2016 (6) TMI 155 - AT - Central Excise

Cenvat Credit - Nexus between input services and manufacturing activity - deemed export - Whether the input credit availed on various services by the respondent would fall under the definition of input services/input as per the definition existing prior to 01.04.2011 and whether there is a nexus between input services and the final product exported - Held that - by examining the definition of input service as per Rule 2(l), it is found that it has a very wide scope as held by the Hon ble Bombay High Court in the case of Coca Cola Vs. CCE, Pune-III and further while allowing the cenvat credit with regard to input services involved in these appeals, the learned Commissioner has relied upon various decisions of the Courts and the Tribunals and has also mentioned about the nexus. Therefore in view of the well reasoned finding of the Commissioner (Appeals), I am of the considered opinion that the findings given by the Commissioner (Appeals) are sustainable and there is no infirmity in it and the same is upheld. Eligibility for refund of unutilized Cenvat credit - Rule 5 of the Cenvat Credit Rules 2004 - clearances made to other 100% EOU on inter unit transfer - Held that - this Tribunal has allowed the refund claim filed by the respondent in its own case reported in 2015 (6) TMI 377 - CESTAT BENGLALORE . Further the Hon ble Supreme Court in the case of Virlon Textile Mills Ltd. Vs. CCE, Mumbai 2007 (4) TMI 6 - SUPREME COURT OF INDIA has held that deemed export are equivalent to physical export. The Hon ble High court of Gujarat in the case of CCE Vs. NBM Industries 2011 (9) TMI 360 - GUJARAT HIGH COURT has held that refund could not be denied on the ground that it was case of deemed export. Since the Apex Court as well as the High Courts have specifically held that deemed exports are equivalent to physical export and therefore keeping in view the precedents of the High Court and the Supreme Court, I hold that clearances to an EOU is to be treated as export and refund of unutilized credit is allowed to the respondent-assessee. As far as application seeking additional grounds by the Revenue is concerned I allow the same on the ground that it is only an additional ground which is sought to be added in the existing grounds of appeal. - Decided against the revenue

Summary

Issues Involved:

1. Whether the input credit availed on various services by the respondent would fall under the definition of input services/input as per the definition existing prior to 01.04.2011 and whether there is a nexus between input services and the final product exported?
2. Whether the respondent is eligible for refund of unutilized cenvat credit in respect of clearances made to other 100% EOU on inter-unit transfer?

Issue-wise Detailed Analysis:

1. Definition and Nexus of Input Services:

The primary issue is whether the input credit availed on various services by the respondent falls under the definition of "input services" as per the definition existing prior to 01.04.2011 and whether there is a nexus between these input services and the final product exported. The definition of input service prior to 01.04.2011 included services used directly or indirectly in relation to the manufacture of final products and clearance of final products up to the place of removal. It also encompassed services related to business activities such as accounting, auditing, financing, recruitment, quality control, etc.

The Commissioner (Appeals) examined the connection between input services and the business activities of the assessee. The adjudicating authority had partially allowed the refund for certain services but declined it for others, citing a lack of nexus with the final product exported. The Commissioner (Appeals) relied on various judicial decisions to establish that the definition of input service has a wide scope and includes services related to business activities. The services in question were found to be essential for the business and covered under Rule 2(l) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) provided a detailed analysis and upheld the nexus between the input services and the final product exported.

2. Refund of Unutilized Cenvat Credit for Inter-Unit Transfers to 100% EOU:

The second issue pertains to the eligibility for a refund of unutilized cenvat credit in respect of clearances made to other 100% EOUs on inter-unit transfers. The adjudicating authority had rejected the refund on the grounds that such clearances were not considered exports. However, the respondent contended that the formula for computing eligible refunds should consider the total credit availed, not just the credits eligible for refund.

The Commissioner (Appeals) and various judicial precedents, including decisions from the Gujarat High Court and the Supreme Court, have held that clearances to an EOU are to be treated as exports. The Tribunal referenced cases such as "Shilpa Copper Wire Industries," which affirmed that deemed exports are equivalent to physical exports for the purpose of refunding unutilized cenvat credit. The Tribunal upheld the respondent's eligibility for the refund, aligning with the precedents that deemed exports should be treated as physical exports.

Conclusion:

The Tribunal rejected the appeals filed by the department and upheld the findings of the Commissioner (Appeals). The Tribunal affirmed that the input services availed by the respondent are covered under the definition of input services and have a nexus with the final product exported. Additionally, the Tribunal confirmed that clearances to an EOU are to be treated as exports, and the respondent is eligible for a refund of unutilized cenvat credit. The Tribunal allowed the cross objections filed by the respondent-assessee with consequential relief, if any. The application for additional grounds by the Revenue was also allowed.