Tribunal allows appeal for service tax credit on iron ore sent for manufacturing.

The Tribunal allowed the appeal, setting aside the order denying service tax credit to the appellants for iron ore sent to a job worker for manufacturing sponge iron. The Tribunal held that the denial of credit under Rule 3(5) of Cenvat Credit Rules, 2004 was unsustainable as the waste generated during crushing of raw material made it impractical to expect the entire quantity to be returned. The decision was based on precedents and principles established in relevant judgments, emphasizing the distinction between inputs, capital goods, and input services.

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Issues Involved:
1. Admissibility of service tax credit on short receipt of iron ore from job worker for manufacture of sponge iron.

Analysis:
The case involved the appellants, engaged in manufacturing sponge iron, availing credit on service tax paid for crushing charges of iron ore sent to a job worker. The department alleged a shortage of iron ore from the job worker, leading to a show cause notice and subsequent order confirming demand, interest, and penalty. The Commissioner (Appeals) upheld the decision, prompting the appellant to approach the Tribunal.

The appellant argued that the raw material needed to be crushed into lumps for manufacturing sponge iron, with the waste generated during crushing not usable for production. The department invoked Rule 3(5) of Cenvat Credit Rules, 2004, to deny the credit. The appellant cited judgments supporting their position, emphasizing that the rule pertains to capital goods, not input services.

The department contended that the entire quantity of raw material sent for job work was not returned for manufacturing final products, making the credit inadmissible under Rule 3(5). They referenced a previous case to support their stance.

After considering both arguments and reviewing the records, the Tribunal found the Revenue's view unconvincing. It acknowledged that some quantity of iron ore becomes waste during crushing, making it impractical to ascertain beforehand. The Tribunal noted that Rule 3(5) specifically addresses inputs and capital goods, not input services. Citing precedents, the Tribunal concluded that the denial of credit was unsustainable.

In light of the above analysis and following the principles laid down in relevant judgments, the Tribunal set aside the impugned order, allowing the appeal. The decision was pronounced in open court on 26.10.2015.

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