2022 (1) TMI 505 - AT - Central Excise

CENVAT Credit - Exempt service or not - employee either provided accommodation in their residential colony and in some cases where the employees are residing outside the factory, house rent allowance given - deemed consideration under Rule 6 (3) of Cenvat Credit Rules, 2004 or not - HELD THAT - As per Rule 6 for demanding 6%/7% it can be charged only on the value of exempted services. In the present case the appellant are not receiving any value by providing the rental house to their employee within the premises. Since no value is flowing from employee to the appellant there is no question of calculating 6%/7% on the value which does not exist - since the house was provided to the employee which are engaged in the manufacture of the final product hence ultimately all the activities get absorbed in the manufacture of the final product i.e Cement which is cleared of payment of duty. Shri. G Kirupanandan pointed out that the demand under Rule 6 is not only on the renting of the houses but also on the removable of waste and scrap. As of now it is a settled law that in respect of removable of waste and scrap, refuse or by-product Rule 6 is not applicable as held by the Hon ble Bombay High Court in the case of HINDALCO INDUSTRIES LIMITED VERSUS THE UNION OF INDIA, CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, THE COMMISSIONER OF CENTRAL EXCISE 2014 (12) TMI 657 - BOMBAY HIGH COURT and the said judgment has been upheld by the Hon ble Supreme Court. In view of this settled position even on scrap the demand of 6% /7% in terms of Rule 6 (3) is not sustainable. The demand raised under Rule 6(3) is not sustainable - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether providing residential quarters to employees free of rent constitutes exempted service under Rule 6 of Cenvat Credit Rules, 2004.
- Whether the demand of 6%/7% on the value of exempted service is sustainable.

Analysis:

Issue 1: Providing residential quarters to employees free of rent
The appellant provided residential quarters to employees without charging any rent. The department argued that this constituted exempted service, leading to a demand of 6%/7% on the deemed rent value. The appellant contended that since no rent was collected, the activity did not fall under the exempted category. The appellant relied on various judgments to support their argument, emphasizing that no value of exempted service existed due to the absence of rent collection.

Issue 2: Sustainability of demand under Rule 6(3)
The Revenue maintained that the rent paid to employees staying outside the company's residential quarters should be considered as the gross value of renting service for quarters within the factory premises. However, the Hon'ble Member (Judicial) analyzed the situation and found that Rule 6 could only be charged on the value of exempted services. In this case, as no value flowed from employees to the appellant for the residential houses provided within the premises, the demand of 6%/7% was deemed unsustainable. The Hon'ble Member highlighted that the activities of employees ultimately contributed to the manufacturing process, such as cement production, which was duty-free. Additionally, it was noted that the demand under Rule 6 was not applicable to the removal of waste and scrap, as established by a judgment of the Hon'ble Bombay High Court, upheld by the Supreme Court.

In conclusion, the Hon'ble Member set aside the demand raised under Rule 6(3) as unsustainable, thereby allowing the appeal in favor of the appellant.