TaxTMI 
TaxTMI 
2017 (5) TMI 697
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....gainst the order of the Tribunal in so far as the Tribunal has not permitted the reversal of the proportionate CENVAT credit for the extended period as well as the levy of penalty in respect of both the show cause notices. It is convenient, therefore, to dispose of all the appeals by this common order and judgment. We will refer to the facts from CEA No.21 of 2016. 2. According to the assessee, the following substantial questions of law arise:- "i. Whether in facts & circumstances of the present case the Hon'ble Appellate Tribunal is correct in passing Final Order No.A/53153/2015-EX[DB] dated 30.09.2015, when the entire case is covered in favour of the Appellant based on the above submissions? ii. Whether the impugned order is sustainable in light of the fact that the judgment (Maruti Suzuki (supra) reported at 2009 (240) ELT 641 (SC) relied upon by the Hon'ble Appellate Tribunal is no longer good law? iii. Whether in facts & circumstances of the present case the Hon'ble Appellate Tribunal is correct in confirming denial of Cenvat credit proportionate to service tax paid on the procurement of LPG used in generation of electricity wheeled outside to Joint Ventures/Vendors? iv.....
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....ervice tax and, accordingly, avails CENVAT credit in respect thereof. A part of the electricity generated in the power plant is used by the assessee in the process involving the manufacture of its products. It was not disputed before us that LNG is a raw material for the generation of electricity and that the assessee is entitled to CENVAT credit in respect thereof to the extent it relates to the electricity used by it for the manufacture of its final products provided the other requirements are met. 4. The electricity generated in excess of the assessee's requirement is, however, sold by it to third parties including its joint ventures/vendors and such parties sell the products manufactured by them to the assessee which are used by the assessee for the manufacture of its final products. The question is whether the assessee is entitled to CENVAT credit in respect of the LNG used by it to produce electricity sold to the third parties. We have answered the question in the negative - in favour of the Revenue but have held that the assessee is not liable either for the extended period or for penalty. All the appeals are accordingly dismissed. 5. During the internal audit of the asse....
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....cept that it is in respect of the other show cause notice. 8. Rules 2(k) and (l) of the CENVAT Credit Rules, 2004, read as under:- "RULE 2. Definitions. - In these rules, unless the context otherwise requires,- .... ..... ....... ....... ....... (k) "input" means- (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production; (ii) all goods, exce....
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....e used naphtha as fuel to run the gas turbines and availed CENVAT credit on such naphtha. The assessee also used diesel generation sets (DG) for generating electricity with the use of diesel for which it did not avail any credit. At the factory, the assessee had a common distribution point for electricity generated in turbines as well as the DG sets and the entire electricity generated in the turbines and DG sets was distributed through a common distribution point. About 13% of the electricity generated in the factory was distributed to the assessee's joint ventures, vendors, etc. The joint ventures, vendors, etc. to whom the electricity was wheeled out, in turn, manufactured the final products. The Supreme Court held:- "19. The question which still remains to be answered is: whether an assessee would be entitled to claim CENVAT credit in cases where it sells electricity outside the factory to the joint ventures, vendors or gives it to the grid for distribution? In the case of Collector of Central Excise v. Rajasthan State Chemical Works reported in 1991 (55) E.L.T. 444 (S.C.) the test laid down by this Court is whether the process and the use are integrally connected. As stated a....
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....ent case, excess electricity has been cleared by the assessee at the agreed rate from time to time in favour of its joint ventures, vendors, etc. for a price and has also cleared such electricity in favour of the grid for distribution. To that extent, in our view, the assessee was not entitled to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilised in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors, etc., which is sold at a price. 21. Before concluding, it may be clarified that on account of repeated amendments in the CENVAT Credit Rules, huge litigation in the country stands generated. In the circumstances, we are of the view that penalty is not leviable on the appellant/assessee, particularly when in large number of other cases, on account of conflict of views expressed by the various Tribunals/High Court, the assessees have also succeeded. Hence, although M/s Maruti Suzuki Ltd. (the appellant) has failed i....
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....rpretation of the Supreme Court in the aforesaid judgment requires consideration by a larger Bench. The matter was accordingly placed before a larger Bench. Before referring to the order of the larger Bench, it would be necessary to refer to paragraphs 12 and 16 of the referral order which read as under:- "12. The effect of the afore-mentioned decision is that in order to fall within the ambit of the term "inputs" within the meaning of Rule 2(g) of the 2002 Rules, the goods must be (i) used in or in relation to the manufacture of the final product, whether directly and indirectly, and whether the said goods are contained in the final product or not, (ii) covered within the six categories of goods enumerated in Rule 2(g) and (iii) used within the factory of production. We are con strained to observe that while the subject goods must qualify the first and third parts of the definition, viz. the specific part and location of use, as enumerated in the said judgment, but to confine the goods only to the inclusive part of the definition that is to the six categories of goods mentioned therein may fall foul of the definition of the word "inputs" in Rule 2(g) of the said Rules. Prima faci....
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....te bench of this Court to decide on the factual parameters of the case(s) and the entitlement of the assessee(s) to CENVAT credit in the facts of each case." The decision in Maruti Suzuki's case (supra) was overruled, therefore, only to the extent that it dealt with the ambit of the word "include" in rule 2(g). The Supreme Court did not overrule the judgment in Maruti Suzuki's case in its entirety. The observations in paragraphs 19 and 20 of the judgment of the Supreme Court, therefore, cannot be said to have been overruled. 12. We accordingly proceed to deal with the question on principle. 13. The case before us requires a consideration of rule 2(l)(ii) of the 2004 Rules. CENVAT credit is claimed in respect of the transport of LNG from GAIL to the assessee. "Input service" includes services used in relation to inward transport of inputs. The transportation of LNG by GAIL to the assessee is covered by the definition of input service as an item, provided however, it meets with the other requirements. The mere use of an input service does not include it within the ambit of the definition of "input service" in rule 2(l). For a service to fall within the ambit of the definition of ....
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.... assessee and the assessee used these final products purchased from the third parties in the manufacture of its final product. Accordingly, the input service that was originally routed to the assessee found its way back to the assessee. This, according to the appellant, constitutes indirect use of the LNG by it. 16. As we mentioned earlier, the use of the input service must be by the manufacturer who claims the CENVAT credit i.e. the assessee. The use may be direct or indirect. It must, however, be used by the manufacturer concerned. It cannot be the use of another unless such use is for or on behalf of the assessee. The definition of "input service" in rule 2(l)(ii) expressly states that "input service" means any service used by the manufacturer i.e. the assessee whether directly or indirectly in or in relation to the manufacture of the final product and clearance of the final product from the place of removal. Thus, the use of the input service must be by the manufacturer i.e. the assessee. The words "whether directly or indirectly" cannot be extended to the use of such input services by third parties in circumstances such as those in the present case. In this case, the input se....
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....of the assessee either. They were separate legal entities who purchased the electricity that was wheeled out from the assessee. The third parties were entitled to utilize the electricity in such manner as they desired without any restriction. Even assuming that the third parties were under an obligation to supply their products to the assessee, it would make no difference. They could have used that electricity or electricity from any other source for the manufacture of their final product. 20. The electricity wheeled out to the third parties, we will presume, is used by the third parties for the manufacture of products which, in turn, are used for the manufacture of the assessee's final product. However, electricity for the manufacture of the third parties' products cannot be said to be used either by the assessee or for the manufacture of the assessee's final product. As we held earlier, the use of the input service must be by and of the assessee. The third parties are bound to supply a part of their products to the assessee. There is, however, no material on record that establishes an obligation on the part of the third parties to supply the products to the assessee in considera....
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.... was sold under the respective brand names, such as, Coca Cola and Fanta to bottling companies who, in turn, sold the aerated beverages manufactured from the concentrate to distributors and the distributors, in turn, sold the same to retailers from whom the consumers purchased the products. The advertisement and sales promotion activities including market research were undertaken and paid by the appellant. The appellant was the licencee. It is important to note that it was not disputed that the advertisement expenses incurred by the appellant formed part of the sale price of the concentrate on which duty had been paid. It was contended on behalf of the Revenue that the advertisement and marketing were not connected with the manufacture of the concentrate but with the sale of aerated water manufactured out of the concentrate by the bottler and not by the appellant. The Division Bench held that the advertisement of the soft drink enhanced the marketability of the concentrate. The Division Bench further observed that the Revenue had always been collecting excise duty on the full sale price charged by the concentrate manufacturer from the bottler and had never disputed that the adverti....
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....elied upon by Mr. Amar Partap Singh is to be considered. Paragraph 39 reads as under:- "39. The definition of input service which has been reproduced earlier, can be effectively divided into the following five categories, in so far as a manufacturer is concerned: (i) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products (ii) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal (iii) Services used in relation to setting up, modernization, renovation or repairs of a factory, or an office relating to such factory, (iv) Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, (v) Services used in relation to activities relating to business and outward transportation upto the place of removal; Each limb of the definition of input service can be considered as an independent benefit or concession or exemption. If an assessee can satisfy any one of the limbs of the above benefit, exemption or concession, then credit of the input service wo....