M/S. J K Cement Works vs C.C.E.&S.T., Jaipur-Ii

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether Lordships wish to see the fair copy of the order? Seen 4. Whether order is to be circulated to the Department Authorities? Yes

Appeal Nos.E/52386-52387/2014-EX[SM]

[Arising out of Order-in-Appeal No.02-03(OPD) CE/JPR-II/2014 dated 16.01.2014 passed by the Commissioner (Appeals), Customs, Central Excise and Service Tax, Jaipur-II]

M/s. J K Cement Works Appellant

Vs.

C.C.E.&S.T., Jaipur-II Respondent

Appearance

Mr. BL Narasimhan, Advocate - For Appellant

Mr. R.K. Gupta, DR - For Respondent

CORAM: Honble Mr. S.K. Mohanty, Member (Judicial)

Final Order Nos.54158-54159/2015, dated 14.07.2015

Per Mr. S.K. Mohanty :

The brief facts of the case are that the appellant was engaged in the manufacture of grey cement and is registered with the Central Excise Department. M/s.J.K. White Cement Works (JKWCW), a white cement plant, is located 2 kms away from the appellants unit and is registered with the Central Excise Department. Both the appellant and JKWCW are units of same legal entity i.e. M/s. J.K. Cement Ltd. JKWCW is also registered as Input Service Distributor(ISD) for disbursement of input service credit to the appellant. To facilitate the appellant for carrying out its manufacturing activity, JKWCW produces electricity, through a power plant installed in its unit, on job work basis and transmits a part of the electricity to the appellant, which is used by it in the manufacture of its final product. Remaining part of the electricity so generated is used by JKWCW in its factory itself. For the purpose of operation of the power plant, JKWCW procures certain services namely, manpower supply services, technical consultancy services, maintenance and repair services etc. and reimburses applicable service tax claimed on the invoices raised by the service providers. The service tax so paid was availed as CENVAT credit by JKWCW. JKWCW, since holding a valid ISD registration, distributes such input service credit to the appellant, in proportion to the electricity transmitted to it for use in manufacture by the appellant. The said credit was availed by the appellant on the basis of invoices issued by JKWCW. Availment of the CENVAT credit by the appellant was objected to and denied by the Department inter alia, on the ground that JKWCW does not qualify as an ISD, as it does not work as an office of the appellant, as envisaged under Rule 2 (m) of the Cenvat Credit Rules, 2004; Input services were exclusively received by JKWCW and not by the appellant; electricity, classifiable under Chapter No.2716 of the Central Excise Tariff Act, 1985, is non-excisable, therefore input services used in its generation, cannot be distributed in terms of Rule 7 of the Credit Rules.

2. Basing on the objections raised by the Audit team, show cause notices dated 20.04.2011 and 28.09.2012 were issued, for the period in question proposing denial of CENVAT credit, availed by the appellant on the invoices issued by ISD. The said demands in question were confirmed by the ld. Additional Commissioner vide Order-in-Originals dated 15.06.2012 & 27.08.2013 respectively, which were upheld by the ld. Commissioner (Appeals), Customs & Central Excise, Jaipur-II, vide Order-in-Appeal No.02-03(OPD)CE/JPR-II/2014 dated 16.01.2014 (for short, referred to an the impugned order). Being aggrieved with the impugned order, the appellant is in appeal before the Honble CESTAT.

3. Shri B.L. Narasimhan, ld. counsel for the appellant submits that the appellant was only a receiver of the credit availed and distributed by ISD; whether the credit has been legally and correctly availed and distributed by the ISD can be determined only at the end of the ISD and the appellant cannot be called upon to justify the act of the ISD. Thus, the proceedings initiated by the Department is not legally sustainable. He further submits that for availing CENVAT credit on input services, it is not necessary that the services should be received in the factory of the manufacturer of the final product. The ld. advocate further submits that both the appellant and M/s. JKWCW are units of same legal entity, i.e., M/s. J.K. Cement Ltd. and valid ISD registration has been granted to JKWCW for distributing the electricity to the appellant. The credit has been distributed through a valid document prescribed in the CENVAT statute and it does not exceed the amount of service tax paid on the taxable services. Thus, he submits that since the requirement of statute has been duly complied with, denial of CENVAT credit is not proper. He further submits that the payment, if any, regarding admissibility of credit on the basis of ISD invoices, needs to be raised at the end of ISD, i.e. JKWCW and not at the appellants end. It is his submission that input services were received by JKWCW for generation of electricity within their factory and the generated electricity was transmitted to the appellants unit for manufacture of dutiable final product; hence denial of CENVAT credit is not proper in view of the fact that the inputs are not being used for manufacture of the exempted goods in the factory of the appellant. It is his further submission that since the electricity was intermediate product used in or in relation to manufacture of dutiable product, service tax paid on the input services, used for generation of electricity, can be distributed in terms of Rule 7 of the CENVAT Credit Rules, 2004. To support his above stand, he relied on the decision of this Tribunal in the case of Castrol India Ltd. Vs. CCE, Vapi [2013 (291) ELT 469 (Tri.-Ahmd.)].

4. On the other hand, Shri R.K. Gupta, ld. Departmental Representative reiterated the findings recorded in the impugned order.

5. I have heard both sides and examined the records.

6. The fact is not under dispute that the various input services received for generation of electricity are used in the factory of JKWCW. The electricity so generated at the premises of JKWCW was transmitted to the premises of the appellant and used for manufacture of grey cement, without which the factory cannot run or operate. Therefore, the services so received qualifies as input services under Rule 2(l) of CENVAT Credit Rules, 2004.

7. It is the undisputed fact that the appellant and JKWCW are units of the same legal entity, i.e., M/s. J.K. Cement Ltd. and valid ISD registration has been granted to JKWCW for distributing the credit to the appellant. For distributing the credit by JKWCW and taking of CENVAT credit by the appellant on the basis of ISD invoices, are in conformity with the CENVAT scheme. Further, the conditions enumerated in Rule 7 of the said rules have been duly complied with by JKWCW in the capacity of ISD, in-as-much-as, the credit has been distributed against the valid documents referred to in Rule 9 and the credit distributed does not exceed the amount of service tax paid thereon. Since the appellant was manufacturing dutiable goods, taking of CENVAT credit of service tax on the basis of ISD invoices is in conformity with the rules and the same cannot be denied on the ground that JKWCW does not work as the office of the appellant. Since the appellant has taken the CENVAT credit based on the tax paid documents, and complied with the requirement of Rule 7 of the CENVAT Credit Rules, 2004, the credit so taken, cannot be denied to the appellant. Payment, if any, regarding admissibility of credit can be raised at the end of the Input Service Distributor, which in the present case, has not been done.

8. Though the input services were received by JKWCW, the same were used for generation of electricity, which was transmitted to the appellant, and used in or in relation to manufacture of dutiable final product. Since the final product manufactured by the appellant is not exempted from payment of duty, credit distributed by JKWCW on the strength of valid documents, is available to the appellant as CENVAT credit, for payment of duty on removal of final product.

9. In view of the above, I do not find any merits in the impugned order, and thus, the same is set aside. The appeal is allowed in favour of the appellant.

[Operated portion pronounced in the open court]

(S.K. Mohanty)

Member (Judicial)

SSK

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