Utilisation of Cenvat Credit

PJ/Case Laws/2011-12/1324

Case: C.C.E., COIMBATORE v/s LAKSHMI TECHNOLOGY & ENGINEERING INDUS. LTD.

Citation: 2011 (23) S.T.R. 265 (Tri. - Chennai)

Issue:- Cenvat Credit – Assessee engaged in Manufacturing activity & also providing output service – utilization of credit on capital goods, inputs used in Manufacture whether permissible to be used for output service?

Brief Facts:- Respondents is a manufacturer of satellite components and aircraft components classifiable under Chapter sub-heading 8803 30 00 and they are paying excise duty on these goods. They are also providing service of renting of immovable property coming under Section 65(105)(zzzz) of Finance Act, 1994. The respondents have availed credit of excise duty paid on capital goods and inputs and service tax paid on input service. They have used the credit in CENVAT account for paying excise duty on the excisable goods cleared by them and also for paying service tax on the services rendered under the category of "Renting of Immovable Property".

Show Cause Notice was issued to respondent alleging that the capital goods, inputs and input services on which credit was taken has no nexus with the renting of immovable property service and therefore the CENVAT credit could not be utilized by them.

The Original Authority confirmed the demand with interest.

On appeal, the Commissioner (Appeals) set aside the order of the Original Authority. Hence the department filed appeal before the Tribunal.

Appellant’s Contention:- Department submitted that in respect of renting of immovable property services, the Respondent could not use credit on capital goods, inputs and service tax which are not actually utilized in respect of such services of renting of immovable property.

Respondent also relied on the Circular of the Board No. 98/1/2008-S.T., dated 4-1-2008.

Reasoning of Judgment:- The Tribunal held that Rule 3(1) of the CENVAT Credit Rules permits credit to a manufacturer of final product or a service provider of taxable service. If a person manufactures only excisable goods, he is entitled to take credit of not only excise duties paid on capital goods and inputs but also additional duty of customs paid under the Customs Tariff Act in respect of imported inputs and capital goods and also service tax paid on the input services utilized in or in relation to the manufacture of the excisable goods. In other words, a manufacturer of excisable goods is entitled to use the credit from a common pool to which different categories of specified excise duties, customs duty and service tax are allowed to be taken as credit. Similarly, a provider of taxable service is also entitled to take credit of specified excise duty, additional duty of customs and service tax in respect of input services and utilize the credit from all these sources for the purpose of paying service tax. The objection by the Department is that the respondent who is both a service provider and a manufacturer should maintain two separate accounts one in respect of credit attributable to inputs, capital goods and services meant for excisable goods and credit attributable to capital goods, inputs and services attributable to the service provided by them. Common CENVAT Credit Rules have been framed in terms of powers conferred by Section 37 of the Central Excise Act, 1944 and Section 94 of the Finance Act, 1994. Rule 3(1) enables a 'manufacturer' or a provider of taxable service to take credit of specified duties and utilize them to discharge duty liability under Rule 3(4) of the CENVAT Credit Rules. A credit can be utilized for payment of any duty of excise on any final product or for payment of service tax on any output service.

It was held that the respondent is undisputedly registered as a service provider for providing the services of renting of immovable property. The credit taken by them as manufacturer and as service provider has been used both for paying excise duty and for paying service tax. The rules permit taking of credit under a common pool and permit use of the credit from the common pool for different purposes, and there is no restriction placed to the effect that credit accounts should be maintained for use for manufacture of excisable goods and for use for providing services. Therefore, the view taken by the Commissioner (Appeals) cannot be faulted. The clarification sought to be relied upon by the Department that input credit service taken only if the output is a service liable to service tax has no relevance to the present case. Undisputedly, the respondents have registered themselves as service provider of service of renting of immovable property and paying service tax as provider of output service and therefore the utilization of credit taken by them is valid.

Decision:- Appeal Dismissed.

Comment:- This is very important decision. It was held earlier in erstwhile Modvat credit Rules that when there are two different product then there is no need to maintain separate record of Modvat for each product. There is no one-to-one correlation in modvat scheme. Now, this issue is raised for dutiable final product and taxable service. There is common Cenvat credit Rules for both of them. There is no need to maintain separate records for them. The credit earned can be utilized for either payment of final product and on payment of service tax. This landmark decision underlines the same.

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PJ/Case Laws/2011-12/1324

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