2020 (2) TMI 691 - HC - Central Excise

CENVAT Credit - capital goods - immovable goods or not - fabrication of Goliath Crane, Jib Crane, Gantry Crane, Electric Overhead Travelling (EOT) Crane, etc., which are embedded to earth can be treated as excisable goods - Cenvat Credit availed of Inputs/ Capital Goods like HR Plates, MS Flats, MS Coils, Wire Ropes, Rail, Welding Electrode and service used for fabrication of these cranes is admissible to the respondent assessee - HELD THAT - The cranes fabricated from HR Plates, MS Flats, MS Coils, Wire Ropes, Rail, Welding Electrode cannot be considered as embedded to the earth since they run on tracks fitted in and around the Dry Dock. Thus, they cannot be termed as immovable property. Moreover, merely because they may have to be dismantled to be shifted out of the respondent's premises does not make them immovable property. The services for setting up a factory and any activity relating to business are specifically included within the definition. The Cranes being part of the factory of the respondent where the ships are manufactured and their fabrication being an activity relating to respondent's business, services used for fabrication thereof would be covered within the meaning of input services - Hence also, cenvat credit of service tax paid on such services availed by the respondent must be allowed. Whether invoices issued for distribution of Service Tax paid by office other than that of manufacturer or producer or provider of output service as an Input Service Distributor for distribution of Service Tax is eligible for Input Service Credit and Input Service credit can be availed on such invoices? - HELD THAT - There is no provision which creates any bar against a head office of a company from distributing credit of service tax paid on services purchased to its various units. Ordinarily, it is only the head office of a company which would place the orders for availing services, receive invoices towards purchases of input services and then distribute the credit of service tax paid to the company's various other units. Nowhere in the Cenvat Credit Rules, 2004 it is provided that for an office of a company to be termed as input service distributor , it must be mentioned in the LOP of the company's suit - Indisputably, the respondent EOU belongs to the company. Indisputably, the Mumbai office is the head office of the company. In fact, the Mumbai office of the company is registered as the Input Service Distributor with the service tax authorities. It is therefore obvious that the Mumbai office, being the head office of the company, which owns several units, receives invoices issued under the Service Tax Rules, 1994 towards the purchases of input services and issues invoice, bill or challan for the purpose of distributing the credit of service tax paid on said services to its various manufacturing units. There is no illegality in this whatsoever. Whether Cenvat Credit of Input, Input Service or Capital Goods shown/ declared in Monthly Return (ER2) filed before Central Excise Officer (incharge of the factory) is admissible and qualifies as Cenvat Credit for the output service provider when same is not shown/ declared in ST3 Return to be filed before jurisdictional Service Tax authorities considering that criteria to qualify the same for such credit are different for manufacturer or Output Service Provider? - HELD THAT - The input service credit cannot be denied on the ground that it is shown in the ER1 return instead of the ST3 returns since the cross utilization of credit of input and input service is permissible and cenvat credit on input, capital goods and input services used in the manufacturing goods or providing output service is available in common pool and cenvat credit taken during the period shown in ER1 or ST3 return would be the same and there is no restriction on utilization of the common input credit. Whether the Cenvat Credit of duty paid on Input/ Capital Goods and Service Tax paid on taxable services used for fabrication of Dry Dock which is a concrete structure embedded to earth and immovable in nature eligible as Cenvat Credit as per Cenvat Credit Rules, 2004? - HELD THAT - The items such as cement, steel, etc., used in constructing/ fabricating a Dry Dock, are clearly items used in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and are therefore, inputs within the wide meaning of the said word as defined in the Rule 2(k) of the Cenvat Credit Rules, 2004 and therefore also, the Cenvat Credit of Excise Duty paid on the same cannot be denied. Whether the Tribunal is justified in accepting the photocopy of the invoices as an admissible evidence/ record and remanding the proceeding back to the adjudicating authority for considering the issue afresh? - HELD THAT - The CESTAT has observed that the Adjudicating Authority had held against the assessee on the basis of a report of the Superintendent which was not disclosed to the assessee and hence, the matter was remanded so that the said report could be provided to the assessee before taking a decision. The CESTAT directed the Adjudicating Authority to take appropriate decision afresh after providing the report and considering the assessee's submission - there are no merit in the submission canvassed on behalf of the appellant that no Cenvat Credit can be allowed in favour of the respondent in respect of the inputs, capital good and inputs service used to fabricate cranes and Dry Dock as the final product of the respondent is exempted from duty. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Whether fabrication of cranes embedded to the earth can be treated as excisable goods under Cenvat Credit Rules, 2004.
2. Eligibility of invoices issued by an office other than that of the manufacturer or service provider for Input Service Credit.
3. Admissibility of Cenvat Credit shown in Monthly Return (ER2) but not in ST3 Return.
4. Eligibility of Cenvat Credit for inputs and services used for fabricating an immovable Dry Dock.
5. Acceptance of photocopy invoices as admissible evidence.

Detailed Analysis:

1. Fabrication of Cranes as Excisable Goods:
The court examined whether cranes embedded to the earth can be treated as excisable goods under the Cenvat Credit Rules, 2004. Rule 3 allows manufacturers to take credit for excise duty paid on inputs and capital goods. The definition of "input" under Rule 2(k) includes goods used directly or indirectly in the manufacturing process. The court referenced various judgments to emphasize the wide scope of "inputs" and concluded that HR Plates, MS Flats, MS Coils, Wire Ropes, Rail, and Welding Electrode used in crane fabrication are integral to ship manufacturing. These items are considered "inputs" and eligible for Cenvat Credit. The court also noted that cranes fall under Chapter 84 of the Central Excise Tariff Act, 1985, making them capital goods eligible for credit under Rule 2(a)(A)(i). The court rejected the argument that embedded cranes are immovable property, referencing CCE Vs. Solid & Correct Engineering, 2010 (252) ELT 481.

2. Eligibility of Invoices for Input Service Credit:
The court addressed whether invoices issued by the Mumbai office, not mentioned in the Letter of Permission (LOP), are eligible for Input Service Credit. Rule 2(m) defines an Input Service Distributor as an office of the manufacturer or service provider that distributes service tax credit. The court found no provision barring a head office from distributing credit to its units. The Mumbai office, registered as an Input Service Distributor, validly distributed credit to the respondent EOU. The court held that the Mumbai office's involvement did not violate any rules.

3. Admissibility of Cenvat Credit in Monthly Return (ER2):
The court examined whether Cenvat Credit shown in ER2 but not in ST3 Return is admissible. Rule 3 of the Cenvat Credit Rules, 2004, allows credit for excise duty and service tax paid, without different criteria for manufacturers and service providers. The court held that input service credit cannot be denied based on its appearance in ER1 instead of ST3 returns. The cross-utilization of credit is permissible, and the credit pool remains the same regardless of the return in which it is shown.

4. Eligibility of Cenvat Credit for Dry Dock Fabrication:
The court considered whether Cenvat Credit is available for inputs and services used in fabricating a Dry Dock, a concrete structure embedded to the earth. Rule 2(k) defines "input" broadly, including goods used directly or indirectly in manufacturing. The court referenced the Supreme Court's recognition of a Dry Dock as a "Plant" in Scientific Engineering House (Supra). The court concluded that items like cement and steel used in Dry Dock construction are "inputs" under Rule 2(k) and eligible for Cenvat Credit. The court also noted that the respondent, as a 100% EOU, is required to export under bond, making Rule 6(6)(v) applicable and exempting the respondent from the provisions of Rule 6(1) to 6(4).

5. Acceptance of Photocopy Invoices:
The court addressed whether the Tribunal was justified in accepting photocopy invoices as admissible evidence and remanding the case. The CESTAT remanded the matter because the Adjudicating Authority's decision was based on an undisclosed report. The court found no error in this approach and upheld the remand for a fresh decision after providing the report to the assessee.

Conclusion:
The court dismissed both appeals, affirming the Tribunal's decisions on all issues. The court upheld the eligibility of Cenvat Credit for cranes and Dry Dock fabrication, the validity of invoices from the head office, the admissibility of credit shown in ER2, and the acceptance of photocopy invoices for reconsideration.