2012 (8) TMI 822 - AT - Central Excise

Waiver of pre-deposit of Cenvat credit - Cenvat/Modvat Inputs and capital goods used in mines - Held that - undisputedly, the mines are 100% captive mines which are allotted to the applicant for production of coal and iron ore. The coal extracted/produced are ultimately used in or in relation to the manufacture of finished products at their factory at Gamharia. Similarly, the iron ores extracted/produced at their mines at Bokna are used in the manufacture of finished products. It is also not in dispute that the applicant availed proportionate credit of the Service Tax to the extent the iron ores of the sizes between 5 mm to 18 mm are brought to their Gamharia factory from Bokna mines and used in or in relation to the manufacture of the final products. We also find, on a plain reading of the definition of input service , prescribed at Rule 2(l) of Cenvat Credit Rules, 2004, that procurement of inputs is specifically included in the list of services mentioned under the said definition. Besides, we also find that the input services used in the production of coal and iron ore at the respective mines, are not in dispute. Since these coal ores are ultimately used in the factory of Gamharia in the manufacture of finished products, the Cenvat credit on the same cannot be denied. - applicant are able to make out a prima facie case for total waiver of pre-deposit of duty and penalty - Stay granted.

Summary

Issues: Application for waiver of pre-deposit of Cenvat credit and penalty under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

Analysis:
1. The applicant, engaged in manufacturing finished goods, sought waiver of pre-deposit of Cenvat credit and penalty amounting to Rs. 5.46 crore. The appellant used coal and iron ore as inputs in their manufacturing process, sourced from captive mines allotted by the government.

2. The appellant contended that the mines were not separate entities but integral parts of the company, and services availed at these mines were essential for the production of coal and iron ore used in manufacturing finished products. The Adjudicating Authority disallowed Cenvat credit on input services, considering the mines as separate profit centers.

3. The appellant argued that there was no restriction on the location of input services usage as per Rule 3(1) of the Cenvat Credit Rules. They relied on a Supreme Court judgment allowing credit for explosives used in a similar scenario. The Revenue contended that the input services were used at separate mines and not directly related to finished product manufacturing.

4. The Tribunal noted that the mines were captive and essential for production, with coal and iron ore being used in manufacturing finished products. The definition of 'input service' included procurement of inputs, and services used in production were not disputed. The reasoning of separate entities for mines was deemed unacceptable, considering them as units/divisions of the company.

5. Citing the Supreme Court precedent, the Tribunal allowed the waiver of pre-deposit of duty and penalty, staying the recovery during the appeal's pendency. The Tribunal found the appellant had a prima facie case for the waiver, emphasizing the essential role of the mines in the manufacturing process.

Judgment: The Tribunal allowed the Stay Applications seeking waiver of pre-deposit of duty and penalty, staying the recovery during the appeal's pendency, based on the integral role of captive mines in the manufacturing process and the applicability of Cenvat credit on input services used in production.