Lupin Ltd. Vs Pr. Commissioner of Central Tax (CESTAT Hyderabad)
Summary: CESTAT Hyderabad partly allowed Lupin Ltd.’s appeal against demands of Central Excise duty/CENVAT credit, interest and penalties arising from a show cause notice dated 06.03.2019. The principal dispute concerned CENVAT credit of ₹2,34,58,942 on input services used for setting up the manufacturing facility before commercial production commenced. The Tribunal held that deletion of the expression “setting up” from the inclusive portion of Rule 2(l) of the Cenvat Credit Rules, 2004 with effect from 01.04.2011 did not automatically exclude every service connected with establishment of a manufacturing facility. Services having a direct and demonstrable nexus with creation or installation of the manufacturing facility remained capable of falling within the substantive part of the definition covering services used directly or indirectly in or in relation to manufacture.
The Tribunal accordingly set aside this demand, relying upon Pepsico India Holdings Pvt Ltd., Vs Commissioner of Central Tax, GST-Commissionerate, Tirupati and Mangalam Cement Ltd., Vs Commissioner of Central Goods, Excise and Service Tax, Udaipur. The demand of ₹8,40,735 relating to maintenance of common roads, street lights, drainage and allied infrastructure was also set aside, the Tribunal holding that location outside the physical factory boundary was not by itself determinative where the services had the requisite nexus with manufacturing operations. Credit of ₹14,55,256 on SS stools, buckets, containers, drum racks, HDGI cable tray ladders, fire extinguishers, glass fittings and similar goods was allowed because eligibility was required to be independently examined under the definition of “inputs” and the Department had neither disputed their receipt and use within the factory nor established that they fell within a specific exclusion. On differential duty of ₹2,66,731 relating to CAS-4 valuation, the Tribunal remanded only the question whether the liability had already been discharged through the supplementary invoice dated 29.03.2019 under the transitional mechanism contemplated by Section 142(2)(a) of the CGST Act. The alleged unappropriated amount of ₹6,48,171 out of total reversal of ₹15,01,222 was likewise remanded for reconciliation of TRAN-1, GSTR-3B, CENVAT records and the electronic credit ledger. Interest was confined to credit actually utilised as permissible under Rule 14.
The Tribunal further held that the substantial disputes were interpretational and that regular statutory returns, departmental audit/investigation and reversals made on admitted issues were inconsistent with deliberate suppression in the absence of positive evidence. It therefore set aside invocation of the extended period and the penalties based on suppression or wilful misstatement. The Adjudicating Authority was directed to undertake only the limited verification ordered by the Tribunal without reopening issues finally decided in the appeal. 582231 582231
Cases Discussed
- Pepsico India Holdings Pvt Ltd., Vs Commissioner of Central Tax, GST-Commissionerate, Tirupati [2022 (56) GSTL 22 (Tri-Hyd)] — Relied upon for the proposition that services used for setting up a factory may qualify as input services even after 01.04.2011 where they fall within the main part of Rule 2(l).
- Mangalam Cement Ltd., Vs Commissioner of Central Goods, Excise and Service Tax, Udaipur [2024 (24) Centax 38 (Tri-Del)] — Similar view concerning eligibility of services connected with setting up the manufacturing facility.
- Mahale Engine Components Pvt Ltd., Vs CGST, CE & ST, Indore [Final Order No. 50046/2019 dated 15.01.2019] — Relied upon regarding common infrastructure services.
- RSPL Ltd., (Dhar Unit-IV) Vs Commissioner of CGST & C. Ex, Ujjain [2022 (382) ELT 139 (Tri-Del)] — Relied upon regarding common infrastructure services.
- Commissioner of Central Excise, Raigad Vs Heidelberg Cement India Ltd. [2017 (6) GSTL 473 (Tri-Bom)] — Relied upon regarding common infrastructure services.
- Commissioner of Central Excise, Customs & ST, Visakhapatnam-I Vs Facor Alloys Ltd. [2017 (48) STR 491 (Tri-Hyd)] — Relied upon regarding common infrastructure services.
- Union of India Vs Hindustan Zinc Ltd. [2019 (367) ELT 616 (Raj)] — Considered on the wide amplitude of the expression “input”.
- Merino Industries Ltd., Vs Commissioner of Central Excise, Noida [2021 (378) ELT 335 (Tri-All)] — Considered regarding eligibility of goods as inputs.
- India Cements Ltd., Vs Commissioner of Central Tax, Tirupati – GST [2023 (7) Centax 95 (Tri-Hyd)] — Relied upon for the principle that substantive benefit should not ordinarily be denied merely because of a procedural lapse.
- International Merchandising Company, LLC Vs Commissioner of Service Tax, New Delhi [2022 (67) GSTL 129 (SC)] — Relied upon regarding careful scrutiny of extended limitation where the dispute essentially concerns interpretation of statutory provisions.
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT HYDERABAD
The present appeal is directed against impugned Order-in-Original dated 25.06.2020, whereby, the Commissioner confirmed various demands of Central Excise Duty/Cenvat Credit together with interest and penalties arising out of Show Cause Notice dated 06.03.2019.
2. The fact in brief is that the appellant is engaged in the manufacture of bulk drugs falling under Chapter 29 of the Central Excise Tariff Act, 1985 and was availing Cenvat Credit on capital goods, inputs and input services used in or in relation to manufacture of its final products.
3. The dispute relates particularly to the following issues:
(i) Cenvat Credit of ₹ 2,34,58,942/- on input services used for setting up the factory and prior to commencement of commercial production;
(ii) Cenvat Credit of ₹ 8,40,735/- on certain common/fixed expense services relating, inter alia, the roads, street lights, drainage etc;
(iii) Cenvat Credit of ₹ 14,55,256/- on goods such as stainless steel stools, buckets, containers, drum racks, HDGI cable tray ladders, fire extinguishers, glass fittings etc;
(iv) Duty of ₹ 2,66,731/- on the allegation of short payment on clearances to a related unit by non-adoption of 110% of CAS-4 value; and
(v) Recovery of ₹ 6,48,171/- representing the portion which, according to the Department, remained unappropriated out of total credit of ₹ 15,01,222/- reversed by the appellant.
4. The appellant has also challenged the demand of interest, imposition of penalties and invocation of the extended period of limitation.
5. We have heard both the sides and perused the records with written submissions.
6. Since different issues arise for determination, it would be appropriate to deal with them separately.
Cenvat Credit on services used in setting up the factory – ₹ 2,34,58,942/-:
7. The Commissioner denied the credit principally on the ground that the relevant services had been received before commencement of commercial production and that, after amendment of the definition of “input service” with effect from 01.04.2011, the expression “setting up” stood deleted from the inclusive portion of Rule 2(l) of Cenvat Credit Rules, 2004.
8. Appellant submits that commercial production commenced in August 2016 whereas the disputed services were received during June 2015 onwards. According to the appellant, even after 01.04.2011, services used in setting up a manufacturing facility continue to fall within the substantive or “means” part of the definition in so far as they are services used directly or indirectly in or in relation to manufacture.
9. We find considerable force in the said submission. Mere deletion of the words “setting up” from the inclusive limb of the definition does not automatically mean that every service connected with setting up of a manufacturing facility stands excluded. The substantive portion of Rule 2(l) continued to cover services used by the manufacturer, directly or indirectly, in or in relation to manufacture of final products.
10. A factory cannot manufacture its final products unless the manufacturing facility is first brought into existence and made operational. Therefore, where the services in question have a direct and demonstrable nexus with creation or installation of the manufacturing facility, they satisfy the substantive part of the definition unless specifically covered by the exclusion clause.
11. This issue has been considered in Pepsico India Holdings Pvt Ltd., Vs Commissioner of Central Tax, GST-Commissionerate, Tirupati [2022 (56) GSTL 22 (Tri-Hyd)], wherein, it was held that services used for setting up the factory can qualify as input services even after 01.04.2011, if they fall within the main part of the definition. Similar view was taken in Mangalam Cement Ltd., Vs Commissioner of Central Goods, Excise and Service Tax, Udaipur [2024 (24) Centax 38 (Tri-Del)].
12. The reasoning adopted in the impugned order that credit necessarily becomes inadmissible merely because the services were received prior to commencement of production is therefore not sustainable. What is material is their nexus with manufacture and not whether production had actually begun on the date of receipt of each service. Accordingly, the demand of ₹ 2,34,58,942/- under this head is set aside.
Credit of fixed/common expenses – ₹ 8,40,735/-:
13. The next issue concerns common services such as maintenance of roads, street lights, rain water drainage and allied infrastructure for which charges were recovered on an acreage basis. Credit was denied principally because these facilities were situated outside the registered factory premises.
14. The appellant contends that these facilities are essential for ingress and egress of raw materials and finished goods and for continuous operation of this manufacturing unit. We find that location of the facility outside the physical boundary of the factory cannot, by itself, be determinative of admissibility of input service credit. The test remains whether the service has a nexus, direct or indirect with manufacture or the manufacturing business. Maintenance of approach/common roads, drainage, lighting and similar infrastructure facilitating operation of an industrial premises cannot be treated as wholly unrelated to manufacturing activity merely because the infrastructure is common or situated beyond the factory gate. The appellant has rightly relied upon by the decisions in Mahale Engine Components Pvt Ltd., Vs CGST, CE & ST, Indore [vide Final Order No. 50046/2019 dated 15.01.2019], RSPL Ltd., (Dhar Unit-IV) Vs Commissioner of CGST & C. Ex, Ujjain [2022 (382) ELT 139 (Tri-Del)], Commissioner of Central Excise, Raigad Vs Heidelberg Cement India Ltd., [2017 (6) GSTL 473 (Tri-Bom)] and Commissioner of Central Excise, Customs & ST, Visakhapatnam-I Vs Facor Alloys Ltd., [2017 (48) STR 491 (Tri-Hyd)].
15. We therefore held that, subject to verification that the expenses in question relate to the industrial premises used by the appellant and have not been incurred for any purely residential or personal facility, the credit is admissible. On the facts recorded in the impugned order, there is no finding establishing such excluded use. Consequently, the demand of ₹ 8,40,735/- is set aside.
Cenvat Credit on goods – ₹ 14,55,256/- :
16. The third dispute relates to credit on goods such as SS stools, SS buckets, SS containers, drum racks, HDGI cable tray ladders, SS ladders, fire extinguishers, glass fittings etc. The Department has proceeded on the premise that these articles were not capital goods and had not been shown to be used directly in the manufacture of finished goods.
17. The appellant submits that its claim is not confined to the definition of “capital goods”; the goods also qualify as “inputs” under Rule 2(k) of the Cenvat Credit Rules. Rule 2(k), as applicable during the material period, gave a wide meaning to inputs and, subject to the specified exclusions, included goods used in the factory by the manufacture of the final product. The Hon’ble Rajasthan High Court in the case of Union of India Vs Hindustan Zinc Ltd., [2019 (367) ELT 616 (Raj)] recognised the vide amplitude of the expression “input”. Similar reasoning was adopted by the Tribunal, Allahabad in Merino Industries Ltd., Vs Commissioner of Central Excise, Noida [2021 (378) ELT 335 (Tri-All)].
18. Therefore, denial of credit merely because a particular item is not itself used as a component in the final product or is not covered by the definition of capital goods would not be sufficient. Its eligibility as an “input” has independently to be examined. In the present case, the Department has not disputed that the goods were received and used within the factory. There is also no finding that they fall within any specific exclusion from Rule 2(k).
19. Consequentially, the denial of credit solely for want of direct use in production cannot be sustained. The demand of ₹ 14,55,256/- is accordingly set aside.
Differential duty of clearances to related unit – ₹ 2,66,731/-:
20. The next issue concerns non-adoption of 110% of CAS-4 value for certain clearances to the appellant’s related unit. The appellant does not seriously dispute the underlying valuation requirement but submits that the differential liability had already been discharged through a supplementary invoice dated 29.03.2019. According to the impugned order, the supplementary invoice could not be accepted principally because of reference to an incorrect provision of Section 142 of the CGST Act, discrepancy in quantity and charging of IGST.
21. We find that this aspect requires examination in the light of the transitional provisions. Section 142(2)(a) of the CGST Act specifically contemplates issuance of supplementary invoice or debit note where the price of goods supplied prior to the appointed day is revised upwards after the appointed day.
22. CBIC Circular No. 76/50/2018-GST dated 31.12.2018 also clarifies that, in such cases, the rate and nature of tax applicable under GST would govern the supplementary invoice. Therefore, merely because IGST was paid on an inter-state supplementary invoice cannot be by itself lead to the conclusion that the earlier differential liability remains unpaid. At the same time, appropriation of such payment against the impugned demand has to be supported by correlation between the original clearance, the differential assessable value and the supplementary invoice.
23. We therefore, consider it appropriate to remand this limited issue to the Adjudicating Authority for verification of the supplementary invoice dated 29.03.2019 and the corresponding payment. If the appellant establishes that tax equivalent to the differential duty liability has already been discharged under the legally permissible transitional mechanism, the same shall be duly given effect to and no double recovery shall be made.
24. A mere clerical reference to an incorrect sub-clause, if the substantive requirements otherwise stand satisfied, shall not by itself be a ground to deny benefit. The principle that a substantive benefit should not ordinarily be denied merely on account of a procedural lapse also finds supports in India Cements Ltd., Vs Commissioner of Central Tax, Tirupati – GST [2023 (7) Centax 95 (Tri-Hyd)].
Appropriation of Credit already reversed – ₹ 6,48,171/-:
25. It is undisputed that, in relation to four admitted issues, the appellant claimed to have reversed aggregate Cenvat Credit of ₹ 15,01,222/- through its GSTR-3B for May 2018. The Adjudicating Authority appropriated only ₹ 8,53,051/- and confirmed the balance amount of ₹ 6,48,171/-, essentially because the electronic credit ledger reflected only ₹ 8,53,051/- as available balance and the remaining reversal resulted in a negative figure.
26. We find that the relevant question is not merely what was the positive balance in the electronic credit ledger on the date of reversal, but whether the appellant had, in fact, accounted for the entire reversal of ₹ 15,01,222/- and whether the consequential tax liability, if any, arising from a negative balance stood discharged. If the appellant’s statutory return records reversal of the entire amount and such reversal has either reduced available credit or increased its output tax liability to the corresponding extent, the same amount cannot again be demanded merely because part of the reversal produced a negative figure in the return. However, the necessary reconciliation between the pre-GST Cenvat records, TRAN-1, GSTR-3B and electronic credit ledger is essentially factual.
27. We therefore, remand this limited issue also to the Adjudicating Authority for verification. The appellant shall be given credit for the entire amount of ₹ 15,01,222/- to the extent the reversal/payment is established from the statutory records. There shall be no duplication of recovery.
Interest on credit reversed:
28. The appellant further contends that interest has been demanded even on the credit which had been availed but never utilised. Rule 14(1)(ii) of the Cenvat Credit Rules, as applicable during the relevant period, provided for recovery of interest in cases where Cenvat Credit had been wrongly taken and utilised. Consequently, if the disputed credit was merely taken but remained unutilised until its reversal, interest cannot demanded for such period. This aspect shall also be verified by the Adjudicating Authority in respect of the admitted credits forming part of ₹ 15,01,222/-. Interest, if any shall therefore be confined only to such credit as is found to have actually been utilised in accordance with the applicable statutory provision.
Extended period of limitation and penalty:
29. Show Cause Notice dated 06.03.2019 covers period extending back to February 2015 and invokes the extended period on the allegation of suppression.
30. We find that substantial portions of the dispute, particularly the eligibility of credit on setting-up services, common infrastructure services and goods used in the factory, involve interpretation of the scope of Rule 2(l) and 2(k) of the Cenvat Credit Rules. The existence of several decisions of different Benches on these very issues itself demonstrates that the disputes were interpretational in character. The Hon’ble Supreme Court in the case of International Merchandising Company, LLC Vs Commissioner of Service Tax, New Delhi [2022 (67) GSTL 129 (SC)] has reiterated that where the dispute essentially turns upon interpretation of statutory provisions, invocation of the extended period requires careful scrutiny and cannot be sustained in the absence of the ingredients prescribed by law.
31. The records further indicate that the appellant was regularly filing statutory returns and the Departmental officers had sought information from the appellant during audit/investigation proceedings. The appellant had also reversed amounts in respect of several admitted issues. These circumstances are inconsistent with an inference of deliberate suppression with intent to evade duty unless some positive material establishes otherwise. No such positive evidence of fraud, collusion, wilful mis-statement or suppression with intent to evade payment has been brought to our notice in respect of the interpretational issues dealt with above.
32. We therefore, hold that the extended period of limitation is not invokable in respect of those demands. Consequently, penalties dependent upon fraud, suppression or wilful mis-statement also cannot survive.
33. In so far as the admitted liabilities which have already been reversed or discharged are concerned, appropriation may be made after verification in terms of our findings above, but no penalty under the extended period provisions is warranted in the facts of the case.
34. In view of the foregoing discussion, the appeal is disposed of in the following terms:
(i) The demand of ₹2,34,58,942/- relating to Cenvat Credit on input services used for setting up the manufacturing facility is set aside.
(ii) The demand of ₹ 8,40,735/- relating to common/fixed expense services such as maintenance of roads, street lights, drainage etc., is set aside.
(iii) The demand of ₹ 14,55,256/- relating to credit on SS stools, buckets, containers, drum racks, HDGI cable trays/ladders, fire extinguishers, glass fittings and similar goods is set aside.
(iv) The issue relating to differential duty of ₹ 2,66,731/- on CAS-4 valuation is remanded solely for verification of the payment made through the supplementary GST invoice dated 29.03.2019. No double recovery shall be made if the payment is duly established.
(v) The issue relating to the alleged unappropriated amount of ₹ 6,48,171/- out of the total reversal of ₹ 15,01,222/- is remanded for reconciliation and verification of TRAN-1, GSTR-3B, Cenvat records and electronic credit ledger. Appropriate credit shall be given for the amount actually reversed/discharged.
(vi) Interest on wrongly availed credit shall be payable only to the extent permissible under Rule 14 of the Cenvat Credit Rules and only where utilisation of such credit is established.
(vii) Invocation of the extended period of limitation is set aside, and the penalties imposed on the basis of suppression/wilful mis-statement are also set aside.
35. The Adjudicating Authority shall complete the limited verification directed above after granting reasonable opportunity of hearing to the appellant and without reopening the issues which have been finally decided by this order.
36. The appeal is thus allowed partly and remanded for the limited purposes indicated above, with consequential relief in accordance with law.
(Pronounced in the open court on 10.09.2026 )
