2016 (9) TMI 96 - AT - Service Tax

Manufacturing for Credit: Duty Payment Key

The appellant, engaged in manufacturing soaps and detergent, sent unusable detergent material to job workers for reprocessing into scrap. The appellant ... Cenvat credit entitlement - claim of credit for service tax paid by job worker - manufacturing activity - clearance on payment of excise duty - binding effect of majority decision of the TribunalCenvat credit entitlement - claim of credit for service tax paid by job worker - manufacturing activity - clearance on payment of excise duty - Whether the assessee is entitled to avail Cenvat credit of service tax paid by the job worker when Revenue contends no manufacturing activity was undertaken by the assessee, but the assessee cleared the received goods on payment of excise duty. - HELD THAT: - The Tribunal noted that the appellant admitted payment of excise duty on goods received from the job worker. Revenue's objection was confined to denial of credit on the ground that the conversion by the job worker did not constitute part of the appellant's manufacturing activity. The Tribunal relied on the majority decision in Asian Colour Coated Ispat Ltd., which held that an assessee cannot be denied Cenvat credit of duty merely because no manufacturing activity is shown at the assessee's end when the assessee has cleared the final product on payment of duty. Applying that ratio, and observing that the credit availed had effectively been discharged by payment of excise duty on clearance, the Tribunal concluded that denial of credit on the stated ground was not sustainable. [Paras 2, 3]Impugned order disallowing Cenvat credit set aside; appeal allowed with consequential relief.Final Conclusion: Appeal allowed: following the Tribunal's majority precedent, Cenvat credit of service tax paid by the job worker cannot be denied where the assessee has cleared the goods on payment of excise duty; impugned order is set aside and consequential relief granted. Issues:1. Availment of Cenvat Credit on service tax paid by job workers for converting unusable detergent material into scrap.2. Disallowance of Cenvat Credit by revenue authorities on the grounds of no manufacturing activity involved.Analysis:Issue 1: Availment of Cenvat Credit on service tax paid by job workersThe appellant, engaged in manufacturing soaps and detergent, sent unusable detergent material to job workers for reprocessing into scrap. The job workers paid service tax on their charges, which the appellant availed as credit. The revenue objected to this credit claiming no further activity was conducted by the appellant on the materials received. However, it was noted that the appellant discharged their duty liability on the received materials, indicating a manufacturing activity. The Tribunal referred to a previous case where it was held that if the final product is cleared on payment of duty, the assessee cannot be denied Cenvat Credit, even if no manufacturing activity is directly involved. Therefore, the appellant was allowed to avail the credit in this case.Issue 2: Disallowance of Cenvat Credit by revenue authoritiesThe revenue authorities disallowed the Cenvat Credit on the grounds that the process of converting unusable detergent material into scrap did not constitute a manufacturing process. However, the Tribunal emphasized that the crucial factor was the payment of Central Excise duty by the appellant on the final product. Since the duty was paid, it was inferred that some manufacturing activity was involved, regardless of the nature of the specific process. The Tribunal relied on a previous decision to support the appellant's right to avail the credit, as long as duty was discharged on the cleared goods. Consequently, the impugned order disallowing the credit was set aside, and the appeal was allowed with relief to the appellant.In conclusion, the Tribunal's decision in this case clarified that the availment of Cenvat Credit should not be denied solely based on the absence of traditional manufacturing processes, as long as the final product is cleared on payment of duty. The judgment underscored the importance of duty payment as a determining factor for credit eligibility, rather than the specific nature of the manufacturing activity involved.