2013 (9) TMI 550 - AT - Service Tax

Tribunal Upheld Denial of Cenvat Credit on Input Services for Oil & Gas Production

OIL & NATURAL GAS CORPORATION LTD. Versus COMMR. OF C. EX., RAIGAD

The tribunal upheld the denial of Cenvat credit of Service Tax on input services used in the manufacture of crude oil and natural gas at Mumbai Offshore ... Denial of CENVAT credit - credit distributed by the Input Service Distributors (ISD) - Held that:- Credit of Service Tax paid on input services used in manufacture of Crude Oil and Natural gas at Mumbai Offshore was not admissible to Uran Plant - credit was not admissible - Commissioner’s Order regarding confirmation of demand under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act was upheld - interest on the demand amount was also recoverable under Rule 14 of Cenvat Credit Rules read with Section 11AB of Central Excise Act - JAYPEE REWA CEMENT Versus COMMISSIONER OF CENTRAL EXCISE, M. P. [2001 (8) TMI 1332 - SUPREME COURT OF INDIA]. Penalty - Imposition of Penalty on Uran Plant - Rule 15 had been amended with effect from 27-2-2010 incorporating input services in Rule 15(1) and 15(2) of Cenvat Credit Rules, 2004 - Therefore, penalty under Rule 15(1) and 15(2) was not imposable - under Rule 15(4) penalty was imposable on output service provider - Penalty was imposable only under Rule 15(3) of Cenvat Credit Rules and maximum penalty under Rule 15(3) - As regards imposition of penalty on ISDs penalty was proposed under Rule 25/26 of Central Excise Rules but in the Order-in-Original penalty was imposed under Rule 15 of Cenvat Credit Rules - Penalty needed to be set aside on this ground alone - Penalty had been imposed under Rule 15(4) of the Cenvat Credit Rules - Rule 15(4) as it existed during the relevant period pertains to imposition of penalty on output service provider - Accordingly, penalties imposed on ISDs were set aside - Appeal Partly allowed. Issues Involved:1. Admissibility of Cenvat credit of Service Tax paid on input services used in the manufacture of crude oil and natural gas at Mumbai Offshore.2. Admissibility of Cenvat credit of Service Tax paid prior to the date of registration as Input Service Distributors (ISDs).3. Imposition of penalties on ONGC Uran Plant and ISDs.Issue-wise Detailed Analysis:1. Admissibility of Cenvat Credit of Service Tax on Input Services Used in Manufacture of Crude Oil and Natural Gas:The appellants, engaged in manufacturing excisable goods, availed Cenvat credit on inputs and services. The department contended that the crude oil and natural gas produced at Mumbai Offshore were exempt from excise duty, making the Cenvat credit inadmissible. The appellants argued that crude oil in its semi-stabilized form is not excisable and becomes marketable only after stabilization at Uran Plant. They claimed that crude oil is a dutiable product, and since they pay various cesses, it should not be treated as exempted goods under Rule 6 of Cenvat Credit Rules. They also argued that Mumbai Offshore is part of Uran Plant, making crude oil and natural gas intermediate products, thus eligible for credit.The tribunal found that crude oil produced at Mumbai Offshore is a saleable commodity and not semi-stabilized. It noted that crude oil is defined under the Oil Industry (Development) Act, 1974, and ONGC pays cess on it, indicating it is an excisable good. The tribunal held that crude oil, being exempt from excise duty, is considered exempted goods under Rule 2(d) of Cenvat Credit Rules. It rejected the argument that Mumbai Offshore is an integral part of Uran Plant, noting that crude oil is partly sold independently. The tribunal concluded that Cenvat credit on input services used in the manufacture of crude oil and natural gas at Mumbai Offshore is not admissible to Uran Plant.2. Admissibility of Cenvat Credit of Service Tax Paid Prior to the Date of Registration as ISDs:The appellants contended that there is no restriction in Cenvat Credit Rules denying credit for services used prior to ISD registration, provided the credit was availed after registration. The tribunal did not address this issue separately, as it upheld the denial of credit on the primary ground that the input services were used in the manufacture of exempted goods.3. Imposition of Penalties on ONGC Uran Plant and ISDs:The tribunal examined the imposition of penalties under Rule 15 of Cenvat Credit Rules. It found that Rule 15(1) and 15(2), as they existed during the relevant period, did not cover wrong availment of input service credit. Penalty under Rule 15(4) applies to output service providers, not manufacturers. Therefore, the tribunal reduced the penalty on ONGC Uran Plant to Rs. 2000 under Rule 15(3). Regarding ISDs, the tribunal noted that the show cause notice proposed penalties under Rule 25/26 of Central Excise Rules, but the Order-in-Original imposed penalties under Rule 15 of Cenvat Credit Rules. Since Rule 15(4) pertains to output service providers, penalties on ISDs were set aside.Conclusion:The tribunal upheld the denial of Cenvat credit of Service Tax on input services used in the manufacture of crude oil and natural gas at Mumbai Offshore to Uran Plant. It reduced the penalty on ONGC Uran Plant to Rs. 2000 and set aside the penalties on ISDs. The appeals filed by ISDs were allowed, while the appeal by ONGC Uran Plant was partly allowed.