2018 (3) TMI 1130 - AT - Service Tax

CENVAT credit - area based exemption - before start of production, the appellant filed another declaration on 29.06.2007, to the effect that, the appellant have no intention to manufacture any goods but want to let out their premises on lease for further use in manufacturing of intended goods - Held that - The similar issue in the case of S.T. Cottex Exports Pvt. Ltd. 2011 (1) TMI 491 - PUNJAB & HARYANA HIGH COURT , wherein the assessee initially started manufacturing exempted goods. But in the same year, they started manufacturing dutiable goods also. In that case, the Hon ble High Court of Punjab and Haryana held that the assessee is entitled to avail cenvat credit. Extended period of limitation - Held that - As the show cause notice has been issued by invoking extended period of limitation, the extended period of limitation is not applicable. Appeal allowed in part.

Summary

Issues:
Appeal against order denying cenvat credit on goods; Interpretation of Notification No. 49-50/2003-CE dated 10.06.2003; Entitlement to cenvat credit under Rule 2(k) of Cenvat Credit Rules, 2004; Applicability of judicial precedents; Liability for penalty imposition.

Analysis:
The case involved an appeal against an order concerning the denial of cenvat credit on goods due to the installation of plant and machinery for manufacturing fatty acid in Himachal Pradesh. Initially, the appellant filed a declaration to avail area-based exemption under Notification No. 49-50/2003-CE dated 10.06.2003. However, before starting production, they revised the declaration to lease out the plant and machinery for manufacturing goods, leading to the payment of service tax under Business Auxiliary Service category. The Revenue contended that since the appellant initially sought exemption under the mentioned notification, cenvat credit on the goods was not permissible, prompting the initiation of proceedings via a show cause notice. The matter was adjudicated, resulting in the allowance of cenvat credit on certain goods but denial on others, leading to appeals from both sides.

During the proceedings, the appellant expressed willingness to pay the duty amount with interest, seeking waiver of the penalty. The Revenue relied on judicial precedents, including the case of Surya Roshni Ltd., to argue against the appellant's entitlement to cenvat credit. However, the Tribunal found the facts of the present case to be distinguishable from the cited precedents. It was established that the appellant did not engage in manufacturing exempted goods using the capital goods in question, but rather utilized them for providing taxable services, thereby justifying their entitlement to cenvat credit under Rule 2(k) of the Cenvat Credit Rules, 2004. The Tribunal also differentiated the case from the decision in Spenta International Ltd., emphasizing the unique circumstances of the present matter.

Moreover, referencing the judgment of the Punjab and Haryana High Court in S.T. Cottex Exports Pvt. Ltd., the Tribunal concluded that the appellant's situation aligned more closely with the facts of that case, where the court allowed cenvat credit even when manufacturing both exempted and dutiable goods. Consequently, the Tribunal held in favor of the appellant, confirming the demand for a specific amount while dismissing the Revenue's appeal. Given the decision on merits in favor of the appellant, no penalty was imposed, and the appeal was partly allowed.

In conclusion, the Tribunal dismissed the Revenue's appeal and partially allowed the appellant's appeal, emphasizing the entitlement to cenvat credit based on the specific circumstances and legal interpretations presented during the proceedings.