2015 (12) TMI 1491 - AT - Central Excise

Denial of CENVAT Credit - Credit on short receipt of iron ore - Held that - Appellant has availed input service tax credit in respect of crushing of raw materials/iron ore which was supplied to the service provider/job worker for the process of crushing. After crushing some portion becomes waste/unfit for use in manufacture of final products. The remaining portion is received back in the factory and used in manufacture of final products. According to Revenue, cenvat credit is not admissible on that quantity which is not received back in the factory being unfit for use in manufacture. This view of the Revenue does not appear to be convincing - Undeniably, iron ore lumps are costlier than iron ore as such. It is the choice of the manufacturer to obtain iron ore and get into crushed lumps. Therefore, disallowance of credit on the ground that short quantity is not used in or in relation to the manufacture of final products, is not sustainable. Further, Rule 3(5) of Cenvat Credit Rules ,2004 speaks about inputs and capital goods and does not mention input service . - denial of credit is unsustainable. In the result, the impugned order, is set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Admissibility of service tax credit on short receipt of iron ore from job worker for manufacture of sponge iron.

Analysis:
The case involved the appellants, engaged in manufacturing sponge iron, availing credit on service tax paid for crushing charges of iron ore sent to a job worker. The department alleged a shortage of iron ore from the job worker, leading to a show cause notice and subsequent order confirming demand, interest, and penalty. The Commissioner (Appeals) upheld the decision, prompting the appellant to approach the Tribunal.

The appellant argued that the raw material needed to be crushed into lumps for manufacturing sponge iron, with the waste generated during crushing not usable for production. The department invoked Rule 3(5) of Cenvat Credit Rules, 2004, to deny the credit. The appellant cited judgments supporting their position, emphasizing that the rule pertains to capital goods, not input services.

The department contended that the entire quantity of raw material sent for job work was not returned for manufacturing final products, making the credit inadmissible under Rule 3(5). They referenced a previous case to support their stance.

After considering both arguments and reviewing the records, the Tribunal found the Revenue's view unconvincing. It acknowledged that some quantity of iron ore becomes waste during crushing, making it impractical to ascertain beforehand. The Tribunal noted that Rule 3(5) specifically addresses inputs and capital goods, not input services. Citing precedents, the Tribunal concluded that the denial of credit was unsustainable.

In light of the above analysis and following the principles laid down in relevant judgments, the Tribunal set aside the impugned order, allowing the appeal. The decision was pronounced in open court on 26.10.2015.