machineries used in connection with supply of labour and services.

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(8) Building materials and fixtures used in construction activities.

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(9) Capital goods purchased prior to the date of commencement of the Kerala Value Added Tax, 2003 (30 of 2004).”

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It is evident that, with respect to the capital goods included in the negative list contained in SRO 324/2005, the assessee will not be eligible for credit of input tax, because those goods are taken away from the purview of 'capital goods' defined under Section 2 (x).

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We may now examine nature of the 'capital goods' for which the assessee claimed credit of input tax, which are not allowed by the first appellate authority. The capital goods for which the claim was rejected, are as follows;

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“(1) Air conditioners.

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(2) Civil Structure and immovable goods or properties.

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(3) Vehicles other than goods delivery vehicle.

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(4) Elevators (lift).

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(5) All kinds of cranes, earth movers, JCB Excavators, Road rollers, concrete mixing machine and other similar machineries used in connection with supply of labour and services.

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(6) Building materials and fixtures used in construction activities.

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(7) Capital goods purchased prior to the date of commencement of the Kerala Value Added Tax, 2003 (30 of 2004).”

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Out of the above 7 items, machineries like dump hopper, screw conveyors, surge hopper, packer hopper and unloading system of steel pipe governed by 'knife gate valves' etc are machineries which are not coming within the negative list under SRO 324/2005. Since the definition of 'capital goods' under Section 2 (x) covers the plant, machinery, equipments etc, tax paid for purchase of those goods are entitled for set-off against output tax payable. We do not think that the revision petitioners/state

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can raise any valid contentions with respect to those items since those items are indisputably part of machineries which are not taken out from the definition of 'capital goods' through the negative list notified under SRO 324/2005. Contention with respect to those goods is that, those are 'building materials' and 'factories' used in the construction activities, made out of steel and cement. But from the very reading of description of those goods extracted as above, it is clear that those are machineries intended for various purposes in the activity carried on by the assessee, with respect to which they were registered as dealer under the KVAT Act. Merely because the components used for manufacture of those items includes 'steel and cement' it cannot be termed that those items are building materials and fixtures used in the construction activities or that they are civil structures or immovable goods or properties. Therefore we do not think that the findings of the Tribunal with respect to these goods require reconsideration.

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With respect to 'Silo' and 'Silo mounted filters', learned Government Pleader appearing for the revision petitioners raised persuasive contentions that those are 'civil structures' and 'immovable goods', which form part of the plant or machinery. It is pointed out that, those are structures made out of the 'cement

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and steel' and it will fall squarely within item No.2 included in the negative list in SRO 324/2005. Per contra, Dr. K.B.

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Mohammedkutty, Senior Counsel appearing for the respondent/assessee had drawn our attention to the order passed by the Assessing Authority, copy of which is produced as Annexure-A in O.T.R No.60/2017. It is pointed out that, the explanations given with respect to the activity undertaken by the assessee is available in the objections submitted at the time of personal hearing before the authority. What is stated therein is that, the assessee is a 'bulk cement terminal' having two 'silos' catering to the packing unit which has got both bag loading facility and bulk loading facility. It is explained that, the cement laden ship is being docked behind the terminal, from where the cement is pumped into the 'silos' using 350 m.m dia G.I. pipeline. The pumping is done using compressed air. The multipoint pumping in the 'silo' is aided through 'pheumatic cut off knife gate valves'. The level in the 'silo' is controlled by using sensors fixed on the silo wall.

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With respect to the nature of the 'silo' erected by the assessee the explanation offered is as follows;

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“The silos are of 10000 MT capacity each. The silos are made of concrete retaining walls, reinforce concrete floor bottom, and galvalume roofing. The entire silo is

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completely sealed from both inside and outside to prevent environment pollution.

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In order to prevent pressure built up in the silo, there are 7 bag filters provided. The function of the bag filter is to extract fresh air from the silo to the environment.”

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The Tribunal examined the question as to whether the silos and connected machinery will fall within negative list. It was specifically noticed that, item No.7 in SRO 324/2005 excludes only the machineries used in connection with supply of services. Other machineries excluded are specifically mentioned as, all kinds of cranes, earth movers, JCB Excavators, Road rollers, Concrete Mixing Machineries. Those 6 types of machineries specifically contained in Sl. No.7 in SRO 324/2005, can no doubt be said as machineries connected with construction activities or infrastructure in the industry. In other words, those are machineries which can be used in supply of labour and services. But it was observed that, the 'silo' and connected machinery is a distinct plant having specific industrial function and will not fall within item No.7 in the negative list. Contention raised in the present revision petitions is mainly that, even if the item 'silo' and connected installations will not come within the purview of item No.7 of SRO 324/2005, it will fall within the ambit of item No.2 in SRO 324/2005, which is 'civil structure'

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and 'immovable goods'. The Tribunal had referred to the dictionary meaning of the term 'plant', which provides, whatever apparatus used by a business man for carrying on a business which is not stock in trade which he buys or makes for sales, but all goods and chattels fixed on movable which he keeps for employment in his business with some degree of durability. In support of such an interpretation reliance was placed in the decision of the hon'ble Supreme Court in Commissioner of Income Tax, Andhra Pradesh V. Taj Mahal Hotel (1971) 82 ITR 44 (SC) . With respect to the term 'machinery' the view held in the decision in CIT V. Mir Mohammed Ali (53 ITR 165) and State of Gujarat V. Minu Chemicals (P) Ltd. (50 STC 339) were followed. It was observed that some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances by the combined movement and inter dependent operation of their respective parts, generate power or evoke, modify, apply or direct natural forces with the object in each case of effecting definite and specific result need to be included in the ambit of 'machinery'. Further, with respect to certain types of tanks and units wherein chemical process are carried out and, if taken by themselves having mechanical contrivances also, which form part of the bigger machinery can

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be called as processing unit coming within the ambit of machinery.

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With respect to 'silos' the Tribunal had placed reliance on the decision in Nowrangroy Metals (P) Ltd. V. JCIT (2003) 262 ITR 231 , CIT V. R.G. Ispat Ltd. (2004) 266 ITR 327 and various other rulings, rendered in the subject of Cenvat Credit. Based on those principle, it was held that, merely for the reason that some of the machinery or parts of 'silos' are made out of steel and cement, it will not fall within the exempted group of civil structure, not eligible for input tax credit. It further observed that, the 'silos' with various machineries form an integral part of it, need to be considered as plant and the 'steel and cement' used for construction of the 'silo' and the connected machineries, by itself will loss its identity as 'steel and cement', but it gets merged as a final plant with a specific purpose. On going through the explanation extracted as above, with respect to the construction, purpose, mechanism and usage of the 'silos', we are in perfect agreement with the findings of the Tribunal that 'silos' cannot be identified as mere 'civil structure' falling within the negative list under SRO 324/2005. The 'silos' which forms integral part of the machinery has the real characteristics of a plant or machinery, mentioned in the

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definition contained in Section 2 (x) of the KVAT Act, which makes them to fall within the category 'capital goods' for which input tax credit can be allowed.

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We are of the considered opinion that the above mentioned observations made by the Tribunal are well founded on sound principles, which has got support from the rulings cited above. The revision petitioner/state is not in a position to establish with any substantial credence that the view taken is in any manner illegal, erroneous or improper, warranting interference by this court in exercise of the revisional jurisdiction.

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Resultantly, the above Tax Revision Cases deserve no merit and the same are hereby dismissed.

Sd/-

C.K.ABDUL REHIM

JUDGE

Sd/-

AMIT RAWAL

JUDGE

AMG

I.T.R. Nos.60 & 63/2017

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APPENDIX OF OT.Rev 60/2017

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PETITIONER'S EXHIBITS:

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ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 23.11.2009 PASSED BY THE ASSISTANT COMMISSIONER VAT SPECIAL CIRCLE (PRODUCE) MATTANCHERY.

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ANNEXURE B TRUE COPY OF THE APPELLATE ORDER DATED 27.12.2010 PASSED BY THE DEPUTY COMMISSIONER (APPEALS) (ON DEPUTATION) COMMERCIAL TAXES, ERNAKULAM.

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ANNEXURE C CERTIFIED COPY OF THE TRIBUNAL ORDER DATED 04.02.2016 PASSED BY THE KERALA VALUED ADDED TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM.

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APPENDIX OF OT.Rev 63/2017

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PETITIONER'S EXHIBITS:

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ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 11.11.2009 PASSED BY THE ASSISSTANT COMMISSIONER VAT SPECIAL CIRCLE (PRODUCE) MATTANCHERY

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ANNEXURE B TRUE COPY OF THE APPELLATE ORDER DATED 27.12.2010 PASSED BY THE DEPUTY COMMISSIONER (APPEALS)(ON DEPUTATION) COMMERCIAL TAXES, ERNAKULAM

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ANNEXURE C CERTIFIED COPY OF THE TRIBUNAL ORDER DATED 04.02.2016 PASSED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM

State of Kerala v. M/S. Ambuja Cements Ltd.

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State of Kerala v. M/S. Ambuja Cements Ltd.

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