TaxTMI 
TaxTMI 
2025 (11) TMI 368
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....he mines was directly dispatched to M/s. Vedanta Aluminium Limited [Vedanta] for the purpose of conversion into alumina on job work basis. The converted alumina was thereafter returned by Vedanta to BALCO in terms of the conversion agreement and thereafter used by BALCO for manufacture of the final product aluminium. BALCO availed CENVAT credit of the service tax for payment of central excise duty on the final product i.e. aluminium and articles thereof, removed by BALCO from its factory. 3. Five show cause notices were issued to BALCO alleging that the "mining services" on which CENVAT credit was availed by BALCO was not an "input service" as the same was not "in or in relation to manufacture" of the final product aluminium. The show cause notices also allege that Vedanta had not availed the benefit of Notification No. 214/86 dated 25.03.1986 [the Exemption Notification] and so BALCO would not be entitled to avail "input service" credit in terms of rule 3(1)(xi)(ii) of the CENVAT Credit Rule, 2004 [the 2004 Credit Rules]. 4. The relevant portions of the last show cause notice dated 03.02.2017 are reproduced below: "6. In this case the Bauxite Ore is extracted by the....
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....arged by the service provider for extraction of bauxite from the captive mines owned by BALCO for the reason that bauxite was converted into alumina by Vedanta, which was subsequently received by BALCO for use in the manufacture of final product i.e., aluminium. It was, therefore, stated that the mining services received by the appellant for extraction of bauxite at its captive mines would be in relation to manufacture of aluminium, which was the final product and so would be an "input service" as defined in rule 2(1) of the 2004 Credit Rules. BALCO also submitted that there was no legal compulsion for Vedanta to claim the benefit of the Exemption Notification and that the provisions of rule 3(1)(xi)(ii) of the 2004 Credit Rules would not be applicable. 6. The adjudication of the show cause notices was initially kept in the "call book" for the reason that the department had filed an appeal before the Supreme Court against the judgment of the Bombay High Court in Coco Coal India Pvt. Ltd. vs. Commissioner of C. Ex., Pune [2009 (242) E.L.T. 168 (Bom.)] on which reliance was placed by the appellant. The matter was taken up for adjudication after the Supreme Court dismissed the appe....
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....ns, in my considered view, the provision of Rule 3(1)(xi)(ii) does not get attracted to the issue at hand. 35.2 As already discussed above the show cause notices allege that for getting the benefit of Rule 3(1)(xi)(ii) it is mandatory for the job worker to avail the benefit of notification no. 214/86. Though I have given my findings above that in the circumstances specific to the present case provision of rule 3(1)(xi)(ii) does not get attracted because the input service has been availed by the noticee and not the job worker (VAL), for the sake of academic discussion I proceed to examine the validity of the claim in the SCNs that - it is mandatory for the job worker to avail the benefit of notification no. 214/86 in order to be eligible for being covered by Rule 3(1)(xi)(ii) of the Cenvat Credit Rules.***** ***** I do not find that the inclusion clause in this rule restricts or reduces the scope of the main clauses in the Rule 3 of Cenvat Credit Rules. The expression is only an enabling provision which permits credit on input/input services to the principal manufacturer even in cases where the input is not received by it but received directly by the job w....
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....ule 2(1) of the Credit Rules that while the 'means' part of the definition has continued to remain the same pre amendment or post amendment, but the 'includes' part and the 'excludes' part of the definition of 'input service' have underdone changes. It can be seen from bare perusal of the above that the 'means' clause of rule 2(1) of the Credit Rules (first limb) continued to remain the same whether, before 01.04.2011 or after 01.04.2011. In other words changes made in definition w.e.f 1.4.2011 pertain only to the second limb of the definition whereas the wordings of the first limb remained the same - prior as well as post 1.4.2011. That is there has been no change in the first limb in the definition which says that Input service is any service used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of the final products and clearance of final products, up-to the place of removal. ***** 36.3 Plain reading of the above reflects that any service which is used not only in manufacture but also 'in relation to' manufacture will qualify as input service. The scope is further enlarged as the expression used here is 'whether ....
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....k between bauxite mining, alumina production and manufacture of aluminium, but failed to appreciate that the mandatory provisions of rule 3(1)(xi)(ii) of the 2004 Credit Rules had not been complied with; (iii) Rule 3(1)(xi)(ii) allows a principal manufacturer to claim input tax credit on input services used by a job worker in producing an intermediate product if the job worker avails the benefit of the Exemption Notification; (iv) The Principal Commissioner committed an error in holding that since mining services were used by BALCO and not Vedanta the said rule was not applicable. The fact is the mining services was used by Vedanta to produce aluminium necessitating compliance of the said rule; (v) The judgment of the Bombay High Court in Coco Cola and the decision of the Larger Bench of the Tribunal in Reliance Industries are not applicable to the facts of the present case and have, therefore, wrongly been relied upon by the Principal Commissioner; (vi) The Principal Commissioner committed an error in finding a nexus between mining services and aluminium production as the order overlooks the physical and transactional separation between the capt....
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.... which credit has been availed by BALCO is not an "input service" as the same is not "in or in relation" to manufacture of the final product i.e. aluminium. The department also alleges that as Vedanta had not availed the benefit of the Exemption Notification, BALCO will not be entitled to avail input service credit in terms of rule 3(1)(xi)(ii) of the 2004 Credit Rules. 16. "Input service", as it stood at the relevant time prior to 01.04.2011, has been defined in rule 2(l) of the 2004 Credit Rules as: "2(l) "input service" means any service,- (i) used by a provider of taxable service for providing an output service, or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up-to the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up-to the place of removal, procurement of inputs, activities relating to business, such as accounting....
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....he medical insurance of its retired employees under Voluntary Separation Scheme had some connection or nexus with the manufacturing activities of the assessee in order to avail CENVAT credit of the service tax paid on the insurance premium. The contention of Reliance Industries was noted in paragraph 30 of the decision, which paragraph is reproduced below: "30. The contention of the appellant is that the Scheme was announced to keep the business operations of the appellant viable and sustainable in the long run because the continued losses incurred by IPCL would have increased and the appellant would not have been in a position to carry the manufacturing operations if the business itself had became unviable. The submission, therefore, is that the premium paid by the appellant for providing medi-claim to such employees who had adopted VSS was aimed at keeping the manufacturing operations viable and running and, therefore, had a direct nexus to the manufacturing operations." 21. This submission of Reliance Industries was accepted by the Larger Bench of the Tribunal in paragraph 31 of the decision, which paragraph is reproduced below: "31. This submission of learn....
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.... mined is converted into alumina which is then used by BALCO for manufacture of the final products i.e. aluminium. It is necessary to give an expanded definition of "input service" in terms of the judgment of the Bombay High Court in Coco Cola. 25. The next issue that arises for consideration is whether rule 3(1)(xi)(ii) of the 2004 Credit Rules would be applicable in the facts of the present case. 26. It would, therefore, by appropriate to reproduce the said rule, which is as follows: "Rule 3. CENVAT credit. - (1) A manufacturer or producer of final products or a provider of output service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of - ***** (xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005), paid on - (i) any input or capital goods received in the factory of manufacture of final product or by the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004 including the said dut....
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....Ltd. vs. Commissioner of C. Ex., Haldia [2006 (197) E.L.T. 97 (Tri. - Del.)] and the relevant portion is reproduced below: "23. It has been argued on behalf of Revenue that under Rule 3 of the Cenvat Credit Rules, the credit is available only when the job worker avails the benefit of Notification No. 214/86. We do not read Rule 3 in this manner. The Cenvat credit is admissible when the inputs are received in the factory and used in or in relation to the manufacture of final products. The inclusion clause in the Rule does not restrict or reduce the scope of the main clauses in the Rule. Moreover, the expression "availing the benefit of exemption specified in the Notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86C.E., dated 25th March 1986" is only an enabling provision which permits credit on inputs to the principal manufacturer, even in cases where the input is not received by it, but is received directly by the job worker and provides for taking Cenvat credit of the duty paid on the inputs used in the manufacture of intermediate products even when no duty is required to be paid on the intermediated products.., Rule 57AC ....