Cestat, Bangalore Bench
ADC India Communications Ltd.
Commissioner of Central Excise, Bangalore
FINAL ORDER NOS. 286 & 287 OF 2012
APPEAL NOS. E/2180 & 2181 OF 2010
APRIL 27, 2012
1. Both these appeals were filed by the assessee aggrieved by denial of CENVAT credit by the lower appellate authority. In the first appeal, a part of the challenge is directed against denial of input duty credit amounting to Rs. 1,97,601/- for the period from November 2006 to October 2007. The credit was denied on certain inputs, the value of which was written-off on 31.3.2007 for income tax purposes. In this connection, the case of the appellant is that they were not liable to reverse the CENVAT credit on such inputs inasmuch as the requirement for such reversal of credit was introduced for the first time in the CENVAT Credit Rules by the Central Government by way of insertion of sub-rule (5B) in Rule 3 of the CENVAT Credit Rules, 2004 with effect from 11.5.2007 only. The argument is that, prior to 11.5.2007, there was no embargo on availment of CENVAT credit on written-off inputs. In this connection, the learned counsel for the appellant has relied on the Tribunal’s decision in Phillips Electronics India Ltd. v. CCE 2011 (274) ELT 311 (Tri. -Mum.), wherein it was held that any CENVAT credit taken on any input written-off in financial account of the assessee prior to 11.5.2007 was not liable to be reversed. No binding decision to the contra has been cited before me. Therefore, the challenge against denial of CENVAT credit amounting to Rs.1,97,601/- succeeds.
2. Another part of the challenge in the first appeal is against denial of CENVAT credit on certain activities which were not recognized by the lower authorities to be ‘input services’ under Rule 2(1) of CENVAT Credit Rules, 2004. The total credit denied by the authorities on this count is Rs.1,21,464/- as per the Memorandum of Appeal.
3. The services/activities in question are pest control, annual maintenance contract (AMC) for ST plant for sewage disposal, AMC for air conditioners for instrumentation room, canteen facility and AMC for computers. The learned counsel for the appellant relies on the following decisions in support of their claim of CENVAT credit on the aforesaid services:
(i) CCE v. Stanzen Toyotetsu India (P) Ltd.  32 STT 244 (in respect of canteen facility);
(ii) VST Industries Ltd. v. CCE 2010 (262) ELT 749 (Tri-Bang.) (in respect of pest control);
(iii) Manikgarh Cement v. CCE [Final Order No. A/84.2011-WZB/C-IV (SMB), dated 22-12-2010] (in respect of AMC for air conditioners, ST plant for sewage disposal).
4. The learned Superintendent (AR) submitted that the appellant who employed only less than 250 employees in his manufacturing plant during the material period was not entitled to take CENVAT credit on outdoor catering service (canteen facility). He relied on Stanzen Toyotetsu (supra). However, he has not cited any decision in relation to the other services/activities. He reiterates the findings recorded by the original and appellate authorities. In his rejoinder, the learned counsel fairly concedes that the number of workers/employees was less than 250 during the material period. Nevertheless, it is his contention that the appellant was entitled to take CENVAT credit in respect of canteen facility irrespective of the number of employees/workers. These arguments have been made with reference to the definition of ‘input service’ given under Rule 2(i) ibid.
5. After giving careful consideration to the submissions, I find that the claim of the appellant for CENVAT credit on pest control is supported by the Tribunal’s decision in VST Industries Ltd. (supra) and the claim in respect of AMC for ST plant for sewage disposal is supported by the Tribunal’s decision in Manikgarh Cement (supra). As regards the AMC for air conditioners for instrumentation room, the appellant has stated that these air conditioners were installed in their instrumentation room for the purpose of testing their products. This fact has not been rebutted in the impugned order and therefore I am constrained to hold that there is a nexus between the said service and the manufacture of excisable products by the appellant inasmuch as testing of the products in the factory is an imperative requirement pre-clearance. The requisite nexus having been established, the challenge against the denial of CENVAT credit on the said service succeeds. However, the arguments advanced by the learned counsel with reference to canteen facility are not acceptable in toto. In para 12 of the judgment of the Hon’ble High court in the case of Stanzen Toyotetsu India (P) Ltd. (supra), the Hon’ble High Court adverted to the mandatory provisions of Section 46 of the Factories Act and took the view that CENVAT credit could not be denied to the assessee in respect of outdoor catering service (canteen facility) as it was their statutory liability to maintain a canteen where the number of employees was more than 250. This statutory liability under Section 46 of the Factories Act does not exist in the instant case as the appellant admittedly did not have 250 or more employees/workers during the material period, in the case of CCE v. GTC Industries Ltd.  17 STT 63 (Mum.-CESTAT), a larger bench of this Tribunal also held to the same effect and that view came to be upheld by the Hon’ble High Court in the case of CCE v. Ultratech Cement Ltd.  29 STT 244 (Bom.). This being the legal position, CENVAT credit of Rs.16,804/- was rightly denied to the appellant by the lower authorities in respect of canteen facility.
6. As regards the AMC for computers, it is the claim of the appellant that these computers were used for manifold purposes in connection with manufacture and clearance of their products. The learned counsel submits that this fact was not disputed at the lower levels. The learned Superintendent (AR) fairly concedes this position. It appears from the records that a certain part of the CENVAT credit taken on AMC for computers was reversed by the appellant accepting the fact that this much credit was not used in connection with manufacture or clearance of their products. As regards the remaining part of the credit, as already noted, there is no rebuttal of the requisite nexus with the manufacture/clearance of excisable goods. If that be so, the challenge in relation to AMC for computers also must succeed.
7. In the result, the first appeal is partly allowed by holding that the appellant is entitled to CENVAT credit on pest control, AMC for ST plant for sewage disposal, AMC for air conditioners for instrumentation room, and AMC for computers but not entitled to CENVAT credit on outdoor catering services/canteen facility. The impugned order shall stand modified to this extent.
8. The second appeal contains a challenge to denial of CENVAT credit on two services viz., air travel agent’s service and online auction service.
9. Heard both sides.
10. As regards air travel agent’s service, the claim of the appellant is that their employees had to travel extensively in connection with the business of the appellant. However, there is no documentary evidence to show that the air travels made by the employees were in connection with the business of manufacturing and marketing of excisable products and not as part of any welfare scheme for the employees. In this scenario, the challenge against denial of CENVAT credit on air travel agent’s service fails. On the contrary, the appellant has a valid point in relation to online auction service. They submit that they used this service for disposal, by auction, of scrap which was generated in the course of manufacture of their final products. It is submitted that the scrap was also cleared on payment of duty. If that be so, online auction resorted to by the appellant is an input service used for clearance of excisable goods. A direct nexus stands established between online auction service and the clearance of excisable goods.
11. In both the appeals, the appellant has also challenged the penalties imposed on them under Rule 15 read with Section 11AC of the Central Excise Act. After hearing both sides on this issue, I take the view that the penalty-related issue requires to be addressed by the original authority, now that the appeals have been partly allowed. That authority is directed to take fresh decision on the question whether any penalty is liable to be imposed on the party under the aforesaid provisions and, if so, to what extent, This shall be done, of course, after giving them a reasonable opportunity of being heard.