M/S. Rosa Sugar Works vs C.C.E. & S.T.-Lucknow

[Arising out of Order-in-Original No.117-CE-LKO-2014 dated 27.08.2014 by the Commissioner of Central Excise & Service Tax (Appeals), Lucknow].

For approval and signature:

Honble Shri Ashok Jindal, Member (Judicial)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

M/s. Rosa Sugar Works .Appellants

Vs.

C.C.E. & S.T.-Lucknow .Respondent

Appearance:

Ms. Mansi Garg, Advocate for the Appellants

Ms. Ranjana Jha, DR for the Respondent

CORAM:

Hon'ble Shri Ashok Jindal, Member (Judicial)

Date of Hearing: 21.01.2015

FINAL ORDER NO.50263/2015-ST(SM)

Per Ashok Jindal:

The appellant is in appeal against the impugned order for denial of input service credit taken up for goods transport services by the appellant.

2. The facts of the case are that appellant is manufacturing sugar and molasses. For manufacturing their final product the input is sugarcane. To procure better quality of sugarcane appellant supplied cane seeds and bio manure to the cane growers and for transportation of cane seeds and bio manure they paid transportation charges. On this transportation charges whatever service tax was accrued the appellant took the Cenvat Credit on the said service tax. The Revenue is of the view that for transportation of bio manure and cane seeds upto the place of the farmers have no nexus with the activity of manufacturing of sugarcane by the appellant. Therefore, they are not entitled to take Cenvat Credit under Rule 2(L) of the Cenvat Credit Rules 2004. In these set of facts proceedings were initiated against the appellant to deny Cenvat Credit for the period Nov 2006 - July 2011. Both the lower authorities denied the Cenvat Credit and confirmed the demand on duty equivalent to interest and penalties were also imposed. Aggrieved from the said order appellant is before me.

3. The Ld. Counsel for the appellant submits that to procure good quality of sugarcane and to produce better quality of sugar and excess quantity of sugar the good quality of seeds and bio manure is required. As they are procuring the said sugarcane from the farmers, to those farmers they have transported cane seeds and bio manure which was used by the farmer and ultimately sugarcane was sold to them. In these circumstances, the transportation service is having the nexus with the manufacturing of the final product sugar. Therefore, they are entitled to take Cenvat Credit. To support their contention she relied on the decision in the case of VST Industries Ltd. Vs. C.C.E & S.T. Hyderabad-2013 (31) S.T.R. 357 (Tri-Bangalore) and in the case of C.C.E. Nagpur Vs. Ultratech Cement Ltd. 2011 (21) S.T.R. 297 (Tri-Mum). Therefore, it is prayed that impugned order be set aside.

4. On the other hand Ld. AR strongly oppose the contention of the Ld. Counsel and submits that these services have no nexus with the manufacturing activity of the appellant as same has been examined by both the authorities below. In fact Ld. Adjudicating authority has observed as under:

I do not find them convincing, Sugarcane until sold to the party are the property of the cane growers. All expenses involved seed, plantation, manure, irrigation, etc. are to be borne by the cane growers. Cane seed and Bio-manure are used in cane cultivation and not in any way goes into the use in the manufacture of sugar. Even if it is presumed that the party had to supply free of cost Cane seeds and Manure to the Cane Growers as a sugarcane development measure, it is not going to help the case of the party. It is not even case of the party that they themselves were growing sugar cane. In view of the above input service credit for GTA availed in supply of cane seed / bio-manure does not link directly or indirectly with the manufacture of final product of the said industry. Hence, on merit, the submissions of the party have no force and therefore the demand sustains.

5. She further submitted that issue was further examined by the Ld. Commissioner (A) and he also observed as under:

Here, I find that the factory and cane grower are two distinct entities. The factory facilitated the cane grower by providing high yielding variety of seeds and bio manure to the cane growers for the reasons best known to them and there exist a relationship of seller and purchaser only. Both are separate from each other and are independent to carry out their business. Further, I notice that the ultimate recipient of the service is the farmer and the GTA service provider to the sugarcane cultivator is in no way related with the manufacture of sugar cane in the factory. The appellant made a long drawn conclusion that high yielding variety will increase the production of sugarcane and sugar cane so cultivated will be purchased by them and the production will increase and tried to establish relationship in cane seed and production of sugar. I find that the impact of the distribution of seed and bio-manure can not be ascertained. In fact the cultivators themselves use the high variety of seeds and fertilizers to increase the production of their crops. In the instant appeal the service has been provided for the distribution of seeds and bio manure which is not an input for the sugar factory.

The input for the sugar factory is sugarcane and the sugar cane is cultivated by the farmer using different inputs. The relation between the sugar seed provided and sugar cane produced by the farmer is also not established. Further, sugar cane grower is not bound to sell all his produce to the appellant as it is mentioned in the UP sugarcane Act 1953 submitted by the appellant which inter-alia states that where any area has been declared as assigned area for a factory, such factory shall purchase such quantity of cane grown in that area offered for sale to the factory. It means the sugar cane grower may or may not offer its sugarcane for sale to the factory. Thus, it is not certain the quantum of the sugarcane received back by the appellant for the seeds and manure supplied by them to the cane grower. In the definition the phrase service related to procurement of input means the services in relation to procurement of input i.e. sugarcane for sugar factory not for the procurement input for the sugar cane grower i.e. seeds, manure, equipments and other agriculture related inputs. Contention of the appellant that the adjudicating authority did not consider their submissions is not correct.

In fact, the adjudicator has considered all the submissions and case laws submitted by the appellant and passed judicious order. The appellant was unable to justify its claim that the services of GTA for distribution of seeds and bio-manure are eligible input services, before the adjudicating authority and I do not find any reason to interfere in the judicious order of the Adjudicator and hold that the appellant are not eligible for Cenvat credit on activities discussed as above.

6. She further submits that the cases relied upon by the Ld. Counsel have no relevance to the facts of this case as in the case of Ultratech Cement (Supra) it is the case of availment of services outside factory premises for generation of electricity and in the case of VST Industries Ltd. (Supra) facts are not similar to this case as in that case product is tobacco and in this case product is sugar and in that case services are altogether different from the services availed by the appellant in this case. In these circumstances, she prayed that appellant has failed to discharge their application services availed by them having nexus to the final product. Therefore, they are not entitled to take Cenvat Credit.

7. Heard the parties. Considered the submissions.

8. In this case the appellant has availed Cenvat Credit on transportation services availed by them for transportation of cane seeds and bio manure to the place of the farmers. Both the sides disputed that whether the farmer who is growing sugarcane is supplying to the appellant or not. This fact has not been disputed in the show cause notice. The show cause notice only alleged that this transportation services have no nexus with the manufacturing activity of the appellant. Therefore, they are not entitled to take Cenvat Credit for these services. I have gone through the definition of Rule 2(L) of the Cenvat Credit Rules 2004 which is reproduced as under:

The term input services is defined under Rule 2(l) of the Cenvat Credit Rules, 2004, according to which 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 from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of the factory, premises of provider of output services or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal

9. As per Rule 2(L) of the Cenvat Credit Rules the assessee is entitled to take Cenvat Credit on the services which were used by them as a manufacturer directly or indirectly in relation to manufacturing of their final product. Therefore, the issue before me is that whether transportation availed by the appellant have any nexus to their manufacturing activity directly or indirectly. A similar issue came up before this Tribunal in the case of VST Industries Ltd. wherein the facts of the case for the ease of convenience are reproduced as under:

The appellant is engaged in the manufacture of cigarettes for which the main raw-material is tobacco. In order to ensure high quality of their product, the appellant has a scheme of having tobacco of good quality produced by a select group of farmers. Under this scheme, they supply tobacco seeds free of cost to the farmers and also arrange necessary advice to be given to them by experts.

In these set of facts this tribunal has observed as under para 7.

10. As in the case of VST Industries Ltd. this Tribunal held that the supply of tobacco seeds free of cost to the farmers and also necessary advice to be given to them by experts. These advisory arrangements were made under agreement between appellant and the services provider. In those circumstances, this Tribunal has held that providing of free tobacco seeds and security services are advisory services are having nexus to the manufacturing activity of the cigarette manufacturer. Therefore, following the decision of this Tribunal in the case of VST Industries Ltd. (Supra) I hold that in this case the services availed by the appellant is having a nexus indirectly to the manufacturing of their final product.

11. Therefore, I hold that appellant are entitled to take Cenvat Credit on GTA services availed by them in question. In these circumstances, I set aside the impugned order and allow the appeal with consequential relief if any.

(Dictated and pronounced in the open court)

(Ashok Jindal) Member (Judicial)

Bhanu

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ST/55841/2014-ST(SM)