2015 (8) TMI 58 - AT - Central Excise

Denial of CENVAT Credit - Appellants fabricated a Dry Dock for manufacturing ship and repair service - Credit on input services, input and capital goods used for fabrication of the Dry Dock, amongst others - Held that - CENVAT Credit availed on input service, input and capital goods for setting up Dry Dock would be allowed for providing output service namely repair/refit service. This is also covered in the inclusive part of the definition of input service . Hence, the finding of the Adjudicating authority, is that the Appellant is exclusively engaged in the manufacture of exempted final product Ships and CENVAT Credit on input, capital goods is inadmissible, cannot be sustainable. Nexus between the input/input services and export goods/services - Held that - it must be borne in mind that the purpose is to refund the credit that has already taken by them. There cannot be different yardsticks for establishing the nexus between taking of the credit and for refund of credit. Even if different phrases are used under different rules of CENVAT Credit Rules, they have to be read in a harmonious manner. Cross utilisation of credit of input and input service - input service credit was denied mainly on the basis that the input service credit availed on the input services was shown in ER-1 return instead of ST-3 returns. - Held that - The restriction on utilisation of CENVAT Credit stipulated relates only for specific type of duties i.e. education cess on excisable goods or payment of education cess on output service. There is no restriction for utilisation of common input credit availed on the inputs and also on input service for payment of excise duty or service tax. Hence, we do not find any reason to deny the input service credit on the ground that it was shown in the ER-1 return. - creidt allowed. Use of capital goods in immovable property - Held that - the Appellant is unable to render the repair/refit service without the crane in Dry Dock and which can be treated as capital goods. The case law relied upon by the learned Authorised Representative is in context of excisability of goods, and the Tribunal already considered in earlier decision. - credit allowed. Denial of cenvat credit on the basis of document issued by the ISD (Input Service Distributor). - Held that - As per CENVAT Credit Rules, the Appellants are eligible to avail the credit on the invoices issued by the ISD. There is no reason to deny the credit on the ground that the address of the ISD was not mentioned in the LOP. - denial of CENVAT Credit alongwith interest and penalties cannot be sustained. Accordingly, the impugned order is set aside - Decided in favour of assessee.

Issues Involved:
1. Denial of CENVAT Credit on input services, inputs, and capital goods.
2. Classification of the final product 'ship' under Nil rate of duty.
3. Use of ISD invoices issued by Head Office not mentioned in the LOP.
4. Eligibility of CENVAT Credit on capital goods fixed to the earth.
5. Applicability of Rule 6(1) and Rule 6(6)(d) of CENVAT Credit Rules, 2004.
6. Requirement of bond for 100% EOU.
7. Filing of CENVAT Credit in ER-1 returns instead of ST-3 returns.

Detailed Analysis:

1. Denial of CENVAT Credit on Input Services, Inputs, and Capital Goods:
The Appellant, a 100% EOU, availed CENVAT Credit on input services, inputs, and capital goods used for the fabrication of a Dry Dock, which was utilized for manufacturing ships and providing repair services. The Adjudicating Authority disallowed the CENVAT Credit amounting to Rs. 7,69,25,644.00 along with interest and imposed an equal penalty. The Tribunal found that the Dry Dock is essential for shipbuilding and repair services, and thus, the CENVAT Credit on input services, inputs, and capital goods used for setting up the Dry Dock is permissible under Rule 2(l) of CENVAT Credit Rules, 2004.

2. Classification of the Final Product 'Ship' Under Nil Rate of Duty:
The Show Cause Notices alleged that the final product 'ship' is classifiable under Central Excise Tariff Heading 8901, chargeable to Nil rate of duty, making the Appellant ineligible for CENVAT Credit under Rule 6(1) of CENVAT Credit Rules, 2004. However, the Tribunal observed that the Appellant also provided taxable repair services and exported ships under bond, making Rule 6(1) inapplicable as per Rule 6(6)(d).

3. Use of ISD Invoices Issued by Head Office Not Mentioned in the LOP:
The Adjudicating Authority contended that the Appellant wrongly availed CENVAT Credit based on ISD invoices issued by their Head Office, which was not mentioned in the LOP. The Tribunal found this argument unsustainable as the Head Office was registered with the Service Tax authorities, making the credit on ISD invoices valid.

4. Eligibility of CENVAT Credit on Capital Goods Fixed to the Earth:
The Tribunal referenced the decision in Commissioner of Central Excise Vs JSW Ispat Steel Ltd, which held that merely assembling machinery at a site does not disqualify it from being considered capital goods. The Tribunal concluded that the machinery fixed in the Dry Dock qualifies as capital goods, making the Appellant eligible for CENVAT Credit.

5. Applicability of Rule 6(1) and Rule 6(6)(d) of CENVAT Credit Rules, 2004:
The Tribunal clarified that Rule 6(1) does not apply to the Appellant as they exported ships under bond and provided taxable repair services. Rule 6(6)(d) exempts such cases from the restrictions of Rule 6(1).

6. Requirement of Bond for 100% EOU:
The Tribunal referred to CBEC Circular No.928/18/2010-CX, which clarified that 100% EOUs are required to export goods under bond. The Tribunal upheld the applicability of Rule 6(6) for 100% EOUs, allowing them to avail CENVAT Credit even if the final product is exempted.

7. Filing of CENVAT Credit in ER-1 Returns Instead of ST-3 Returns:
The Adjudicating Authority denied input service credit on the ground that it was shown in ER-1 returns instead of ST-3 returns. The Tribunal, referencing CBEC Circular F.No.381/23/2010/862, clarified that credit availed by a manufacturer and service provider goes into a common pool and can be used for both purposes, thus rejecting the denial of credit on this basis.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal filed by the Appellant with consequential relief. The denial of CENVAT Credit, along with interest and penalties, was found unsustainable. The application for extension of the stay order was dismissed as infructuous.

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