2013 (7) TMI 637 - AT - Central Excise

Cenvat Credit - Input services - service tax paid on service used for removal of fly ash - Alleged that as it is not used in or in relation to manufacture of final product or for providing of output service as there is no nexus with manufacture of final product and clearance of final product from the place of removal and for providing of output service Held that - In the case of Sanghi Industries Ltd. vs. C.C.E., Rajkot 2008 (4) TMI 471 - CESTAT, AHMEDABAD , Hon ble Tribunal has observed as under As regards the service tax paid on overhauling of DG set, the Commissioner (Appeals) has taken a view that the final product is electricity which is exempt and therefore, credit is not admissible. Now the law is well settled that Cenvat credit used on inputs/capital goods used in power plant set up by the manufacturer is admissible if the final product is dutiable and therefore, in this case also the Cenvat credit of input services for overhauling of DG set is admissible. Also in the case of Coca Cola India Pvt. Ltd. vs. C.C.E., Pune II 2009 (8) TMI 50 - BOMBAY HIGH COURT held that any such service used in relation to manufacturing activity and relating to business are required to be held as cenvatable service. Removal of coal fly ash is one of the necessity for running of the captive power plant. Without such removal of the coal fly ash from the captive power plant, the same cannot operate and run, in which case, the power won t be generated and the appellant would not be in a position to manufacture their final product Appeal allowed Decided in favor of Assessee.

Summary

Issues:
1. Eligibility of cenvat credit on handling of coal fly ash.
2. Disallowance of cenvat credit and imposition of penalty.
3. Interpretation of input services under Rule 2(l) of the Cenvat Credit Rules, 2004.
4. Applicability of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004.
5. Nexus between services obtained for removal of coal fly ash and manufacturing of excisable goods.

Analysis:

Issue 1:
The appellant wrongly utilized cenvat credit on handling coal fly ash, a non-excisable and exempted product. M/s Shankar Singh Jodha provided handling services for coal fly ash. The adjudicating authority disallowed the credit and imposed a penalty under Rule 14 and Rule 15(2) of the Cenvat Credit Rules, 2004.

Issue 2:
The appellant contended before the Commissioner (Appeals) that the services for removing coal fly ash were essential for the captive power plant, directly linked to the manufacturing process. They argued for the credit's eligibility based on precedents and the definition of input services under Rule 2(l) of the Cenvat Credit Rules, 2004.

Issue 3:
The appellate authority rejected the appellant's plea, emphasizing that an input service must be used in providing output service or in manufacturing finished goods. The removal of non-excisable coal fly ash was deemed non-cenvatable, leading to the dismissal of the appeal.

Issue 4:
The appellant defended against the penalty, asserting a bona fide belief in credit eligibility, disclosure in returns, and absence of willful suppression. They cited legal precedents emphasizing mens rea as essential for invoking Section 11A of the Central Excise Act, 1944.

Issue 5:
The Tribunal analyzed the necessity of removing coal fly ash for the captive power plant's operation, crucial for power generation linked to manufacturing. Precedents like Sanghi Industries Ltd. and Hindalco Industries Ltd. supported the admissibility of service tax credit on services related to business activities.

In conclusion, the Tribunal allowed the appeal, recognizing the removal of coal fly ash as an essential service for the manufacturing process, irrespective of the excisability of the product. Legal precedents and the nexus between the services and manufacturing activities supported the eligibility of the cenvat credit, overturning the disallowance and penalty imposed earlier.