Cenvat Credit

The appellant, extracted oil with associated gases from oil wells and transferred it to offshore “well platforms” (connected to the oil wells through pipelines) and then to offshore “process platforms” (connected to well platforms) for processing. The crude (oil and gas) at this point which was in a semi–stabilized condition was an exempted product which was partly sold to other refineries and partly transferred to its on–shore plant (connected to process platforms) to obtain downstream excisable products. The assessee availed Cenvat credit of input services received in its offshore locations (well heads, well platforms, process platforms, etc.) which was denied by the Revenue on the ground that the input services were exclusively used for manufacture of exempt products viz., crude oil and gas in a semi-stabilised condition. On appeal, the High Court relying on Escorts Ltd. vs. CCE (2004) 171 ELT 145 and CCE vs. Solaris Chemtech Ltd. (2007) 214 ELT 481 (SC) held that –

• Manufacture of dutiable products at the on–shore plant is fundamentally premised on the manufacturing process that commenced at the off–shore plants;

• The input services used at the off–shore plants is used by the appellant manufacturer “directly or indirectly in or in relation to” manufacture of dutiable products at its on–shore plant.

Accordingly, the High Court allowed Cenvat credit on input services but subject to the qualification that it would be required to comply with the discipline and rigour of Rule 6 and would be entitled to take Cenvat Credit only on the quantity of input service which is used in the manufacture of the ultimate dutiable product. [ONGC vs. CST, 2013(32) STR 31 (Bom)]

• Where the appellant had proposed to enter into manufacturing of herbal products, for which they had availed R&D services but due to business exigencies had to abandon the venture it was held that since the definition of “input services” and “final products”, both require the “use” of input services to manufacture of final products, the credit of service tax paid on R&D services which did not materialize into manufacture of excisable products would not be available. Further interest u/s 75 would also be payable for wrong availment of cenvat credit in view of the judgement of the Supreme Court in Ind-Swift Laboratories Ltd. (2011) 265 ELT 3(SC). However penalty u/r 15 was held to be not imposable. [Lyka Labs Ltd. vs. CCE, Surat, 2013(32) STR 79]

• Credit on services of the Mandap Keeper availed to celebrate the ‘Annual Day’ function of the company which was attended by the employees and their families is an integral part of the business activity and hence is admissible. [Endurance Technologies Pvt. Ltd. vs. CCE, Aurangabad, 2013(32) STR 95 (Tri-Mum)]

• Where the air travel was undertaken by the employees in connection with the business of appellant, cenvat credit on air travel agents services was held to be admissible. [Goodluck Steel Tubes Ltd. vs. CCE 2013(32) STR 123 (Tri-Del)]

• Cenvat credit can be utilized for payment of Service Tax under reverse charge basis u/s 66A of the Act. [Kansara Modler Ltd. vs. CCE (2013) 32 STR 209 (Tri.–Del.)]

• Outdoor catering services availed for providing lunch / dinner to customers is a part of business promotion for increasing the sale of manufactured goods. It is an activity relatable to manufacture of goods and hence Cenvat credit thereon is admissible. [Heubach Colour Pvt. Ltd. vs. CCE (2013) 32 STR 225 (Tri. – Ahmd.)]

• Cenvat credit of insurance services availed for insurance of plant, machinery and inventories being an activity in relation to manufacture is admissible [Grasim Industries Ltd. vs. CCE (2013) 32 STR 256 (Tri-Del)].