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M/s Steel Authority of India Ltd. vs Commr. Cen. Excise and Cus., Bhubaneswar

Civil Appeal · 2022 INSC 967Decided 16 Sept 2022
Civil Appeal No. 7269 of 2009
M.R. Shah · Krishna Murari

Background

Steel Authority of India (SAIL) claimed Modvat (duty) credit on a "Guide Car", equipment used to transport hot coke coming out of its Coke Oven Battery, treating it as capital goods/a component of the battery. The tax department issued a show cause notice denying the credit, saying the Guide Car was classifiable under a tariff heading that did not qualify for the credit, and this was upheld (with a reduced penalty) by the Customs, Excise & Service Tax Appellate Tribunal. SAIL appealed to the Supreme Court.

Decision Breakdown

The Court held that once the supplier of the Guide Car had itself classified it under the sub-heading that made it ineligible for credit, SAIL as the buyer could not claim a different classification. Applying the dictionary and case-law test for what counts as a "component," the Court found the Guide Car was a separate, distinct piece of equipment used only for transporting coke after processing, not an integral part without which the Coke Oven Battery itself would stop functioning. So the credit denial was upheld. However, the Court found no bad faith or suppression by SAIL and therefore quashed the Rs. 1,00,000 penalty, partly allowing the appeal only on that point.

Lesson Learnt

For claiming tax/duty credit on equipment as a "component" of a larger machine, the equipment must be genuinely integral to that machine's core function, not merely used alongside it; and a good-faith, mistaken classification does not justify a penalty even where the underlying tax demand is upheld.

Official source (sci.gov.in)View Judgment (PDF)

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