2019 (3) TMI 854 - AT - Central Excise

CENVAT credit - ISD - entire credit distributed to one unit / Hazira Plant - services utilized for the drilling activities undertaken at Mumbai offshore fields - Rule 7 of Cenvat Credit Rules - distribution of credit - The Show cause notices consider the crude oil and natural gas as final products and state that crude oil and natural gas are exempted excisable goods therefore, Cenvat credit of services used at Mumbai Off shore is not admissible. - Held that - The perusal of the relevant Rule 7 of Cenvat Credit Rules, 2004 shows that word sale does not appear anywhere in the Rule. In fact the whole Rule is premised on the use of services in or in relation to manufacture of finished products where the invoices are received at a place different from the manufacturing facility for the reason that such services are availed commonly by different units/ manufacturers. The ratio of the decision of Hon ble High Court of Bombay in the case of OIL AND NATURAL GAS CORPN. LTD. VERSUS CCE, SERVICE TAX AND CUSTOMS 2013 (4) TMI 103 - BOMBAY HIGH COURT is squarely applicable to the present case, where it was held that Tribunal was in error in coming to the conclusion that the Appellant was dis-entitled to the benefit of Cenvat credit in respect of the input services used in or in relation to the manufacture of dutiable final products on the ground, as the Tribunal held, that 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. Credit allowed - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Denial of Cenvat credit on input services utilized for drilling activities at Mumbai offshore fields.
2. Eligibility to avail Cenvat credit on input services distributed by Input Service Distributors (ISDs).
3. Applicability of previous judgments and their relevance to the current case.

Detailed Analysis:

1. Denial of Cenvat Credit on Input Services:
The primary issue revolves around the denial of Cenvat credit on input services utilized by the appellant for drilling activities at Mumbai offshore fields. The appellant, engaged in the manufacture and sale of petroleum products, argued that the entire production process is an integrated whole, starting from the gas wells of Bassein and Satellite fields and culminating at the Hazira plant where excisable products emerge. The appellant contended that the services availed at various stages of this continuous process should be eligible for Cenvat credit as they are used in or in relation to the manufacture of excisable products.

2. Eligibility to Avail Cenvat Credit on Input Services Distributed by ISDs:
The appellant argued that as a manufacturer of both dutiable and exempted goods, they take credit on all input services specified under Rule 6(5) of the Cenvat Credit Rules, 2004, and distribute the credit proportionally. Show cause notices were issued alleging that the Cenvat credit distributed by the ISDs pertains to input services availed and used exclusively at the oil fields of Mumbai offshore, where crude oil and natural gas are considered exempted excisable goods. The notices stated that the services used at Mumbai offshore have no nexus with the manufacture at Hazira Plant, and hence, the credit was not admissible.

3. Applicability of Previous Judgments:
The appellant referenced a previous judgment by the Hon’ble High Court of Bombay, which ruled in favor of the appellant, stating that merely because the appellant manufactures exempted goods, it does not justify disallowing the benefit of availing Cenvat credit on input services utilized in the manufacture of dutiable final products. The High Court clarified that the definition of "input service" is broad and includes any service used by the manufacturer directly or indirectly in or in relation to the manufacture of final products. The appellant argued that the Commissioner ignored this judgment and proceeded to confirm the demand in violation of judicial discipline.

Counterarguments by Revenue:
The Revenue argued that the decision of the Hon’ble High Court of Gujarat in the case of B.G. Exploration & Production India Limited held that the gas manufactured at Mumbai offshore is a marketable commodity and not excisable. They contended that no credit of services utilized at Mumbai offshore could be availed since the product generated there was not excisable. The Revenue pointed out that the Mumbai High platform has a separate Central Excise registration and is engaged exclusively in the manufacture of exempted goods, making the credit on input services availed for activities at Mumbai High inadmissible.

Tribunal's Decision:
The Tribunal, after considering the submissions and relevant provisions of law, referred to Rule 7 of the Cenvat Credit Rules, 2004, which governs the distribution of credit by input service distributors. The Tribunal noted that the appellant's case was similar to the one decided by the Hon’ble High Court of Bombay, which allowed the distribution of credit. The Tribunal found that the distinction made by the Commissioner based on the Gujarat High Court's decision was misplaced, as the issue in that case was about the leviability of sales tax and not the distribution of Cenvat credit. The Tribunal concluded that the ratio of the decision of the Hon’ble High Court of Bombay was squarely applicable to the present case and allowed the appeals.

Conclusion:
The Tribunal allowed the appeals, holding that the appellant was entitled to Cenvat credit on input services utilized in or in relation to the manufacture of dutiable final products. The decision emphasized the broad definition of "input service" and the integrated nature of the appellant's production process. The Tribunal relied on the previous judgment of the Hon’ble High Court of Bombay, which supported the appellant's claim for Cenvat credit.

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