2016 (6) TMI 608 - AT - Central Excise

Denial of Cenvat credit of service tax paid by Unit-I for Unit-III - Held that - In absence of any negative finding made by grass root level officers as to the non-existence of Unit-III or no integral connection between Unit-I and Unit-III which were engaged in the manufacturing operation and the rental of Unit-III was paid by Unit-I to achieve the object of manufacture but dependency and integral connection comes out there cannot be denial of Cenvat credit of service tax paid by Unit-I for Unit-III. - Decided in favour of assessee

Summary

Issues:
Claim for Cenvat credit of service tax paid on rental for Unit-III by Unit-I.

Analysis:
The appellant, a manufacturer operating as an EOU in Unit-I, rented another Unit-III for storage and manufacturing operations due to space constraints in Unit-I. The rental for Unit-III was paid by Unit-I, and service tax was paid on the rental amount. The appellant claimed Cenvat credit for the service tax paid on rental for Unit-III. It was argued that Unit-I and Unit-III were integrally connected for the purpose of manufacturing, a fact known to the Development Commissioner and Excise authorities during registration. The appellant contended that since there was an integral connection between Unit-I and Unit-III in the manufacturing process, the Cenvat credit for service tax paid on rental should not be denied.

The departmental representative, however, disputed the existence of a nexus between Unit-I and Unit-III as claimed by the appellant. The appellant referred to a specific paragraph in their reply to the show-cause notice, highlighting the integral connection between Unit-I and Unit-III in the manufacturing operations. They emphasized that there was no negative finding by the lower-level officers regarding the non-existence of Unit-III or the lack of integral connection between the two units. The payment of rental for Unit-III by Unit-I to facilitate the manufacturing process further supported the argument for allowing the Cenvat credit for the service tax paid on the rental amount.

The Tribunal, after considering the submissions from both parties, found merit in the appellant's argument regarding the integral connection between Unit-I and Unit-III for manufacturing purposes. Since there was no conclusive evidence to refute the interdependence and integral nature of the two units in the manufacturing process, the Tribunal allowed the appeal in favor of the appellant. The decision emphasized the importance of recognizing the operational realities and interconnectivity of units within a manufacturing setup when considering Cenvat credit claims for service tax paid on related expenses.