CENVAT credit allowed on cement coated pipes despite exemption notification when 6% paid under Rule 6(3)(i)

CESTAT Ahmedabad allowed the appeal regarding CENVAT credit on cement coated pipes cleared under exemption notification. The appellant had availed credit of common input services used for both dutiable and exempted goods without maintaining separate accounts, but paid 6% of exempted goods value as required under Rule 6(3)(i) of CENVAT Credit Rules, 2004. Following Gujarat HC precedent in Commissioner of Central Excise v. Nahar Granities Ltd., the tribunal held that CENVAT credit cannot be denied to recipient even when supplier claims exemption or pays duty unnecessarily. The impugned orders were set aside and personal penalty was also not imposable.

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Issues Involved:
1. Whether the appellant is entitled to avail Cenvat credit of service tax paid by the job worker for cement coating on steel pipes.
2. Whether the department can deny Cenvat credit on the ground that the job worker was not required to discharge service tax on the activity undertaken by them.
3. Whether the payment of duty can be disputed while allowing Cenvat credit at the recipient end of the inputs.

Issue-wise Detailed Analysis:

1. Entitlement to Avail Cenvat Credit:
The appellant, M/s. Welspun Corporation Limited, engaged in manufacturing steel pipes, availed Cenvat credit on service tax reimbursed to their job worker, M/s. Zebra Marketing, for cement coating on the pipes. The department contended that the cement coating activity amounts to manufacture under Chapter Note 73 of the Central Excise Tariff Act, 1985, thereby excluding it from the definition of Business Auxiliary Service. Consequently, the department argued that the appellant's availment of Cenvat credit amounting to Rs. 55,77,605/- was incorrect. The appellant countered by stating that they followed Rule 6(2)(i) of the Cenvat Credit Rules, 2004, paying 6% of the value of exempted goods and that the jurisdictional authorities never objected to the payment of service tax on the cement coated pipes.

2. Department's Denial of Cenvat Credit:
The appellant relied on the Supreme Court decisions in CCE vs. MDS Switchgear Limited and Sarvesh Refractories vs. CCE, arguing that the show cause notice wrongly alleged that the service rendered by the job workers was exclusively for goods cleared without payment of duty. The appellant clarified that they cleared goods both on payment of duty and without payment of duty, paying 6% of the value of exempted goods as per Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The Tribunal noted that since the appellant availed credit on common input services used for both dutiable and exempted goods, and complied with Rule 6(3)(i), the credit could not be denied.

3. Dispute on Payment of Duty:
The Tribunal referred to the Gujarat High Court decision in CCE, Ahmedabad vs. Nahar Granites Limited, which allowed Cenvat credit even if the supplier paid excise duty under a mistaken belief. The Tribunal also cited the case of Aarti Industries Limited vs. CCE, where it was held that the recipient of goods can avail Cenvat credit if the supplier paid duty, irrespective of whether the duty was legally payable. The Tribunal emphasized that once the job worker paid service tax, which was accepted by the department, the Cenvat credit availed by the recipient could not be denied.

Department's Appeal:
The department's appeal argued that the Adjudicating Authority failed to address the issue that service tax was paid exclusively on goods cleared without payment of duty. The respondent, M/s. Welspun Corp. Limited, countered that they cleared goods both on payment of duty and without payment of duty, reversing 6% of the value of exempted goods as required by Rule 6(3)(i). The Tribunal found that the appellant complied with the rules and that the department's grounds for appeal lacked merit.

Judgment:
The Tribunal concluded that the order-in-original lacked merit, and the appeal filed by M/s. Welspun Corp. Limited was allowed. The department's appeal was dismissed, and the cross-objection was disposed of accordingly. The Tribunal held that once the job worker paid service tax, the recipient's Cenvat credit could not be denied. The judgment was pronounced in open court on 16.07.2024.

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