2023 (1) TMI 737 - AT - Central Excise

Irregular availment of CENVAT Credit - input services - transport service of Fly Ash - services obtained by the appellant for removal of coal fly ash from the captive power plant which is used for generation of power, which in turn, is captively consumed for manufacture of excisable goods - denial on the premise that it has no nexus directly or indirectly in or in relation to manufacture and clearance of the final products upto the place of removal - HELD THAT - The removal of coal fly ash from captive power plant is a necessity and without such removal, the captive power plant cannot work. As such, removal of coal fly ash is admittedly connected with the production of power, which in turn, has nexus with the manufacturing of the Appellant s final product. Revenue s objection is that since the coal fly ash is non-excisable item, removal of the same cannot be held to be an input service, cannot be appreciated, inasmuch as the admissibility of the input service credit is not dependent upon the product, in respect of which services are availed, to be excisable or non-excisable. Admittedly the Appellant s final product was excisable and was cleared on payment of duty. In fact, the Appellant had been duly discharging appropriate Excise Duty on clearance of the Ash considering it as a finished product under the Central Excise Act, 1944. The impugned order clearly records that the Appellant has undertaken various activities of removal/disposal of Fly Ash in terms of mandate of Ministry of Environment and Forest. He also recorded that while process is to fulfil action being environment friendly, however, he proceeded to record removal of Fly Ash to protect environment is not on account of manufacture of finished goods - the removal and disposal of Fly Ash in a manner prescribed by the Government is a mandate requirement for continued production of electricity for activities used by the Appellant. In other words, without such due disposal of Fly Ash, generation of electricity cannot happen. The removal of coal Fly Ash is one of the necessity for running of the captive power plant. Without such removal of the coal fly ash from the captive power plant, the same cannot operate and run, in which case, the power won t be generated and the appellant would not be in a position to manufacture their final product - the appellants are entitled to service tax paid on the services used by them for removal of coal fly ash from the captive power plant. Denial of benefit of credit of input services used for removal and disposal of Fly Ash is not sustainable - Appeal allowed.

Summary

Issues:
Whether the services obtained for removal of Fly Ash from the captive power plant qualify as an eligible cenvatable input service.

Analysis:
The Appellant, a manufacturer of various products, including Fly Ash, was issued Show Cause Notices for allegedly irregularly availing CENVAT Credit on transport services of Fly Ash. The Adjudicating authority initially dropped the demand, considering the Fly Ash as an excisable commodity used in the manufacturing process. However, the Department appealed, arguing that Fly Ash is not a final product and the removal services do not qualify as an input service. The Ld.Commissioner(Appeals) allowed the appeal without considering the Appellant's submissions, leading to the present appeal before the Tribunal.

The Appellant contended that the removal of Fly Ash was essential for environment protection and the operation of the captive power plant, directly linked to the manufacturing process. The Ld.Counsel cited various Tribunal decisions supporting the nexus between such activities and manufacturing. The Department's Authorized Representative defended the impugned order, stating it lacked merit.

After hearing both sides, the Tribunal analyzed whether the removal services for Fly Ash from the captive power plant, essential for power generation used in manufacturing, constituted an eligible cenvatable input service. The Tribunal noted that the Appellant had been discharging excise duty on the Fly Ash, considering it a finished product. The removal and disposal of Fly Ash were mandated by the Ministry of Environment and Forest, crucial for continued electricity production, a key element in the manufacturing process.

The Tribunal referenced precedents like Sanghi Industries Ltd. and Hindalco Industries Ltd., emphasizing that services related to power generation for manufacturing were admissible as cenvatable services. The Tribunal highlighted decisions by the Bombay High Court, underscoring the necessity of services related to manufacturing activities as cenvatable. Applying these principles to the case at hand, the Tribunal concluded that the removal of Fly Ash was essential for the operation of the captive power plant and, therefore, an eligible cenvatable input service. Consequently, the impugned order was set aside, and the Appeals filed by the Appellant were allowed with consequential relief.

In conclusion, the Tribunal ruled in favor of the Appellant, establishing the removal services for Fly Ash as an eligible cenvatable input service crucial for the manufacturing process, thereby overturning the decision of the Ld.Commissioner(Appeals) and providing relief to the Appellant.