2023 (10) TMI 592 - AT - Central Excise

Tribunal grants appellant cenvat credit on audit services, limits duty on waste.

Solvay Specialities India Pvt Ltd, Rahul Majmudar and Shri Biswa Chatterjee Versus C.C.E. & S.T. -Surat-II

The Tribunal ruled in favor of the appellant on several key issues. It held that environmental due diligence audit services qualify as input services ... CENVAT Credit - services of environmental due diligence audit of the factory site for investigation of soil and ground water contamination and services of consequential remedial action - inputs such as TMT Bars, Steel Support Structure, Joists, Beams, Angles, Channels, and MS Angles etc. used for support structure of capital goods in the factory of the appellant - clearance of MS Scarps and scrape of capital goods - Rule 3 (5A) of Cenvat Credit Rules, 2004 - time limitation - penalty. Whether the services related to pollution control measures received by the appellant are eligible input services as defined under Rule 2 (l) of Cenvat Credit Rules, 2004? - HELD THAT:- The services in question related to pollution control of the factory is integral in the operation of the production activity in the appellant’s factory. Even though the services do not contribute directly in the manufacture but being necessary to run the factory in relation to the manufacture indirectly. As per the definition of input service if the services is used in or in relation to manufacture and whether directly or in directly, the same is qualified as input service. The court and Tribunal in various judgments held the services related to pollution control as input services and credit was allowed even though such services are not directly used in the manufacture of final product. It is settled that the services which are in relation to pollution control of the factory, the same are input services in terms of Rule 2 (l) of Cenvat Credit Rules, 2004 and hence, eligible for cenvat credit. Whether the services received prior to acquisition of the factory and commencement of manufacture? - HELD THAT:- The services related to pollution control are in relation to the production in the factory, therefore, the time of receipt of service is immaterial so long it is undisputed that the services were used in pollution control which in turn necessary for running the production activity in the appellant’s factory. Therefore, even if the services were received prior to acquisition of the factory, the fact remains the services were received by the appellant only and the invoices therefore were also issued in favour of the appellant. It is a settled law that even though the services were received prior to the commencement of production so long it is in relation to the manufacturing activity of the assessee, the cenvat credit cannot be denied only because the same were received prior to acquisition of the factory and/ or commencement of the production. Cenvat credit on various steel items such as TMT Bars, Steel Support Structure, Joists, Beams, Angles, Channels, and MS Angles etc - HELD THAT:- The learned Commissioner denied the cevat credit on the aforesaid goods relying on the decision of the Larger Bench of the Tribunal in the case of M/S VANDANA GLOBAL LIMITED AND OTHERS VERSUS COMMISSIONER, CENTRAL EXCISE AND CUSTOMS, CENTRAL EXCISE [2018 (5) TMI 305 - CHHATTISGARH, HIGH COURT]. However subsequently to the impugned order passed, the Hon’ble High Court of Chhattisgarh in Vandana Global Ltd - 2018 (16) GSTL 462 reversed the larger bench judgment of CESTAT in case of Vandana Global Ltd. Moreover this issue has ben considered in the case of COMMR. OF CUS., C. EX. & S.T., BILASPUR VERSUS SINGHAL ENTERPRISES PVT. LTD. [2017 (7) TMI 1112 - CHHATTISGARH HIGH COURT] and M/S. MANGLAM CEMENT LTD. VERSUS C.C.E., JAIPUR-I [2018 (3) TMI 1547 - CESTAT NEW DELHI] as cited by the learned counsel. Therefore, in light of the Hon’ble Chhattisgarh High Court judgment and subsequent judgments the appellant is entitled for the cenvat credit on the aforesaid goods. Demand of duty on clearance of waste and scrap of the capital goods - HELD THAT:- In the present case the demand is on the capital goods used by the appellant and cleared as waste and scrap. Obviously such waste and scrap does not arise out of manufacture of excisable goods. The capital goods itself became waste and scrap after used for long time, therefore, the demand of duty on such waste and scrap on its transaction value is absolutely correct and legal. Therefore, the demand on this count is sustainable on merit. Extended period of limitation - HELD THAT:- The issue being interpretation of legal statute and appellant being registered under Central Excise, the suppression of fact, collusion, fraud etc. cannot by attributed on the appellant. Therefore, the demand for the extended period will not be sustainable. However, if there is any demand within a normal period in respect of waste and scrap of capital goods, the same need to be worked out and recovered by the department. Penalty - HELD THAT:- Since there is no malafide attributed on the part of the appellant and extended period is not invokable, the penalty is not sustainable. Moreover, the major demand was set aside on merit. Corresponding to the said demand also no penalty can be imposed. The impugned order is modified - Appeal allowed. Issues Involved:1. Qualification of environmental due diligence audit services as input services under Rule 2(l) of Cenvat Credit Rules, 2004.2. Entitlement of cenvat credit on inputs such as TMT Bars, Steel Support Structures, etc.3. Legality of demand of duty on clearance of MS Scrap and scrap of capital goods under Rule 3(5A) of Cenvat Credit Rules, 2004.4. Applicability of limitation on show cause notices.Summary:Issue 1: Qualification of Environmental Due Diligence Audit Services as Input ServicesThe principal issue is whether services of environmental due diligence audit and remedial action qualify as input services under Rule 2(l) of Cenvat Credit Rules, 2004. The appellant argued that these services are essential for compliance with pollution control laws and thus, necessary for the manufacture of final products. The Tribunal found that the services related to pollution control are integral to the operation of the factory and qualify as input services as defined under Rule 2(l). The Tribunal cited several judgments supporting the eligibility of such services for cenvat credit, including Sujal Dye Chem Industries v. CCE, CCE v. Brakes India Ltd, and Hindustan Zinc Ltd v. CCE.Issue 2: Entitlement of Cenvat Credit on InputsThe appellant sought cenvat credit on inputs like TMT Bars, Steel Support Structures, Joists, Beams, Angles, Channels, and MS Angles used for support structures of capital goods. The Tribunal noted that the Commissioner had denied the credit based on the Larger Bench decision in Vandana Global Ltd, which was later reversed by the Chhattisgarh High Court. The Tribunal held that the appellant is entitled to cenvat credit on these goods, referencing judgments such as CCE v. Singhal Enterprises P. Ltd and Manglam Cement Ltd v. CCE.Issue 3: Demand of Duty on Clearance of MS Scrap and Scrap of Capital GoodsThe Tribunal upheld the demand of duty on the clearance of waste and scrap of capital goods under Rule 3(5A) of Cenvat Credit Rules, 2004. However, it noted that the classification of goods is irrelevant in this context since the waste and scrap arise from used capital goods, not from the manufacture of excisable goods. The Tribunal found the demand correct but limited it to the normal period, excluding the extended period due to the absence of suppression, collusion, or fraud by the appellant.Issue 4: Applicability of Limitation on Show Cause NoticesThe appellant argued that the show cause notices were barred by limitation. The Tribunal agreed, noting that the issues involved were matters of legal interpretation and that the appellant had acted in good faith. The Tribunal cited several judgments, including Hindalco Industries Ltd v. CCE and Nizam Sugar Factory v. CCE, to support its conclusion that the extended period of limitation was not applicable.Conclusion:The Tribunal modified the impugned order, allowing the appeal to the extent that the services related to pollution control qualify as input services, and the appellant is entitled to cenvat credit on the specified inputs. The demand for duty on waste and scrap of capital goods was upheld for the normal period only, and penalties were set aside. The appeal was allowed in these terms.