2016 (8) TMI 846 - AT - Central Excise

Cenvat credit - various input services - whether the captive mines of appellants can be considered as integrated with the main factory premises - Held that - none of the input services on which credit has been availed by the appellant are excluded or barred by the provisions of the said Rule 2(l) as amended w.e.f. 01-03-2011. I also find that the said input services are very much in the nature of services directly or indirectly required in relation to the manufacturing /production activities carried out by the appellant at the impugned mine. In the circumstances, I hold that the disputed credits amounting to ₹ 83,823/- availed by the appellants on the aforesaid input services are eligible and correct in law. It is further held that appellants are eligible to avail the following disputed credits namely mining related work, Mines Garage Attendants works, Concrete pavement at Bulk Loading Area, Lab Modification work and Electrical Maintenance charges at other places amounting to ₹ 1,27,283/- and are ineligible to avail credit on Formation of New Gravel road for the reason that the said road has been laid outside the perimeter of the captive mines and hence cannot be considered as service in relation to manufacture of final products etc. in the factory. Regarding Conveyor Extension, shed extending work at Packing Plant and wagon loading, Borewell works, Providing Drain in railway siding, these are services in relation to construction or execution of works contract of the building or a civil structure or a part thereof or laying of foundation or making of structure for support of capital goods, hence they will be disbarred by the exclusion provision of the said Rule 2(l), as applicable during the relevant period. Therefore, these services found as ineligible for the purpose of the said Rule 2(l) amount to ₹ 1,01,645/-. However, keeping in mind that during the impugned period there did exist some lack of clarity on the eligibility or otherwise of credits relating to civil works etc and also noting that the appellant had filed ER-I returns all along, the penalty imposed under Section 11 AC of Central Excise Act read with Rule 15 of Cenvat Credit Rules, 2004, and the penalty imposed under Rule 25 of the Central Excise Rules, 2002, imposed by the adjudicating authority and upheld by the Commissioner (Appeals) cannot be sustained and will require to be set aside. - Appeal disposed of

Summary

Issues Involved:
1. Denial of Cenvat credit on input services.
2. Eligibility of specific input services for Cenvat credit.
3. Penalties and interest imposed.

Issue-wise Detailed Analysis:

1. Denial of Cenvat Credit on Input Services:
The appellants were issued show cause notices proposing to deny Cenvat credit availed on various input services, alleging that these services did not fall within the definition of input services. The lower authority confirmed the proposals and demanded service tax with interest and imposed penalties. The Commissioner (Appeals) rejected the appeals, stating that certain activities fell under civil works and were covered under the exclusion clause. The Tribunal examined Rule 2(l) of the Cenvat Credit Rules, 2004, which defines 'input service' and includes services used in relation to modernization, renovation, or repairs of a factory. The Tribunal referenced the Supreme Court's decision in M/s Vikram Cement Ltd. vs CCE, Indore, which held that captive mines are integrated with the main factory premises, thus supporting the appellant's claim.

2. Eligibility of Specific Input Services for Cenvat Credit:
The Tribunal analyzed the eligibility of specific input services claimed by the appellants:
- Eligible Services: The Tribunal found that services such as maintenance and cleaning work at mines, mines garage attendants works, concrete pavement at bulk loading area, lab modification work, and electrical maintenance charges at other places were eligible for Cenvat credit. These services were directly or indirectly related to the manufacturing activities carried out at the mines, thus satisfying the requirements of Rule 2(l).
- Ineligible Services: The Tribunal held that services related to the formation of new gravel roads, conveyor extension, shed extending work at packing plant and wagon loading, borewell works, and providing drain in the railway siding were ineligible for Cenvat credit. These services were considered as construction or execution of works contract of a building or civil structure, falling under the exclusion clause of Rule 2(l).

3. Penalties and Interest Imposed:
The Tribunal noted that there was a lack of clarity on the eligibility of credits related to civil works during the impugned period. The appellants had filed ER-I returns consistently, indicating no intention to evade tax. Therefore, the Tribunal set aside the penalties imposed under Section 11 AC of the Central Excise Act and Rule 15 of the Cenvat Credit Rules, 2004, as well as under Rule 25 of the Central Excise Rules, 2002.

Conclusion:
The Tribunal allowed the appeal related to the denial of Cenvat credit amounting to ?83,823/- in toto. For the second appeal, the Tribunal allowed credits amounting to ?1,34,261/- but upheld the demand on the ineligible amount of ?1,01,645/- with interest. The penalties imposed were set aside due to the lack of clarity on the eligibility of credits during the relevant period. Both appeals were disposed of accordingly.