2016 (3) TMI 1044 - AT - Central Excise

CENVAT Credit - denial of benefit on Input, Input Service and Capital Goods used in the manufacture of excisable goods and Outward Service - denial of Cenvat Credit on photo copy of the invoices - Held that - We find that the definition of Input under Rule 2 (k) of Cenvat Credit Rules 2004 is in two parts. Clause (i) of Rule 2(k) relates to the manufacturer. Clause (iv) of Rule 2 (k) is in respect of the Output Service. We agree with the submission of the Ld. Authorised Representative to the extent that the inputs exclusively used in the manufacture of Ship, the appellants are not eligible to avail Cenvat Credit. The Adjudicating Authority should provide the report to the assessee before taking decision. In view of the above discussion and following the earlier order the denial of Cenvat Credit on Input, Input Service and Capital Goods for the construction of Dry Dock is set aside. Regarding the availment of Cenvat Credit on inputs, input service and capital goods for manufacturing Ship which is exempted from the Central Excise duty, we are directing to the Adjudicating Authority to examine as to whether the inputs exclusively used in the manufacture of Ship and decide the matter in accordance with law. The denial of Cenvat Credit on photo copy of the invoices, we direct the Adjudicating Authority to decide afresh after providing the report and to consider the submission of the appellant. Penalty is set aside.

Summary

Issues Involved:
1. Denial of Cenvat Credit on Input and Capital Goods for construction of Dry Dock.
2. Denial of Cenvat Credit on inputs, capital goods, and input services used in the manufacture of exempted goods (Ship).
3. Availment of Cenvat Credit on the basis of photocopies of invoices.

Issue-wise Detailed Analysis:

1. Denial of Cenvat Credit on Input and Capital Goods for Construction of Dry Dock:
The appellants, a 100% Export Oriented Unit (EOU), were denied Cenvat Credit on inputs and capital goods used for constructing a dry dock. The Tribunal referred to its earlier decision dated 30.04.2015, where it was held that a dry dock is integral to the shipyard's operations and qualifies as a plant. The Supreme Court's observations in the cases of *Scientific Engineering (P) Ltd* and *Commissioner of Income Tax vs Anand Theatres* were cited to support this view. The Tribunal reiterated that the dry dock is essential for manufacturing ships and providing repair services, thus falling under the definition of "Input Service" as per Rule 2(l) of CENVAT Credit Rules, 2004. Consequently, the denial of Cenvat Credit by the Adjudicating Authority on this ground was set aside.

2. Denial of Cenvat Credit on Inputs, Capital Goods, and Input Services Used in the Manufacture of Exempted Goods (Ship):
The Tribunal examined whether the inputs, capital goods, and input services used in manufacturing ships, classified under heading No. 89.01 of the Central Excise Tariff Act 1985, which are exempt from duty, could avail Cenvat Credit. It was noted that the appellant claimed refund for unutilized credit under Rule 5 of the CENVAT Credit Rules, supported by the decision in *Commissioner of Customs, Bangalore vs ANZ International*. The Tribunal held that 100% EOUs are entitled to Cenvat Credit on inputs procured indigenously and can claim refunds for unutilized credit. The Tribunal directed the Adjudicating Authority to verify if the inputs were exclusively used for manufacturing exempt goods and decide accordingly.

3. Availment of Cenvat Credit on the Basis of Photocopies of Invoices:
The Adjudicating Authority had denied Cenvat Credit based on photocopies of invoices without disclosing the report of the Superintendent. The Tribunal emphasized that the assessee must be provided with the report before any decision is made. It directed the Adjudicating Authority to reconsider this issue after providing the report to the appellant and allowing them to make submissions.

Conclusion:
The Tribunal set aside the denial of Cenvat Credit on inputs, input services, and capital goods related to the construction of the dry dock. It remanded the issue regarding the use of inputs in the manufacture of exempt goods (Ship) to the Adjudicating Authority for re-examination. The Tribunal also directed the Adjudicating Authority to reconsider the denial of Cenvat Credit based on photocopies of invoices after providing the necessary report to the appellant. The penalty imposed was set aside, and the appeal was disposed of with directions to the Adjudicating Authority to provide a proper opportunity for hearing before passing a new order.