2017 (5) TMI 745 - AT - Central Excise

Cenvat Credit - Registration of new unit - Mangalam Grinding Unit (MGU) - manufacture of Cement - The appellant set up a second unit that is Mangalam Grinding Unit (MGU) within a distance of two Km from the Original Unit. When the MGU was nearly completed the appellant approached the department for including the MGU in the registration already granted to the Cement Manufacturing unit - denial of CENVAT credit in respect to new unit - The Cenvat credits are have been denied also for the reason that the credits have been availed prior to registration of the MGU - Held that - There is no requirement in the Cenvat Credit Rules that prohibits a common Cenvat account for all the units comprised in one registration - there is no reason to deny the credit on capital goods availed for installing and setting up of MGU prior to grant of single registration. Denial of Credit also on the ground that the credits pertain to the period prior to the issue of a common registration on 31.01.2014 - Held that - The stand taken by the adjudicating authority for denying the Cenvat credit on input services was not taken in the relevant Show Cause Notice and to this extent the Order-in-Original has travelled beyond the scope of Show Cause Notice which is illegal - In any case the adjudicating authority has not given specific findings as to which are the input services for which credit has been availed and which get hit by the amendment in the definition of Input Services w.e.f. 01.04.2011 - denial of credit not justified. Denial of Cenvat credit amounting to about 1.3 lakhs in respect of inputs used in the generation of power supplied to MGU - Held that - we find no reasons to deny the Cenvat credit by taking the view that the two units were separate prior to the date of common registration. In this view of things we find no justification for denial of such Cenvat credit. Demand of duty on clinker cleared to MGU - Held that - the two units have to be considered as a single factory with common registration clearances of clinker from the main unit to MGU will be entitled to the Notification No. 67/95 available to captive consumption. Consequently the demand on this ground also merits to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of Cenvat credit availed by the appellant for setting up a new unit.
2. Demand of Central Excise duty on clinker clearance from the original unit to the new unit without payment.
3. Denial of Cenvat credit on input services and capital goods prior to common registration.
4. Interpretation of the term "input services" post-amendment.
5. Denial of Cenvat credit on inputs used in power supply to the new unit.

Analysis:
The appellant, engaged in cement manufacturing, set up a new unit, Mangalam Grinding Unit (MGU), near the original unit. Initially, the department challenged the common registration of both units, but the Tribunal and High Court upheld the common registration. The dispute arose when a Show Cause Notice proposed denying Cenvat credit of about ?13.73 Crore for setting up MGU and demanded excise duty on clinker clearance. The appellant challenged the denial of credit mainly on the grounds of common registration, timing of credit availed, and interpretation of input services post-amendment.

The Tribunal noted that the appellant had procured capital goods and input services for MGU before its formal registration, which is a common industry practice. The denial of credit based on the timing of registration was deemed incorrect as the units were under the same management and premises. The Tribunal cited a similar case where the High Court allowed credit adjustment post-merger of separate units, supporting the appellant's position. Therefore, denial of credit for setting up MGU was unjustified.

Regarding the denial of Cenvat credit on input services post-amendment, the Tribunal found that the adjudicating authority exceeded the scope of the Show Cause Notice by not providing specific findings on the affected input services. Without detailed findings, the denial of credit on input services was deemed unjustified. Similarly, the denial of credit for inputs used in power supply to MGU was unfounded as the units were considered a single factory post-registration, warranting credit approval.

Lastly, the demand for duty on clinker clearance was set aside since the units, with common registration, were entitled to captive consumption benefits. The Tribunal overturned the impugned order and allowed the appeal in favor of the appellant, emphasizing the legality and industry practices governing Cenvat credit and duty demands post-unit registration.