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2023 (9) TMI 1096 - AT - Service TaxCENVAT Credit - fabrication of ACN Reactor in the premises of M/s L T, Hazira (Principal manufacturer) - process amounting to manufacture or not - benefit of N/N. 214/86-CE dated 25.03.1986 - HELD THAT - It is not in dispute that the entire activity has been carried out within the premises of M/s L T Limited, Hazira and that M/s L T Limited, Hazira has discharged the duty liability on the final product cleared by them from their factory premises. The process undertaken by the appellants is a process incidental or ancillary to the final manufacture of the finished goods cleared by M/s L T Limited, Hazira. In the above background, it cannot be denied that the activity undertaken by the appellants is an activity of manufacture. Notification 214/86-CE grants exemption from central excise duty on certain activities which are undertaken by a job worker and where the principal manufacturer undertakes to pay the central excise duty on the final products cleared by them. The notification 214/86-CE prescribes detailed procedure for movement of goods and for the principal manufacturer to discharge the duty liability on the final products. The entire procedure prescribed under Notification 214/86-CE is a procedure which takes care of situation where the job worker is located away from the principal manufacturer at a different location - the notification requires an undertaking by the principal manufacturer to ensure that the goods manufactured / processed by the job worker are not diverted and proper duty is paid thereon. In the instant case, the entire activity is undertaken within the premises of the principal manufacturer, therefore much of the procedure loose significance. The appellants have not specifically claimed the benefit of 214/86 and have not followed the procedure prescribed for availing the Notification. The procedure not followed by them relates to the making of challans for movement of goods and obtaining an undertaking from the principal manufacturer regarding payment of duty on the finished goods. In the instant case, since the goods remain within the premises of principal manufacturer the need of challans for movement loses its relevance. Similarly, since the entire raw material as well as finished goods remains within the premises of the principle manufacturer, the need to undertaking payment of duty on the intermediate goods used by principal manufacturer for manufacture of dutiable finished goods loses much of the relevance. In the case of STERLITE INDUSTRIES (I) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE 2004 (12) TMI 108 - CESTAT, MUMBAI where it was held that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C - The said decision of Tribunal has been upheld by Hon ble High Court of Bombay in COMMISSIONER VERSUS STERLITE INDUSTRIES (I) LTD. 2008 (8) TMI 783 - BOMBAY HIGH COURT . The decision of the Larger Bench in the case of Sterlite Industries Limited is equally applicable to the current situation - Appeal allowed.
Issues Involved:
1. Demand of service tax on various services. 2. Availment of cenvat credit on services obtained from sub-contractors. 3. Applicability of Rule 6 of Cenvat Credit Rules, 2004. 4. Invocation of extended period of limitation. 5. Benefit of Notification 214/86-CE. Summary: 1. Demand of Service Tax: The appeal was filed by Neo Structo Construction Private Limited against the demand of service tax on Erection Commissioning and Installation Service, Management, Maintenance & Repair Service, Manpower Recruitment & Supply Agency Service, and Goods Transport Agency Service. 2. Availment of Cenvat Credit: The appellant entered into an agreement with M/s L&T, Hazira for the fabrication of ACN Reactor during 2008-09 and 2009-10. The appellant subcontracted some work to M/s Neetu Engineering, Surat, and M/s Ebenezer Engineering, Surat, and availed cenvat credit on the service tax charged by these sub-contractors. The revenue contended that since the appellant's activity did not attract service tax, they could not avail cenvat credit on input services used for their output service as per Rule 6(1) and 6(2) of Cenvat Credit Rules, 2004. Consequently, a show cause notice was issued demanding reversal of cenvat credit, which was upheld by the Commissioner (Appeals). 3. Applicability of Rule 6 of Cenvat Credit Rules, 2004: The learned counsel argued that the appellant's activity amounted to manufacture and was covered under Chapter heading 7308 of the Central Excise Tariff Act, 1985. They relied on Tribunal decisions, including Mahindra & Mahindra Ltd. and their own case, asserting that the activity was manufacturing and not liable to service tax. They also argued that Rule 6 of Cenvat Credit Rules, 2004, was not applicable as the activity was normally taxable but exempted by Notification 67/1995-CE, and thus, they were entitled to cenvat credit. 4. Invocation of Extended Period of Limitation: The learned counsel argued that the extended period of limitation was wrongly invoked as they regularly filed ST-3 Returns and paid applicable taxes. They had a bona fide belief that the services were not taxable, and there was no suppression or mis-declaration. They cited the Supreme Court's decision in Hindustan Steel Limited and Tribunal's decision in Kellner Pharmaceuticals Limited to argue that penalty imposition requires specific intent, which was absent. 5. Benefit of Notification 214/86-CE: The learned counsel argued that the appellants, as job workers for M/s L&T Ltd., were entitled to the benefit of Notification 214/86-CE, exempting job workers from excise duty. They pointed out that raw materials were supplied by M/s L&T Limited, Hazira, and after job work, the material was supplied back. The learned authorized representative countered that the procedure under Notification 214/86-CE was not followed, including the requirement for the principal manufacturer to give an undertaking to pay duty. They relied on the Supreme Court's decision in Dilipkumar & Co. for strict interpretation of exemption notifications. Tribunal's Decision: The Tribunal found that the appellant undertook various fabrication works resulting in a new product used as part of larger machinery or plant. The entire activity was carried out within M/s L&T Limited's premises, which discharged the duty liability on the final product. Therefore, the activity was considered manufacturing. The Tribunal noted that the procedure under Notification 214/86-CE was not entirely relevant as the goods did not move out of the principal manufacturer's premises. Relying on the Larger Bench decision in Sterlite Industries Limited, the Tribunal held that cenvat credit was admissible even if the final product was cleared without payment of duty, provided duty was ultimately paid by the principal manufacturer. Consequently, the impugned order was set aside, and the appeal was allowed. Conclusion: The Tribunal allowed the appeal, setting aside the demand for reversal of cenvat credit, recognizing the appellant's activity as manufacturing, and granting the benefit of Notification 214/86-CE despite procedural lapses, based on the precedent set by Sterlite Industries Limited. (Pronounced in the open court on 22.09.2023)
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