CESTAT, NEW DELHI BENCH
Shree Bhawani Paper Mills Ltd.
Commissioner of Central Excise, Lucknow
FINAL ORDER NO. 980 OF 2012-SM(BR)
APPEAL NO. E/300 OF 2010-EX(SM)
JULY 19, 2012
1. The appellants are engaged in the manufacture of writing and printing paper falling under Chapter 48 of the Central Excise Tariff Act. There head office is located at Allahabad and registered as input service distributor. The factory is located at Raibareli who is also registered with the Service Tax department for payment of Service Tax. The appellant was availing the credit on various input services used in the manufacture of paper as also on the basis of credit distribution document and utilising the same for payment of Central Excise duty on clearance of their final product.
2. The appellants availed the credit of Rs. 5,70,423/- on the basis of invoices issued by M/s. Ernst & Young Pvt. Ltd., which was distributed by their head office. The said Cenvat credit was availed in respect of Service Tax paid by M/s. Ernst & Young Pvt. Ltd., under the category of consultancy engineering services. Such services were used for modernisation of their power plant as a measure of increasing efficiency and profitability of their plant. As a result of such services, the cost of power was reduced. There is no dispute about the payment of Service Tax by M/s. Ernst & Young Pvt. Ltd., under the category of consultancy engineering services and use of such services by the appellant for modernising their plant.
3. The appellant had entered into the agreement with M/s. EDF Trading Ltd., a company organised under the laws of England having their registered office at 71, High Haiborn London, for C.D.M. Emission Reduction known as Clean Development Reductions for additional earning in terms of CERS. The additional earning was available if a company had or was to install project of high technical equipments in power plant, in which fossil fuel like rice husk etc. were used, which reduced carbon emission. The appellants were already having a power plant in which rice husk was used as fuel resultantly the carbon emission was reduced. For having such type of plant the appellants were entitled to get additional earning on CERS through M/s. EDF Trading London. For earning the said amount of CERS, they availed consultancy services of M/s. Ernst & Young Pvt. Ltd., New Delhi vide agreement dated 17.8.2005. In pursuance to the said agreement M/s. Ernst & Young Pvt. Ltd., New Delhi had provided their consultancy services to the appellant as a result of which the appellant earned a sum of Rs. 4,77,83,257/- as CERS which had been shown in their balance sheet for the year 2006-07 as Certified Emission Reduction Sale. For earning this amount the appellants had paid Rs. 46,60,313/- as consultancy charges to M/s. Ernst & Young Pvt. Ltd., New Delhi on which a sum of Rs. 5,70,423/- was paid as service tax by M/s. Ernst & Young Pvt. Ltd., New Delhi. The amount of service tax of Rs. 5,70,423/- paid by M/s. Ernst & Young Pvt. Ltd., New Delhi had been availed as Cenvat credit by the appellant through their Head Office. The amount of Rs. 4,77,83,257/-had been shown as net earning in their Balance Sheet as ‘other income’ i.e. earning from Certified Emission Reduction Sale. From the above, it was clear the appellants had received this amount as a sale proceeds for less emitting carbon in the air which had been described by them as CERS in technical term.
4. By entertaining a view that the services of M/s. Ernst & Young Pvt. Ltd., were used for the project of Certified Emission Reduction Sale of Carbon which was neither dutiable nor taxable, revenue initiated proceedings for denial of Cenvat credit. Accordingly, show cause notice dated 20.3.08 was issued for purposing denial of credit availed during the period 2006-07. The said show cause notice was adjudicated by the Additional Commissioner, Central Excise Lucknow confirming the demand along with confirmation of interest and imposition of penalty. The challenge to the said confirmation before Commissioner (Appeals) did not succeed and hence the present appeal.
5. After hearing both sides duly represented by Shri Hemant Bajaj, learned Advocate and Ms. Renu Jagdev , SDR it is seen that the services of M/s. Ernst & Young Pvt. Ltd., were availed in relation to the power plant used for manufacture of paper. Admittedly, such paper is liable to duty of excise. As a result of modernisation of power plant, the appellant earned certified emission reduction sale (hereinafter referred to CERS). Such earning of CERS is on account of appellant having entered into an agreement with M/s. EDF Trading Ltd. , company organised under the laws of England. This seems to be scheme for encouraging manufacturer to use fossil fuel to develop their plant in such a manner so as to reduce the carbon emission which vitiates atmosphere. The revenue’s contention that such earning of carbon credit from the United Nations company was not liable to Service Tax and inasmuch as the services of E & Y were availed for earning of such credits, the appellant is not entitled to avail the credit.
6. I find no merits in the above contention of the Revenue. The services availed from M/s. Ernst & Young Pvt. Ltd., were admittedly for modernisation of the power plant of the appellant. Such power plant is used for manufacture of paper which is liable to Central Excise. In addition, if the appellant, by way of entering into an agreement with the England based company gets profit by way of earning carbon credit, it cannot be held that said services of M/s. Ernst & Young Pvt. Ltd., were for the purpose of earning the credit. I fully agree with the learned advocate that the above contention of the Revenue that the amount earned as a result of consultancy must be either subject to excise duty or should be taxable under the Service Tax is nothing but a fallacy. The amount earned as a result of such service availed by the party is the income of the appellant and is not required to be leviable to Service Tax. As long as the services of consultancy engineering by the appellant are in relation to the development of the power plant, which in turn is used for manufacture of paper, such services get covered under the cover of definition of input services. In fact I note that show cause notice itself admits the factum that the consultancy service provided by M/s. Ernst & Young Pvt. Ltd., to the appellants was to facilitate them in installing projects of high technical equipments to the power plant in which fossil fuel like rich husk are used which reduces carbon emission. They again submitted that installing projects of high technical equipment is nothing but Modernisation of a factory and as per Cenvat credit Rules, 2004, services used in relation to modernisation are eligible for Cenvat credit.
7. Admittedly, the main activity of the appellant is to manufacture paper for which electricity is used from captive power plant. The services were used for modernisation of plant. As a result, the appellant might have made CERS income, which is in no way connected with the availment of Cenvat credit. As the paper being manufactured by them is leviable to excise duty, I find no reason to deny the benefit of Cenvat credit availed on the said services. Accordingly, I set aside the impugned order and allow the appeal with consequential relief to the appellants.
8. Inasmuch as the appeals stand allowed on merits, the plea of limitation is not being considered.