2021 (4) TMI 1158 - AT - Central Excise

CENVAT Credit - input services - storage/ warehouse services availed for storing the imported inputs - denial of credit on the ground that this service has no nexus with the manufacture of final product for the reason that the said warehouse/ godown are located out of the premises of the appellants factory - Permission under Rule 8 of Cevat Credit Rules, 2004 for storage of inputs outside the factory - scope of SCN - HELD THAT - The only allegation in the Show cause notices that since, the renting of immovable property service is not included in the definition of input service. Accordingly, the said service used by the appellant neither falls under scope definition of input service nor has nexus with manufacturing activity. However, in the adjudication order and order of Commissioner (Appeals) both the authorities have travelled beyond the scope of show cause notice. In as much as the Cenvat credit was denied on the ground that the godown / warehouse where the input is stored is outside the factory premises and the appellant have not obtained the permission under Rule 8 of Cenvat Credit Rules, 2004. Since, the above reasoning is not flowing from the show cause notice even without going into the legality of the above two issues, the orders of the both the authorities does not sustain, for the reason that any issue which were not raised in the show cause notice, cannot be imported into the adjudication order or Commissioner (Appeals) order. Nexus with manufacturing activity - HELD THAT - In the present case there is no dispute that the warehouse / godown outside the factory premises was taken on rent for storage of input which is meant for production of final product, therefore, there is a direct nexus of warehousing / storage service with the manufacturing activity of the appellant. Permission under Rule 8 of Cevat Credit Rules, 2004 for storage of inputs outside the factory - HELD THAT - In the present case, there is no allegation that the appellant have availed the Cenvat Credit in respect of the inputs lying in warehouse outside the factory. Therefore, in the given facts Rule 8 is not applicable, moreover, as regard the Cenvat Credit in respect of input services Rule 8 does not come into the play, for the reason that the location of the receipt of service is not material and Rule 8 is not relevant for the purpose of availing the Cenvat Credit on the input service namely renting of immovable property. T he appellant out of the total Cenvat Credit of ₹ 5,57,384/- paid an amount of ₹ 3,27,392/- along with interest and same was not contested by them, therefore, the amount paid by the appellant is maintained as not contested. However, the demand of ₹ 2,29,992/- and entire penalty and corresponding interest are set aside - Appeal allowed in part.

Issues Involved:
1. Eligibility of Cenvat Credit on warehousing and storage services located outside the factory premises.
2. Applicability of Rule 8 of the Cenvat Credit Rules, 2004.
3. Timeliness of the demand for Cenvat Credit.
4. Legitimacy of penalties imposed.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Warehousing and Storage Services Located Outside the Factory Premises:
The appellant outsourced warehousing services due to space constraints within the factory premises and availed Cenvat Credit on the Service Tax paid for these services. The lower authorities denied the credit on the grounds that the warehousing services had no nexus with the manufacture of the final product, as the warehouses were located outside the factory premises. The appellant argued that the storage of inputs directly used in manufacturing the final product establishes a direct nexus with the manufacturing activity, qualifying these services as input services under Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal agreed with the appellant, emphasizing that the location of the service receipt is immaterial as long as the service is related to manufacturing activities.

2. Applicability of Rule 8 of the Cenvat Credit Rules, 2004:
The lower authorities also held that the appellant did not obtain permission under Rule 8 for storing inputs outside the factory. However, the Tribunal noted that this issue was not raised in the show cause notice, rendering the adjudicating authority's decision beyond the scope of the notice. Moreover, Rule 8 applies only when Cenvat Credit is availed on inputs stored outside the factory, which was not the case here. The Tribunal concluded that Rule 8 does not affect the eligibility of Cenvat Credit on input services.

3. Timeliness of the Demand for Cenvat Credit:
The appellant contended that the demand was time-barred, as the details of the Cenvat Credit availment and payments were within the department's knowledge. The Tribunal did not specifically address this issue in the judgment, focusing instead on the substantive eligibility of the credit.

4. Legitimacy of Penalties Imposed:
The appellant had already paid ?3,27,392/- along with interest and did not contest this amount. However, they contested the penalty imposed on the entire Cenvat Credit amount, including the paid amount. The Tribunal set aside the demand of ?2,29,992/- and the entire penalty and corresponding interest, maintaining only the amount already paid by the appellant.

Conclusion:
The Tribunal allowed the appeal, concluding that warehousing and storage services, even if located outside the factory premises, are eligible for Cenvat Credit as they have a direct nexus with the manufacturing activity. The Tribunal also determined that Rule 8 of the Cenvat Credit Rules, 2004, was not applicable in this case. The demand for ?2,29,992/- and the penalties were set aside, while the amount of ?3,27,392/- already paid by the appellant was maintained.

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