2013 (8) TMI 61 - AT - Central Excise

Cenvat Credit in input service when both of dutiable and exempted products are manufactured Held that - The Appellant, as a manufacturer of exempted products would not be entitled to Cenvat credit on such quantity of input service which is used in the manufacture of exempted goods, this being the plain stipulation contained in rule 6(1). This is subject to Rule 6(5) which has an over-riding provision which allows the availment of Cenvat credit in respect of certain specified taxable services unless they are used exclusively in or in relation to the manufacture of exempted goods. But the point to note is that merely because the Appellant manufactures exempted goods, that would be no justification to disallow to it the benefit of availing of Cenvat credit on that quantity of input service which is utilised in or in relation to the manufacture of dutiable final products - Crude oil which is subject to a further process of manufacture at the Uran plant for the production of dutiable final products is exempted from central excise duty. ONGC admittedly also produces dutiable final products. The production of those dutiable products is possible only on the continuous supply of crude oil. Held that - The credit of Service Tax taken with respect to services availed on the platforms cannot be disallowed for the services availed with respect to dutiable exempted goods. There are no findings to the extent that Sour gas is directly sold by ONGC from Bassein and Satellite off-shore platforms which is exempted. Secondly, it is also relevant that ISD certificate issued by ONGC from their ISD registered premises cannot be questioned at the recipient s end - Appellants have made out a prima facie case for complete waiver of the confirmed demands, interest and penalties imposed Decided in favor of Assessee.

Summary

Issues:
Admissibility of CENVAT Credit on input services utilized at Bombay Offshore platforms.

Detailed Analysis:

Issue: Admissibility of CENVAT Credit on input services utilized at Bombay Offshore platforms

The appellants filed stay applications against various Orders-in-Original passed by the Commissioner of Central Excise & Service Tax, Surat-I, regarding periodical demands issued. The appellants argued that they produce different petroleum products at the Hazira plant by processing raw sour gas and condensate received from Gas Wells of Bassein and Satellite fields. They highlighted that Sour gas is processed at Hazira Plant for removal of H2S and CO2 before becoming salable, emphasizing that no gas containing H2S and CO2 is sold from the processing platforms in Bassein and Satellite gas fields.

The appellants claimed CENVAT Credit on all inputs services availed at the platforms in Bombay High, which are also availed at Hazira plant through ISD documents. The show cause notices were issued alleging that crude oil and natural gas, being exempted excisable goods, do not allow CENVAT Credit for services availed at Mumbai Off-shore, as they lack nexus with the manufacturing activity.

The Orders-in-Original passed by the Commissioner were challenged on various grounds, including lack of jurisdiction, and citing a decision by the Hon'ble Bombay High Court allowing credit of services at offshore drilling platforms related to dutiable final products. The argument was made for complete waiver of duty demands and penalties imposed.

The Additional Commissioner argued that even if no sales of Sour gas occur at Bassein and Satellite platforms, the ISD certificates issued to Hazira Plant for credit contain elements related to services used in the production of exempted final products.

The Tribunal observed that the issue of admissibility of CENVAT Credit on input services at Bombay Offshore platforms was addressed by the Bombay High Court in the case of ONGC. The judgment clarified that CENVAT Credit can be availed for services used in or related to the manufacture of dutiable final products, even if the manufacturer also produces exempted goods. The Tribunal emphasized the broad definition of 'input service' and rejected the Revenue's contention that services used in the manufacture of dutiable goods at Mumbai Offshore should not qualify for credit.

Based on the law laid down by the Bombay High Court, the Tribunal ruled that the credit of Service Tax for services availed on the platforms cannot be disallowed for services related to dutiable exempted goods. The ISD certificate issued by ONGC cannot be questioned at the recipient's end, and any CENVAT Credit taken for services used in the production of exempted goods will need to be reversed.

Considering the observations and facts presented, the Tribunal granted an unconditional stay for the recoveries of the dues until the disposal of the appeals.