2020 (1) TMI 1343 - AT - Central Excise

Recovery of inadmissible CENVAT credit - cross-utilising of credit by manufacturers as providers of service - review of the order by the competent Committee of Chief Commissioners under section 35E(1) of Central Excise Act, 1944 - HELD THAT - Though it was grossly improper on the part of the Committee of Chief Commissioners to insist that an appeal filed on their direction by the adjudicating authority should even suggest that decisions accorded by competent appellate authorities or constitutional courts do not bind adjudicating authorities merely because the executive authority has chosen not to accept those, we do not intend to dwell overmuch on such demonstrated lack of respect for rule of law and leave it to the management of the Central Board of Indirect Taxes Customs to evolve appropriate methods for proper sensitisation at the senior levels that are entrusted with the high responsibility of review. Appeal dismissed - decided against Revenue.

Issues involved:
1. Admissibility of CENVAT credit for service tax included in sub-contractor billings.
2. Interpretation of CENVAT Credit Rules regarding cross-utilization of credit by manufacturers providing services.
3. Review of the order by the Committee of Chief Commissioners under section 35E(1) of Central Excise Act, 1944.

Admissibility of CENVAT Credit for Service Tax Included in Sub-contractor Billings:
The proceedings were initiated against a company for recovery of inadmissible CENVAT credit of a substantial amount availed between August 2005 and April 2008. The Commissioner of Central Excise, Mumbai II dropped the proceedings, leading to a review by the Committee of Chief Commissioners. The appellant contended that the service tax credit from sub-contractor billings did not meet the criteria under the CENVAT Credit Rules 2004, as the services were not directly or indirectly used in relation to the manufacturing activities. The appellant also argued that the adjudicating authority failed to verify the necessary returns before making a decision. Furthermore, the reliance on certain court decisions was challenged on the grounds of lack of finality.

Interpretation of CENVAT Credit Rules Regarding Cross-Utilization:
The respondent, a manufacturer of various products, including paints and thinners, had registered as a provider of maintenance and repair services for tanks. The respondent sub-contracted the work and utilized the tax credit from sub-contractor invoices without maintaining a distinction in utilization. The appellant argued that the dropping of proceedings was inappropriate as the objectives of the CENVAT credit scheme were not met. The respondent's representative contended that the cross-utilization of credit by manufacturers providing services was settled by the decision in SS Engineers. The Tribunal's analysis highlighted that the CENVAT Credit Rules did not mandate maintaining separate accounts for manufacturers and service providers, and certain restrictions on credit utilization did not cover cross-utilization as a general proposition.

Review by the Committee of Chief Commissioners:
The judgment criticized the Committee of Chief Commissioners for suggesting that decisions by competent appellate authorities or constitutional courts did not bind adjudicating authorities merely because the executive authority chose not to accept them. The judgment emphasized the importance of respecting the rule of law and recommended appropriate sensitization methods for senior officials. Ultimately, based on the settled law regarding cross-utilization of credit by manufacturers providing services, the appeal of the Revenue was dismissed.

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by both parties, the relevant legal interpretations, and the final decision rendered by the Tribunal.

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