2016 (5) TMI 271 - AT - Central Excise

Cenvat Credit - Procurement of molasses - Availed Cenvat credit on the duty paid on inputs and capital goods and service tax paid on input services - procured inputs for their distillery unit, being molasses, the main raw material - as per agreement service providers were appointed for performing liason works for the appellant to get allotment of molasses from the office of the Excise Commissioner and Controller of Molasses, Allahabad. Held that - as molasses are under the strict control of the State Excise Authority, the appellant have rightly incurred expenses for procurement of the same for their distillery unit, so as to manufacture the taxable output being denatured spirit/alcohol. There is no dispute that the assessee have not received the services and paid the service tax on the said services. Further, I hold that expenses incurred by the appellant for procurement of inputs, is eligible input service as defined in Rule 2(l)(ii) of CCR, 2004. Accordingly, it is found that the ld. Commissioner (Appeals) have erred in observing that the service provider have only obtained the permit to procure molasses but not the molasses which is the actual raw material. Accordingly, the impugned order is set aside. - Decided in favour of appellant with consequential benefit

Summary

Issues:
- Disallowance of Cenvat credit on service charges for procurement of molasses
- Interpretation of the definition of input service for Cenvat credit eligibility

Analysis:
- The Appellant, a manufacturer of cane sugar, molasses, and denatured alcohol, appealed against an order disallowing Cenvat credit on service charges for procuring molasses, the main raw material for their distillery unit. The dispute arose when the revenue proposed disallowing the credit, leading to the confirmation of the demand and imposition of penalties by the Commissioner (Appeals). The Appellant contended that the service charges were for essential liaison work to obtain molasses, a controlled substance under State Government regulations. The service providers were appointed to assist in the procurement process, which involved obtaining permits from the Controller of Molasses. The Appellant argued that the service charges were rightfully subjected to service tax, and thus, Cenvat credit was validly claimed.

- The Appellant's Counsel highlighted the provisions of the State Government Act and Rules governing molasses, emphasizing the stringent control over molasses transfer from sugar mills to distillery units. The Counsel argued that due to the complex and time-consuming process of obtaining molasses, the Appellant engaged liaison agents for assistance. The Counsel further referenced the inclusive definition of input service under CCR, 2004, emphasizing that procurement of inputs, such as molasses, qualified as an eligible service for Cenvat credit. Additionally, the Counsel presented sample allotment orders demonstrating the legitimate transfer of molasses to the distillery unit, further supporting the Appellant's claim for Cenvat credit.

- In the analysis, the Judge acknowledged the strict control of molasses by the State Excise Authority and recognized the Appellant's expenses for procuring molasses as necessary for manufacturing denatured spirit/alcohol, a taxable output. The Judge disagreed with the Commissioner (Appeals)' observation that the service provider only obtained permits and not the actual raw material, molasses. By interpreting Rule 2(l)(ii) of CCR, 2004, the Judge concluded that the expenses incurred by the Appellant for procuring inputs qualified as an eligible input service for Cenvat credit. Consequently, the Judge allowed the appeal, setting aside the impugned order and granting the Appellant consequential benefits as per the law.