2009 (8) TMI 964 - Commissioner - Service Tax

Summary

Issues Involved:
1. Denial of Cenvat credit on input services related to handling of boiler ash and compost.
2. Imposition of penalty under Rule 15 of the Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Denial of Cenvat Credit on Input Services Related to Handling of Boiler Ash and Compost:
The appellant, engaged in manufacturing excisable goods, availed input service credit on 'man power recruitment or supply agency' services used for handling, loading, and unloading of boiler ash and compost. The lower authority denied the credit on the grounds that these services were used for exempted goods, as per Rule 6(1) and Explanation III of Rule 6(3) of the Cenvat Credit Rules, 2004. The appellant contended that:
- There was no explanation in the SCN or OIO justifying the denial of credit.
- Pollution control activities, mandated by the Pollution Control Board, are integral to manufacturing, supported by the Apex Court decision in Indian Farmers Fertilizers Co-Op. Ltd. v. CCE.
- The service was used in relation to the manufacture of dutiable final products like sugar and molasses.
- Boiler ash and compost are non-excisable, supported by various tribunal decisions and the Apex Court decision in UOI v. Ahmedabad Electricity Co. Ltd.

The judgment agreed with the appellant, emphasizing that:
- Boiler ash and spent wash cannot be considered excisable commodities as they do not involve manufacturing activity and cannot be marketed in their emerged form.
- The input service was used to comply with pollution control regulations, forming part of the manufacturing activity.
- The appellant is eligible for Cenvat credit as the service was used in relation to the manufacture of final dutiable products.

2. Imposition of Penalty under Rule 15 of the Cenvat Credit Rules, 2004:
The appellant challenged the penalty of Rs. 80,640/- imposed under Rule 15, arguing:
- No specific sub-clause of Rule 15 was mentioned in the SCN or OIO.
- The issue involved interpretation, with no mala fide intention or suppression of facts.
- The SCN was issued within the normal period of limitation.

The judgment found the appellant's contentions valid, noting:
- The SCN covered the period within the normal limitation period.
- The issue was debatable and involved interpretation, negating any mala fide intention.
- The penalty imposed without specifying the sub-rule was unjustifiable, as per the Apex Court decision in Amrit Foods v. CCE.
- The maximum penalty under Rule 15(3) for availing wrong credit is Rs. 2,000/-, making the equal penalty imposed unsustainable.

Conclusion:
The appeal was allowed, and the impugned order was set aside, granting the appellant eligibility for Cenvat credit and nullifying the penalty.