Case Law Details
Commissioner of Central Excise & Service Tax Vs DCW Ltd (CESTAT Mumbai)
CESTAT Mumbai held that rule 6(5) of Cenvat Credit Rules, 2004 provides for availment of entire amount of credit of input services even though certain portion must have been used in manufacture of exempted goods.
Facts- A limited issue arises in this appeal of Revenue against order of Commissioner of Central Excise (Appeals) which, on appeal of M/s DCW Ltd against order of original authority denying retention of credit of ₹ 34,30,643, ₹ 39,92,426 and ₹ 17,41,354 taken under rule 3 of CENVAT Credit Rules, 2004 equal to tax included in bills of M/s Thermax Ltd for ‘operation and maintenance’ service and for transport of coal by ‘goods transport agency’ between April 2009 and December 2009, between January 2010 and December 2010 and between November 2010 and June 2011 respectively for generation of electricity and steam in the coal fired 50 MW ‘captive power plant’ installed for consumption in the factory, found the respondent herein to be entitled to credit without any truncation.
It is common ground that the entire production of steam and bulk of electricity were utilized in manufacture of various excisable goods. However, vide power purchase agreement (PPA) of the appellant with PTC India Ltd dated 24th April 2009, the appellant had been supplying excess production to the Tamil Nadu Electricity Board (TNEB) and the notices proposed recovery of credit proportional to such sale for the period in dispute.
Conclusion- Held that sub rule (5) to rule 6 of Cenvat Credit Rules, 2004 provides for availment of entire amount of credit even though certain portion must have been used in manufacture of exempted goods.
Tribunal, in Indo Rama Synthetics (I) Ltd v. Commissioner of Central Excise, Nagpur [2015 (39) STR 300 (tri-Mumbai)], has held that from sub- rule (5) of Rule 6 in respect of the said services, the credit can be availed even if the part of the service is used in relation to manufacture of exempted goods. There is no stipulation that the services should be availed exclusively in the manufacture of dutiable goods.
FULL TEXT OF THE CESTAT MUMBAI ORDER
A limited issue arises in this appeal of Revenue against order1 of Commissioner of Central Excise (Appeals), Mumbai-I which, on appeal of M/s DCW Ltd against order of original authority denying retention of credit of Rs. 34,30,643, of Rs. 39,92,426 and of Rs. 17,41,354 taken under rule 3 of CENVAT Credit Rules, 2004 equal to tax included in bills of M/s Thermax Ltd for ‘operation and maintenance’ service and for transport of coal by ‘goods transport agency’ between April 2009 and December 2009, between January 2010 and December 2010 and between November 2010 and June 2011 respectively for generation of electricity and steam in the coal fired 50 MW ‘captive power plant’ installed for consumption in the factory, found the respondent herein to be entitled to credit without any truncation. It is common ground that the entire production of steam and bulk of electricity were utilized in manufacture of various excisable goods. However, vide power purchase agreement (PPA) of the appellant with PTC India Ltd dated 24th April 2009, the appellant had been supplying excess production to the Tamil Nadu Electricity Board (TNEB) and the notices proposed recovery of credit proportional to such sale for the period in dispute.
2. It would appear that M/s DCW Ltd had, while commissioning of their ‘iron oxide’ plant was under way, found themselves with surplus power that they sought to ‘wheel’ gainfully to the grid and the original authority confirmed the proposals in the notices by recourse to rule 6 of CENVAT Credit Rules, 2004. The acceptance of the plea of the assessee with the finding that
’13. ….
(e) Sub rule (5) of rule 6 of CENVAT Credit Rules, 2004 has outlined the various categories of input services on which the assessee can avail the entire amount of credit even if some quantity of the same is used in the manufacture of exempted goods. The said provisions are reproduced as follows:
“Notwithstanding anything contained in sub-rule! (1)! (2) and (3) credit of the whole of service tax paid on taxable service as specified in sub-clause-(g) (q)! (v) (w) (za) (zm) (zp) (zy) (zzd) (zzg) (zzh) (zzi) (zsk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.”
It is evident from the above provision that maintenance or repair services provided under sub-clause 65(105) (zzg) is covered under Rule 6(5) of CENVAT Credit Rules, 2004. The sub rule (5) of rule 6 is an exception carved out to the provisions contained in sub rule (1), (2) & (3) and it is clear from the opening words of the rule which reads as “Not withstanding anything contained in rule (1), (2) & (3) …. “. Therefore, sub rule (5) provides for availment of entire amount of credit even though certain portion must have been used in manufacture of exempted goods.
(f) The adjudicating authority has not granted the benefit of such credit on the ground that such portion of CENVAT credit is exclusively used for production of exempted activity of electricity production. Such a finding is incorrect inasmuch as a substantial portion of the electricity has been used in the manufacture of finished goods. Therefore, the Appellants became entitled to full credit of service tax paid on such input services. The provisions of Rule 6(5) of CENVAT Credit Rules, 2004 are similar to Rule 6(4) of CENVAT Credit Rules, 2004. in the context of Rule 6(4) of CENVAT Credit Rules, 2004, the Hon’ble High Court in the case of UNION OF INDIA Versus HEG LTD. 2012 (275) E.L.T. 316 (Chhattisgarh) has held CENVAT credit is eligible for Capital goods used in power plant even when major portion of electricity so generated was sold. Thus applying the ratio of the said judgement it is evident that the CENVAT credit should be allowed for services falling under Rule 6(5) of CENVAT Credit Rules, 2004. I find that the ratio of the aforesaid Judgement is applicable in the present case also.
14. I find ample force and substance in the Appellants’ above contentions that The definition of ‘input services’ does not restrict itself only to services which are used in manufacture of final products, but it also covers all activities relating to the business of manufacture. The scope of term ‘input service’ as defined in rule 2(1) of the CENVAT Credit Rules, 2004 has been spelt out by the Hon’ble High Court in the case of Ultratech Cement reported in 2010 (20) STR 577 (Bom.) and The Hon’ble High Court, in the case of COCA COLA INDIA PVT. LTD. vs. COMMISSIONER OF C.EX., PUNE-lll 2009 (15) S.T.R. 657 (Bom.) has interpreted the term ‘Business’. On a combined reading of the ratio of the two judgments it is evident that the term ‘activities relating to business’ cover all the business activities and the CENVAT credit of all services which are required for the activities of Business is eligible.
15. I, therefore, hold that the CENVAT Credit of the Service Tax paid on the ‘maintenance service and GTA service’ used for the cogeneration plant corresponding to the electricity sold, is admissible to the Appellants. I do not find any merit in the adjudicating authority’s contentions that the Appellants are liable to pay back the credit of the Service Tax paid on the input service correspondingly used in the generation of excess units of electricity sold to TNEB as the same could not be related to the manufacture of excisable goods and that they were liable to payback the ineligible credit wrongly availed by them.’
in order of appellate authority is cause of cavil leading to the present appeal.
3. Learned Authorized Representative pointed out the mandate of rule 6 of CENVAT Credit Rules, 2004 and relied upon the decision of the Hon’ble High Court of Punjab & Haryana in Maruti Suzuki India Limited v. Commissioner of Central Excise, Delhi-III [2017 (5) GSTL 18 (P&H)] holding that
‘19. The order of the Tribunal also records that the electricity is supplied by the appellant to the third parties for consideration. There is no link between the supply of electricity by the assessee to the third parties and the supply by the third parties of components of the assessee’s final product. The third parties are not job workers. If the third parties were the assessee’s job workers, it may have been a different thing altogether. The third parties are, admittedly, not the job workers but independent entities. These third parties are not agents of the assessee either. They were separate legal entities who purchased the electricity that was wheeled out from the assessee. The third parties were entitled to utilize the electricity in such manner as they desired without any restriction. Even assuming that the third parties were under an obligation to supply their products to the assessee, it would make no difference. They could have used that electricity or electricity from any other source for the manufacture of their final product.’
4. We find that the decision supra has been rendered in the context of ‘inputs’ whereas the issue here is of ‘input service’ which, as pointed by Learned Counsel for the respondent, obtains special treatment in
(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clauses (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.’
of rule 6 of CENVAT Credit Rules, 2004 as may be seen from the clarification offered by circular dated 1st October 2007 by the Central Board of Excise & Customs (CBEC) issued from F No. 137/203/2007-CX4.
5. We also find that, as pointed out by Learned Counsel for the respondent, that the decision of the Hon’ble High Court of Chhattisgarh in Union of India v. HEG Ltd [2012 (275) ELT 316 (Chhattisgarh)] has held that
10. The Tribunal referring to its decision in the case of Kothari Sugars (supra) wherein it has been held that steam generating boiler parts used in captive power plant and partly sold out to Tamil Nadu Electricity Board are eligible to Cenvat Credit under Rule 57R of the erstwhile Central Excise Rules, 1944, allowed the appeal of the respondent and held that there was no reason to deny modvat credit to the respondents. Rule 2(b) defines capital goods used in the factory of the manufacturer of the final products, but does not include any equipment or appliances used in an office whereas, Rule 2(g) defines input as all goods used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. In the present case, it is not in dispute that Cenvat Credit has been claimed against the spare parts used in boilers of the power plant which generate electricity.
11. The only question to be decided in this appeal is whether the Tribunal was justified in allowing Cenvat Credit to the respondent for capital goods used in the power plant when major portion of the electricity generated was sold to the MPEB?
12. Plain reading of Rule 6(4) of the Rules makes it abundantly clear that Cenvat Credit in respect of capital goods shall not be allowed on capital goods which are used “exclusively” in manufacture of exempted goods. In the instant case, though major portion of the generated electricity from the power plant was sold to MPEB through its grid, however, it cannot be said that capital goods were exclusively used in manufacture of exempted goods (electricity) sold to MPEB as a portion of electricity generated in the power plant is also utilized in manufacture of final products “sponge iron” of the respondent factory, which is leviable to the excise duty and is not exempted goods.
13. On the basis of aforesaid analysis, we are of the opinion that the Tribunal was justified to hold that respondent was entitled for modvat credit against the capital goods used in the captive power plant of the respondent and Rule 6(4) of the Rules was no bar for denying Cenvat Credit.’
and that the Tribunal, in Indo Rama Synthetics (I) Ltd v. Commissioner of Central Excise, Nagpur [2015 (39) STR 300 (tri-Mumbai)], has held that
‘2. The appellant, M/s. Indo Rama Synthetics (I) Ltd., Nagpur availed Cenvat credit of Service Tax paid on ‘Management, Maintenance or Repair Services’ as defined under Section 65(105)(zzg) of the Finance Act, 1994 in their factory. The electricity generated was utilized partly in the manufacture of excisable goods as well as exempted goods and partly being supplied to electricity grid of the Maharashtra State Electricity Board (MSEB in short). The department issued a show cause notice dated 28-11-2011 demanding recovery of proportionate Cenvat credit of the Service Tax paid on ‘Management, Maintenance or Repair Services’ on the ground that the appellant is not eligible for Cenvat credit in respect of electricity supplied to MSEB. Accordingly, a demand of Rs. 51,27,157/- for the period 2007-08 to 2010-11 (up to October, 2010) along with interest thereon was proposed along with imposition of penalties. The case was adjudicated vide the impugned order and demand was confirmed along with interest and also by imposing penalties.
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5.1 The appellant has availed credit of Service Tax paid on the services falling under Section 65(105)(zzg). From sub- rule (5) of Rule 6 (extracted supra) in respect of the said services, the credit can be availed even if the part of the service is used in relation to manufacture of exempted goods. There is no stipulation that the services should be availed exclusively in the manufacture of dutiable goods. Therefore, there is merit in the appellant’s contention in this regard. In the case of HEG Ltd. (supra), a similar issue arose in respect of capital goods which were used in manufacture of dutiable as well as exempted goods and the Hon’ble High Court held that capital goods used partly in the manufacture of dutiable goods and partly in the manufacture of exempted goods, capital goods credit cannot be denied. The same logic would apply in respect of interpretation of sub-rule (5) of Rule 6 also. Thus, the appellant is rightly entitled to take credit on ‘Management, Maintenance or Repair Services’ as provided under sub-rule (5) of Rule 6 of Cenvat Credit Rules, 2004.’
6. It is also on record that the Tribunal in LG Electronics India Pvt Ltd v. Commissioner of Customs, Central Excise & Service Tax, Noida [2017 (3) GSTL 249 (Tri-All)] has held that
6. Having considered the rival contentions and on perusal of record, we find that in the present case, M/s. L G Electronics India Pvt. Ltd., was manufacturing the goods and also trading the goods on being imported and being procured from other manufacturers. They were taking Cenvat credit on service tax paid on input services as stated earlier. The show cause notice has proposed to recover Cenvat credit of Rs. 45.63 crores under Rule 14 of Cenvat Credit Rules, 2004. For the computation of alleged inadmissible Cenvat credit that was proposed to be recovered the method adopted was on the basis of turnover of manufacture and turnover of trading a ratio was calculated and total Cenvat credit of Service Tax paid on input services was distributed in that ratio and the component attributable to trading was proposed for denial of Cenvat credit and recovery of Cenvat credit was proposed under Rule 14 of Cenvat Credit Rules, 2004. During the relevant period, said Rule 14 provided that whenever the Cenvat credit has been taken and utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and provisions of Section 11A of Central Excise Act, 1944 & Section 73 of Finance Act, 1994 was applied for effecting such recoveries. It is very clear that for recovery of Cenvat credit under said Rule 14, first it is to be established that Cenvat credit has been either taken wrongly or utilized wrongly. Further, the said Rule 14 has also been provided for recovery of amount mentions in sub-rule (3) of Rule 6 of Cenvat Credit Rules under Explanation 2 under sub-rule (3) of said Rule 6. The provision at Explanation 2 under sub-rule (3) of said Rule 6 provide for recovery of Cenvat credit which was admissible at the time of taking credit. In order to invoke provisions of said Rule 14 it is to be first established that either the Cenvat credit was not admissible or Rule 6 was applicable in the transaction then only Cenvat credit could be recovered under Rule 14 of Cenvat Credit Rules, 2004. In the present case, admittedly, there is no allegation in the said show cause notice that the appellants had taken credit of any inadmissible Cenvat credit. Further the show cause notice dated 9-5-2011 states that Rule 6 of Cenvat Credit Rules, 2004 is not applicable in the present case. Therefore, the said show cause notice did not make out a case for invocation of provisions of Rule 14 of Cenvat Credit Rules, 2004. Therefore, show cause notice was not sustainable for the reasons that the contention in the show cause notice did not allow recovery of Cenvat credit under Rule 14 of Cenvat Credit Rules, 2004. Therefore, the proposal for recovery of Cenvat credit, interest on the same and penalty is not sustainable. We, therefore, set aside the impugned Order-in-Original and allow all the appeals. The appellant shall be entitled to consequential relief, if any, in accordance with law.’
which renders the proposal in the show cause notice to be without authority of law.
7. It is seen that the reviewing authority has placed emphasis on
‘(l) “input service” means any service, –
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to the place of removal,
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;’
in rule 2 of CENVAT Credit Rules, 2004 even though the proposal was for reversal of proportional credit by recourse to rule 6 of CENVAT Credit Rules, 2004 which is the mechanism restrictedly applicable to taking of credit correctly in terms of rule 3 therein read with rule 2(l) but to be retained subject to subsequent usage only. For denial of retention of credit after such licit availment, the provisions of rule 6 of CENVAT Credit Rules, 2004 would alone be applicable. The appellant has not been able to demonstrate, by reference to the proportionate reversal mechanism therein, that the activity of the respondent herein is susceptible to such denial.
8. In these circumstances, appeal is without merit and is dismissed.
(Order pronounced in the open court on 11/10/2023)
Notes:
1 [order-in-appeal no. BPS/10/LTU/MUM/2013 dated 31st January 2013]
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