Case Law Details
NEO Structo Construction Ltd Vs C.C.E. & S.T.-Surat-I (CESTAT Ahmedabad)
CESTAT Ahmedabad held that Cenvat Credit of duty paid on inputs used in manufacture of final products cleared without payment of duty and which is further utilized for manufacture of final products on which duty is paid is allowable.
Facts- The appellant had entered agreement with M/s L&T, Hazira for fabrication of ACN Reactor. The work essentially involved fabrication and assembly as per drawing provided by M/s L&T, Hazira. This ACN reactor fabricated by the appellant was to be used by M/s L&T, Hazira as part of the other plant and machinery such as offshore platform and jackets and ship building.
The appellant sub contracted some work to M/s Neetu Engineering, Surat and M/s Ebenezer Engineering, Surat. The sub-contractors completed the work and charged the service tax to the appellant and the appellant availed the cenvat credit of the said service tax charged by the sub-contractors. The current issue involved is the demand of the cenvat credit availed by the appellants on these services obtained from the sub-contractors.
Notably, the appellant had raised the bills to M/s L&T, Hazira but not charged the service tax amount on the same, whereas when the sub-contractor had raised the bills to the appellant they had charged the service tax. The revenue was of the view that since the activity of the appellant did not attract service tax, the appellant could not have availed the cenvat credit on input service used for their output service in terms of Rule 6(1) and 6(2) of Cenvat Credit Rules, 2004.
Conclusion- In the instant case, since the goods remain within the premises of principal manufacturer the need of challans for movement loses its relevance. Similarly, since the entire raw material as well as finished goods remains within the premises of the principle manufacturer, the need to undertaking payment of duty on the intermediate goods used by principal manufacturer for manufacture of dutiable finished goods loses much of the relevance.
Larger bench in the case of Sterlite Industries Limited has held that that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C.
Held that the ratio of the decision of the Larger Bench in the case of Sterlite Industries Limited is equally applicable to the current situation. Relying on the said decision, we are unable to sustain the impugned order. The same is set aside and appeal is allowed.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
This appeal has been filed by Neo Structo Construction Private Limited against demand of service tax on Erection Commissioning and Installation Service, Management, Maintenance & Repair Service, Manpower Recruitment & Supply Agency Service and Goods Transport Agency Service.
2. Learned counsel pointed out that they had entered agreement with M/s L&T, Hazira for fabrication of ACN Reactor during the period 2008-09 and 2009-10. He pointed out that work essentially involved fabrication and assembly as per drawing provided by M/s L&T, Hazira. This ACN reactor fabricated by the appellant was to be used by M/s L&T, Hazira as part of the other plant and machinery such as offshore platform and jackets and ship building. Learned counsel pointed out that they had sub contracted some work to M/s Neetu Engineering, Surat and M/s Ebenezer Engineering, Surat. The sub-contractors completed the work and charged the service tax to the appellant and the appellant availed the cenvat credit of the said service tax charged by the sub-contractors. The current issue involved is the demand of the cenvat credit availed by the appellants on these services obtained from the sub-contractors.
3. Learned counsel pointed out that during the course of CERA Audit, it was noticed that the appellant had raised the bills to M/s L&T, Hazira but not charged the service tax amount on the same, whereas when the sub-contractor had raised the bills to the appellant they had charged the service tax. The revenue was of the view that since the activity of the appellant did not attract service tax, the appellant could not have availed the cenvat credit on input service used for their output service in terms of Rule 6(1) and 6(2) of Cenvat Credit Rules, 2004. Consequently, a show cause notice was issued to the appellant demanding reversal of cenvat credit availed by the appellant in terms of Rule 6(2) of Cenvat Credit Rules, 2004. The said demand for reversal of cenvat credit was upheld by the Commissioner (Appeals) and as a result, the appellants are in appeal before this Tribunal.
4. Learned counsel argued that the activity carried out by the appellants viz. fabrication of ACN Reactor in the premises of M/s L&T, Hazira is an activity amounting to manufacture and the goods are covered under Chapter heading 7308 of Central Excise Tariff Act, 1985. He relied on the decision of Tribunal in the case of Mahindra & Mahindra 2005 (190) ELT 301 (Tri. LB) to assert that the product manufactured by them is a marketable commodity. He also relied on the decision of Tribunal in their own case reported at 2010 (19) STR 361 (Tri Ahd.), wherein in similar set of facts, it was held that the activity undertaken by the appellant is a manufacturing activity and therefore, the appellants are not liable to pay service tax.
5. Learned counsel further argued that the appellants are entitled to benefit of Notification 214/86-CE dated 25.03.1986. He pointed out that the appellants are job worker of M/s L & T Ltd. and therefore, they are entitled to avail the benefit of Notification 214/86-CE dated 25.03.1986 which exempts job workers from payment of excise duty subject to conditions. He pointed out that in the instant case, raw material was supplied by M/s L&T Limited, Hazira to the appellants and after performing the job work, the material was supplied back to M/s L&T In view of above, they are entitled to Notification 214/86-CE dated 25.03.1986 and not liable for payment of Central Excise duty.
6. Learned counsel argued that in the aforesaid background, it is apparent that the appellant are not liable to pay service tax and are exempt from central excise duty still they are entitled to the cenvat In this regard, they relied on the decision of Tribunal in the case of Sterlite Industries Limited 2005 (183) ELT 353 (Tri. LB) which was upheld by the Hon’ble High Court of Bombay as reported at 2009 (244) ELT A89 (BOM). The appellants also placed reliance on the decision of Tribunal in the case of Polycot Industries 2010 (19) STR 585, wherein under similar circumstances, the benefit of cenvat credit has been allowed. He also pointed out the decision of Sterlite Industries (supra) has been followed in the following decisions:
- Mahalakshmi Extrusion v. CCE & ST, Rajkot 2002 (8) TMI 1153
- Banco Aluminium Ltd. v. CCE & ST, Vadodara, 2020 (10) TMI 756
- Shree Organi Chemicals, Ahmedabad v CCE & ST, Ahmedabad 2019 (2)TMI 852
- CCE & ST Rajkot v DM Brass Extrusion & Ors. 2018 (6) TMI 1420
7. Learned counsel further claimed that Rule 6 of Cenvat Credit Rules, 2004 is not applicable to the present case. Learned counsel argued that Rule 6 of the Cenvat Credit Rules prescribes that no cenvat credit can be availed on inputs, input services which are used for performing exempted activity. He argued that activity carried out by them is amounts to manufacture and is normally taxable but by virtue of Notification 67/1995-CE, the appellants are not required to pay excise duty. He argued that this fact will not render the activity undertaken by them as exempted.
8. Learned counsel further argued that extended period of limitation has been invoked to deny cenvat credit. He argued that they have been regularly filing ST-3 Returns and have paid applicable tax on taxable services provided by them. Learned counsel argued that they had bonafide belief that the services were not taxable and service tax was not payable on the services provided by them. He argued that there was no suppression or mis-declaration on their part and therefore, extended period of limitation could not have been invoked. He argued that it has been held by Hon’ble Supreme Court in the case of Hindustan Steel Limited AIR 1970 (SC) 253 and followed by Tribunal in the case of Kellner Pharmaceuticals Limited 1985 (20) ELT 80 that proceedings under Rule 173Q are quasi-criminal in nature. It has been held that unless a specific intention on the part of the assessee is made out, imposition of penalty cannot be justified.
9. Learned Authorized Representative relies on the impugned order. Learned authorized representative argued that in terms of Notification 214/86-CE dated 25.03.1986 exemption is subject to detailed procedure being followed. He pointed out that procedure includes that the principle manufacturer gives an undertaking to pay central excise duty on such goods. In the instance case, the said procedure has not been followed. Learned authorized representative relied on the decision of Hon’ble Apex Court in the case of Dilipkumar & Co. where it has been held that exemption notification should be interpreted strictly and the burden of proving applicability would be on the assessee.
10. Learned authorized representative also pointed out that while the appellants have claimed that they had manufactured ACN reactors, the contract describes the product as „middle section‟. Learned authorized representative further pointed out that the present purchase order to the appellant is worth over six crores which is beyond the SSI exemption, still the appellants are not registered with Central Excise Department. Learned authorized representative pointed out that the appellant have carried out job work which does not amount to manufacture and thus, the scheme of Notification 214/86-CE dated 25.03.1986 is not admissible. He relied on the decision of Tribunal in the case of Hema Engineering Industries Ltd. 2017 (5) GSTL 43 (Tri Del.).
11. We have considered the rival submissions. We find that in the instant case, the appellant are undertaking various kind of fabrication work like welding, cutting, bending etc. and produce an item which is used a part of a larger machinery or plant. While on one hand, the appellant are claiming that they have manufactured ACN Reactors, the revenue is on the opinion that they have manufactured middle section however in both the cases, a new product has emerged as a result of the process of manufacture.
12. It is not in dispute that the entire activity has been carried out within the premises of M/s L&T Limited, Hazira and that M/s L&T Limited, Hazira has discharged the duty liability on the final product cleared by them from their factory premises. The process undertaken by the appellants is a process incidental or ancillary to the final manufacture of the finished goods cleared by M/s L&T Limited, Hazira. In the above background, it cannot be denied that the activity undertaken by the appellants is an activity of manufacture.
13. Notification 214/86-CE grants exemption from central excise duty on certain activities which are undertaken by a job worker and where the principal manufacturer undertakes to pay the central excise duty on the final products cleared by them. The notification 214/86-CE prescribes detailed procedure for movement of goods and for the principal manufacturer to discharge the duty liability on the final products. The entire procedure prescribed under Notification 214/86-CE is a procedure which takes care of situation where the job worker is located away from the principal manufacturer at a different location. The goods have to move from principal manufacturer to the premises of job worker and the goods are required to be returned from the premises of job worker to the principal manufacturer, for all this movement, Notification 214/86-CE prescribes challans etc. and the time period within which goods are returned to ensure that the goods are properly accounted for. Notification 214/86-CE also requires an undertaking by the principal manufacturer to ensure that the goods manufactured / processed by the job worker are not diverted and proper duty is paid thereon. In the instant case, the entire activity is undertaken within the premises of the principal manufacturer, therefore much of the procedure lose
14. The appellants have not specifically claimed the benefit of 214/86 and have not followed the procedure prescribed for availing the The procedure not followed by them relates to the making of challans for movement of goods and obtaining an undertaking from the principal manufacturer regarding payment of duty on the finished goods. In the instant case, since the goods remain within the premises of principal manufacturer the need of challans for movement loses its relevance. Similarly, since the entire raw material as well as finished goods remains within the premises of the principle manufacturer, the need to undertaking payment of duty on the intermediate goods used by principal manufacturer for manufacture of dutiable finished goods loses much of the relevance.
15. Moreover, in the case of Sterlite Industries Limited 2005 (183) ELT 353, Larger Bench has held as follows:
“2. The revenue is denying the Modvat credit to the present job worker on the grounds that the inputs were used in the manufacture of the goods which were cleared without payment of duty. Pausing here for a second, let us take a situation where the basic inputs is sent by the principal manufacturer after debiting the Modvat credit taken by him. The job worker takes the credit of the same his factory, utilises other inputs procured directly by him after taking the Modvat credit on the same and clear the processed goods to the principal manufacturer on payment of duty and the principal manufacturer takes the credit of the same in his factory and utilises such credit for payment of duty on his final products at the time of clearance. In such a situation, there can be no objection or dispute by the revenue as regards the admissibility of the credit on the inputs received directly by the job worker and utilised in his factory. The only effect of the above procedure adopted by the principal manufacturer and the job worker would be additional paper work. It is basically to avoid such a situation the procedure under Rule 57F(3) has been enacted. As rightly observed by the earlier decisions the mechanical application of Rule 57C which destroys the basic benefit intended to be extended to the assessee should be avoided. If the interpretation adopted by the revenue is upheld, the benefit otherwise intended to be given will get frustrated apart from leading to discriminatory situation, where the manufacturer has himself processed the inputs and in the other case were he is sending it to the job worker.
3. We are also in agreement with the appellants contention that Rule 57C debars taking of credit in respect of the inputs used in the manufacture of the final product, if final product is exempted from the whole of duty of excise leviable thereon or chargeable to nil rate of duty. As such, to attract the provisions of Rule 57C, two situations in respect of the final product should be satisfied. Either the final product should be exempted, which situation can arise only when there is an exemption notification issued under Section 5A of the Central Excise Act or the final product is chargeable to nil rate of duty. Expression chargeable to nil rate of duty or exempted from whole of duty was considered by the Tribunal in the case of Orissa Synthetics Ltd. v. Collector of Central Ex. [1995 (77) E.L.T. 350 (Tri.)] and after taking note of the Ministries clarifications issued vide Circular No. 10/75/CX. 6, it was held that clearance under goods under provision of 191BB for export without payment of duty would not get covered by the above expression. Reference was made to the advice received from the Ministry of Law dealt in the paragraph of 9 in the said decision. It was opined in the said letter of the Law Ministry that the term „exempted “has a definite connotation. The same as attributed to the notification issued by the Central Government. Similarly, the chargeable to nil rate of duty would refer to the tariff rate being nil and the goods cleared in terms of provision of Rule 199BB would not be covered by the said expression inasmuch as the same are not chargeable to nil rate. In the present case, we find the job worker could have cleared the goods on payment of duty and manufacturer could have claimed credit of the same. It is only under the special procedure laid down in terms of the Rule 57F(3) that the duty does not get paid at the job worker’s end at the time of clearance of the goods, but ultimately gets paid at the manufacturer’s end. In these circumstances, we are in agreement with the decision rendered in the case of Bajaj Tempo and Jindal Polymers.
3. Apart from the above two decisions, we also note that identical view was taken in the case of Shakti Insulated Wires Ltd. CCE & C, Mumbai-V [2002 (149) E.L.T. 668 (Tri.) = 2002 (51) RLT 115 (CEGAT-Mum)] & also in the case of C.C.Ex, Jaipur v. Noorani Textiles Mills [2000 (122) E.L.T. 744 (Tribunal)].
4. In only case of Escorts Ltd. CC Ex, Delhi [2003 (160) E.L.T. 623 (Tri-Del.)] while interpreting Rule 57C of the Central Excise Rules, the Tribunal rejected the appellants claim of Modvat credit of duty paid on the inputs used in the manufacture of the parts, which were cleared without payment of duty to, appellant’s other unit under Chapter X procedure and utilised in the manufacture of tractor which were cleared on payment of duty by observing that since no duty was paid on the part at the time of clearance, Rule 57C will apply and no Modvat credit would be admissible. However, the said decision was subsequently reversed by the Supreme Court as reported in Escort v. C.C.Ex. [2004 (171) E.L.T. 145 (S.C.)]. For appreciation, we reproduce paragraphs 8 & 9 of the said decision.
“8. It is to be seen that the whole purpose of the Notification and the Rules is to streamlines the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rule 57D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where intermediate product may also come into existence. Thus in cases where intermediate product comes into existence, even though no duty has been chargeable to Nil rate of duty, credit would still be allowed so long as duty is paid on the final product.
9. In cases of manufacturers like the Appellants the final product is the tractor. The intermediate product would be parts which are manufactured for being used in the tractor. In such a case the parts would not be the final product. Thus Rule 57C would have no application. The mere fact that the parts are cleared from one factory of the Appellants to another factory of the Appellants would not disentitle the Appellant from claiming benefit of Notification No. 217/86- C.E., dated 2nd April, 1986. As stated above, the Notification itself clarifies that the inputs can be used within the factory of production or in any other factory of the same manufacturer.”
By applying the ratio of the above decision, it becomes clear that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Inasmuch as, the matter stands decided by the Honorable Supreme Court, we would hold in favour of assessee.
5. As regards the decision in the case of Alpha Lavan laying down that the Modvat credit could be claimed in such a situation, we find the earlier decision of the Bajaj Auto was not followed. However, in view of the facts that the ratio of Bajaj Auto decision stands approved by the Supreme Court decision in the case of Escort Ltd. referred supra, we are of the view that the Alpha Lavan is no longer good law.”
The said decision of Tribunal has been upheld by Hon’ble High Court of Bombay as reported in 2009 (244) ELT A89.
16. We find that the ratio of the decision of the Larger Bench in the case of Sterlite Industries Limited (supra) is equally applicable to the current situation. Relying on the said decision, we are unable to sustain the impugned order. The same is set aside and appeal is allowed.
(Pronounced in the open court on 22.09.2023)
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