2017 (6) TMI 324 - AT - Central Excise

CENVAT credit - inputs - lubricants / lubricating oils which have been used by the appellant for dumpers which have been used in mines - Held that - For the production of coal, the entire mine becomes the place of manufacture and since the disputed goods are no doubt used in relation to the manufacture of excisable goods, the said goods will fall under the purview of the definition of input for availment of CENVAT credit - credit allowed. Water sprinkler system - Held that - it is evident that the use of water sprinkler systems is within the mine area and these goods are very much covered under the definition of inputs - credit allowed. CENVAT credit - input services - tyre re-treading services - maintenance of vehicles - The essence of the ground is that heavy earthmoving vehicles such as dumpers are not considered as capital goods and hence the services incidental to their maintenance will not be eligible to take credit - Held that - The definition of input service is inclusive and wide in nature and includes any service used in or in relation to the manufacture of final products. It is not in dispute that the subject services are used in relation to dumpers which are used in mines for producing coal on which excise duty has been paid - credit allowed. Security services - penalty - Held that - the appellant has taken credit for the Security service used for housing colony by mistake. Upon realization of their mistake, they have promptly reversed the said amount along with applicable interest even before the same was noticed by the Department and SCN was issued for reversal of the same - the availment of credit was by mistake and no penalty is imposable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Denial of CENVAT credit on lubricants for dumpers, denial of CENVAT credit on water sprinkler system, denial of CENVAT credit on certain input services, and imposition of penalty for availing credit on security services used for housing colony.

Analysis:
1. Denial of CENVAT credit on lubricants for dumpers:
The appellant, a PSU engaged in coal production, claimed CENVAT credit on lubricants used for dumpers in mines. The dispute arose as dumpers were not considered capital goods. However, the definition of "input" under Rule 2(k) of CENVAT credit rules does not mandate the machinery to be classified as capital goods for credit eligibility. As the lubricants were used in the manufacturing process of coal, which took place in the entire mine area, the credit on lubricants was deemed admissible.

2. Denial of CENVAT credit on water sprinkler system:
The denial of CENVAT credit on the water sprinkler system used in coal mines was challenged. The system was essential for dust emission control as mandated by regulations. The system fell within the definition of "inputs" as per Rule 2(k), being used within the mine area. Consequently, the denial of credit on the water sprinkler system was deemed unjustified.

3. Denial of CENVAT credit on certain input services:
The denial of CENVAT credit on input services like tyre re-treading, maintenance of vehicles, and security services at residential colonies was contested. The definition of "input service" under Rule 2(l) includes services used in or related to the manufacture of final products. The appellant availed credit on these services for dumpers used in coal production, which attracted excise duty. The denial of credit on these input services was found unwarranted as they were integral to the manufacturing process.

4. Imposition of penalty for availing credit on security services:
The appellant erroneously availed credit on security services for housing colonies but voluntarily reversed it with interest before any notice was issued. The mistake was acknowledged as a genuine error due to unfamiliarity with excise duty and CENVAT credit rules. Citing the precedent in Castrol India Ltd. case, the Tribunal held that the penalty imposition was unjustified, considering the appellant's prompt rectification of the error.

In conclusion, the Tribunal set aside the impugned order, allowing the appeals in favor of the appellant, emphasizing the legitimate entitlement to CENVAT credit on inputs and input services used in the coal production process.