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2023 (1) TMI 342 - AT - Central ExciseCENVAT Credit - removal of cenvatable components/ spares as such under CT-3 certificate without reversal of Cenvat Credit - contravention of the provisions of Rule 3(5) of the Cenvat Credit Rules 2004 read with Notification No. 22/03-CE dated 31.03.2003 - recovery alongwith interest and penalty - whether the assessee was required to reverse the cenvat credit availed on components/ spares (inputs) cleared as such to EOUs units against the CT-3 certificate? - HELD THAT - On the identical issue the tribunal in the matter of M/S AROMA CHEMICALS VERSUS COMMISSIONER (APPEALS-I) CENTRAL EXCISE MEERUT 2018 (2) TMI 383 - CESTAT ALLAHABAD has held that if the Cenvat credit is availed on inputs and if the same are cleared to 100% EOU as provided under sub-rule (6) of Rule 6 of Cenvat Credit Rules 2004 Cenvat credit of duty paid on such inputs cannot be denied. In the present matter it is undisputed fact that on imported spares/ components appellant has undertaken the testing process. The Department and Ld. Commissioner both are of the view that the process carried out by the appellant within the factory do not bring about any new product. After undertaking of testing there is no new products with distinctive name use and character is emerged and the components/spares of the EPBAX systems remains same even after mere electrical and functional testing which can not be considered as manufacture as defined under Section 2(f) of the Central Excise Act 1994. Therefore the contention is that the spares/ components cleared to EOUs are nothing but removal of Input as such and in terms of Rule 3 (5) of the Cenvat Credit Rules 2004 assessee have to reverse the cenvat credit - there is no justification for demand of an amount in terms of Rule 3(5) of the Cenvat Credit Rules. Clearly the process carried out is in the nature of finishing process which can be considered as ancillary to the manufacture of a finished product. In the facts and circumstances of the case we find no justification for demand of such amount under Rule 3(5) on the clearances made to 100% EOU. Cenvat demand of Rs. 1, 25, 65, 890/- on input services rendered by the Foreign Service providers - HELD THAT - Under the un-amended provisions of sub-rule (4) of Rule 3 of the Cenvat Credit Rules 2004 (effective up to 30-6-2012) there were no specific restrictions imposed for utilization of credit for discharging the liability of service tax under reverse charge mechanism by the recipient of service. Such restriction was brought with effect from1-7-2012 by amending the provisions of the said rule. In the present case since the period of dispute is prior to 01.07.2012 the case of the appellant will be governed under the provisions of unamended Rule 3(4) ibid and in absence of specific restrictions contained therein for non-utilisation of Cenvat credit by the service recipient the benefit of the existence rule is available to the assessee for utilization of Cenvat credit for payment of service tax under reverse charge mechanism - the argument of revenue for confirming the demand cannot sustain in law. Denial of Cenvat Credit pertaining to other premises/ branch offices of the Appellant - HELD THAT - The credit could not have been denied on the ground that the appellant did not have centralized registration during the period. Availment of credit by Appellant without a centralized registration - HELD THAT - The appellant had applied for centralized registration. The non obtaining the centralized registration at the best is a technical issue since there is a substantive adherence of law in view of the fact that service tax has been apparently paid on the basis of centralized registration therefore credit could have been taken in the centrally registered office. Therefore it cannot be said that credit has been availed wrongly. It is not a case of the department that on the input services/ invoices no service tax was paid and there is no dispute about receipt and use of the services which are the main criteria for allowing Cenvat credit on input service - only on the technical infraction should not be denied. Further Assessee was also registered with Central Excise Department from 1998 as manufacturer. The manufacturer can also avail the Cenvat Credit. The assessee is entitled for cenvat credit - Appeal allowed - decided in favor of assessee.
Issues Involved:
1. Requirement to reverse Cenvat Credit on components/spares cleared to EOUs against CT-3 certificates. 2. Disallowance of Cenvat Credit on services received from foreign service providers. 3. Denial of Cenvat Credit for input services related to premises without centralized registration. Issue-wise Detailed Analysis: 1. Requirement to Reverse Cenvat Credit on Components/Spares Cleared to EOUs Against CT-3 Certificates: The tribunal addressed whether the assessee needed to reverse the Cenvat credit on components/spares cleared to EOUs against CT-3 certificates. The tribunal noted that the Cenvat Credit Rules, 2004, under Rule 6(6)(ii), exempt the reversal of Cenvat credit for goods removed to 100% EOUs. The tribunal referred to the case of Aroma Chemicals vs. Commissioner (Appeals-I), C.Ex., Meerut, which held that Cenvat credit on inputs cleared to 100% EOUs cannot be denied. The tribunal found that the testing process carried out by the assessee did not change the nature of the goods, thus they were not cleared "as such" and did not require reversal of Cenvat credit. The tribunal concluded that the demand for reversal of Cenvat credit was not sustainable. 2. Disallowance of Cenvat Credit on Services Received from Foreign Service Providers: The tribunal examined the disallowance of Cenvat credit amounting to Rs. 1,25,65,890/- for services received from foreign service providers. The tribunal noted that under the reverse charge mechanism, the recipient of services from foreign providers is liable to pay service tax. The tribunal referred to the statutory provisions and judicial precedents, including decisions from the High Courts of Rajasthan, Karnataka, Punjab and Haryana, and Bombay, which allowed the utilization of Cenvat credit for payment of service tax under reverse charge. The tribunal observed that the restriction on using Cenvat credit for such payments was introduced only from 01-07-2012, and since the period in question was before this date, the assessee was entitled to use Cenvat credit for paying service tax. The tribunal found the revenue's action to be illegal and unsustainable. 3. Denial of Cenvat Credit for Input Services Related to Premises Without Centralized Registration: The tribunal considered the denial of Cenvat credit of Rs. 6,32,118/- out of a total demand of Rs. 90,45,338/- for input services related to premises without centralized registration. The tribunal referred to the decision in mPortal India Wireless Solutions Pvt. Ltd. v. CST, Bangalore, which allowed credit even if the premises were not centrally registered. The tribunal noted that the assessee had applied for centralized registration and had paid service tax based on centralized registration. The tribunal emphasized that credit should not be denied on technical grounds when the main criteria of receipt and use of services were met. The tribunal concluded that the denial of Cenvat credit on this ground was not justified. Conclusion: The tribunal allowed the appeal filed by the assessee with consequential relief and dismissed the appeal filed by the revenue. The tribunal found that the demands for reversal of Cenvat credit on inputs cleared to EOUs, disallowance of credit for services received from foreign providers, and denial of credit for input services related to premises without centralized registration were not sustainable. The tribunal's decision was based on the relevant statutory provisions, judicial precedents, and the facts of the case.
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