whether cenvat credit can be availed on manpower recruitment services used for handling, loading and unloading?

Case:-Commissioner Of Central Excise, Kolhapur Vs M/S Shree Chh Shahu Ssk Ltd

CITATION:-2015-TIOL-186-CESTAT-MUM

Brief facts:-this appeal by revenue is preferred against order-in-appeal no. Pii/pap/177/2009 dated 28.8.2009 passed by the commissioner of customs & central excise (appeals), pune-ii.
The brief facts are that the respondent assessee is manufacturer of sugar etc. And availed cenvat credit on certain inputs and input services, which are utilized in discharging the central excise duty both by debiting in cenvat credit as well as through pla. During scrutiny of the record by revenue, it was noticed that the assessee have availed cenvat credit of service tax paid on manpower recruitment services used for handling, loading and unloading of press-mud, compost and boiler ash, which attracted nil rate of duty during the period august, 07 to january, 2008. As the revenue felt, by virtue of provisions of rule 6(1) of cenvat credit rules, the cenvat credit shall not be allowable on such quantity of input or inputs services, which is used in the manufacture of exempted goods or exempted services. Further, as per explanation-iii of rule 3(3) of cenvat credit rules, it is clarified that credit shall not be allowed on input services used exclusively for the manufacture of exempted goods or exempted services. As press-mud and compost both classified under first schedule to central excise tariff act, 1985 under ceth 39.09 and boiler ash is classified under first schedule to central excise tariff act, 1985 under ceth 26.21, which attract nil rate of duty, cenvat credit of rs.17,69,572/- availed was required to be disallowed and recovered along with interest under section 11a(1) and 11b of central excise act, 1944. Accordingly, the assessee was required to show cause as to why not the said amount of cenvat credit allegedly wrongly availed should not be recovered and further why not interest be demanded and also penalty be not imposed under rule 14 of cenvat credit rules.

Appellant’s contention:-being aggrieved, the revenue is in appeal before this tribunal on the ground that the commissioner (appeals) has failed to appreciate that as per rule 3 of cenvat credit rules, 2004, cenvat credit is available only on the final product and as compost and boiler ash are not final product of the assessee, therefore, cenvat credit on inputs service is not allowable in respect of the above services. Further, the commissioner (appeals) has erred in not considering the explanation-iii to rule 6(3) wherein it is clarified that the credit shall not to be allowed on input services used exclusively for manufacture of exempted goods or exempted services.

Respondent’s contention:-the respondent assessee contested the show-cause notice stating that it is engaged in the manufacture of sugar, molasses as well as denatured spirit and rectified spirit in its factory. To process the sugar cane juice/generate the electricity required, steam was required. To generate steam, baggase was burnt into the furnace, which in turn created the heat required for generating the steam. The remnant from the burnt baggase (which is taken out of the boiler and furnace), is referred as boiler ash. Further stating that if boiler ash is not removed from the furnace, all the boiler and furnace would got clogged and then burning of baggase will become impossible which will hamper the generation of steam resulting into disruption in manufacture of sugar, molasses etc. Further, as per regulation of pollution control board, the assessee cannot just throw away the boiler ash/press mud/spent wash, since it would cause air pollution as well as harm to human beings within the locality. The boiler ash though non-excisable, being non-manufactured product, they have to remove those waste from the equipments and dump the same in the compost pit where due to natural reaction the composting takes place and for this they have to use the labour & manpower for removing the same. Further, press-mud is obtained pursuant to filteration /fermentation of the sugar cane juice required for manufacturing good quality sugar and molasses. The press mud is also required to be removed from the machine area regularly where it is generated as otherwise, further processing would be stuck and there will be chance of mixing of waste, press-mud with sugar cane juice, which shall damage to the quality of sugar cane juice and molasses etc. Further, during the manufacture of rectified spirit and denatured spent wash emerges as the residual waste and the same is required to be removed regularly from the denatured section and if not removed or allowed to just flow out will mix with water, then spent wash would cause damage to the environment and to human life.

Therefore, in order to effectually dealing with the waste-arise in the course of manufacture, in terms of directions of the pollution control board, it is compulsory for the sugar factory like respondent to do composting of the said waste material so as to avoid harm to environment for well being of human life and animals. As such, as directed by the pollution control board, the assessee cannot throw away the waste material and is bound to arrange systematic disposal of the said waste. Accordingly, the assessee have built a compost pit, which is referred to as compost yard and in the said compost pit, they were dumping the press-mud and boiler ash, where due to natural cause, the said mixture of press-mud and boiler ash was got composted. Therefore, for handling the waste which arise in various section in the factory, for proper handling and composting and to maintain health, including waste in compost yard, the assessee hired the various labours through the manpower recruitment agency, who were charging service tax on the charges which they were recovering from the assessee. Further, the said compost among others is used as fertilizers for agricultural purposes, hence the same was sold mostly to farmers and for other agricultural purpose. Thus, the said service is wholly attributable to the manufacture of excisable goods, being sugar, molasses, rectified spirit and denatured spirit. Accordingly, it is fully allowable as input services, and does not call for any disallowance under the scheme of the act and rules. The assessee further relied on the ruling in the case of indian farmers fertilizers co- op ltd. Vs. - 1996 (86) elt 177 (sc) = 2002-tiol-146-sc-cx, wherein it is laid down that following directions of pollution control board was a part and parcel of the manufacturing activity and hence, the equipment used for pollution control were bound to be used in the manufacture to the final product. Thus, it can by no stretch of imagination be held that manpower services utilized by the appellant were only for the sake of handle of the waste product which are not excisable.

The show-cause notice was adjudicated vide order-in-original dated 23.3.2009 wherein it was held that manufacturer of compost is a separate process other than manufacture of sugar, molasses etc. And accordingly, cenvat credit of rs.80,640/- was held to be wrongly availed in respect of boiler ash and compost and further interest was demanded on the same along with equal amount of penalty. However, the cenvat credit of rs.16,88,832/- in respect of input services used for removing the press-mud was allowed. Being aggrieved, the appellant preferred an appeal before the commissioner (appeals), wherein the commissioner (appeals) was pleased to hold that in place of electricity as input used in relation to manufacture, the man-power recruitment or supply agency services was used in relation to manufacture of the final product of the appellant. Accordingly, it was held that the appellant was eligible to avail cenvat credit of rs.86,640/- and, therefore, the appeal was allowed in favour of the respondent.

Reasoning of judgment:-the hon’ble court find that the issue is no more res integra and the same is squarely covered by the ruling of the hon'ble madras high court in the case of commissioner of central excise vs. Eid parry (i) ltd. - 2013 (293) elt 10 (mad) = 2013-tiol- 251-hc-mad-cx, where in similar facts and circumstances of the sugar manufacture, it has been held as follows:-

"15. We find force in the submission made by the first respondent assessee. Certainly, the cenvated inputs were brought into the factory by the assessee for using it in the manufacture of their final products viz., sugar, molasses, denatured ethyl alcohol. Once they use those cenvated inputs at the initial stage and obtain certain final products as well as wastes such as press mud and spent wash, there was no further application or usage of those inputs either in or in relation to the manufacture of final products once again. In other words, the commencement of journey of those cenvated inputs used either in or in relation to the manufacture of final products ends with the emergence of those final products along with inevitable wastes. Their usage cannot be traced beyond the first degree. The same inputs cannot be considered to have been utilised or used even indirectly in the manufacture of disputed item viz., bio-compost fertiliser, especially under the factual circumstances that the same came to be manufactured only by adding those two waste materials together. May be those two waste materials contained the trace of certain chemicals with the characteristics of original inputs. That itself cannot be taken to mean that the product emerged out of those wastes was also manufactured by using those cenvated credit inputs.

16. As rightly contended by the learned counsel for the assessee, the characteristic of sugar cane containing various chemicals cannot be stopped or prevented by the manufacturer to pass on even to the wastes, as it is undoubtedly a natural flow of in born character from one stage to another. Only when there is a further addition of inputs or chemicals with similar characteristics externally by the manufacturer, the revenue can invoke rule 57cc. In other words, when spent wash and press mud had emerged as inevitable wastes during the process of manufacturing of final products
Viz., sugar and denatured ethyl alcohol and the said wastes are combined and treated together to form another final product viz., bio-compost, the said final product cannot be brought under rule 57cc.

17. We are conscious of the fact that what is in dispute is not the question as to whether bio-compost fertiliser is a final product or not, but on the other hand the question is as to whether such final product is liable to be brought under rule 57cc of the central excise rules or not. Press mud is an unavoidable and inevitable waste which arises when the cane juice obtained after crushing the sugar cane is further processed for manufacture of sugar. Press mud is nothing but impurities present in the cane juice. Likewise, spent wash is an inevitable waste product when molasses is treated to bring out ethyl alcohol or denatured spirit. Both press mud and spent wash are exempted from duty by virtue of certain notifications. Bio-compost is the mixture of two waste products viz., press-mud and spent wash and is marketed by the assessee. What is to be seen is as to whether such final product had emerged by using any cenvated inputs either in or in relation to such manufacture of final product. As we have already found that no cenvated inputs or chemicals were used either in or in relation to the manufacture of such exempted final product viz., biocompost fertiliser, we are of the view that demand made by the revenue is unsustainable.

18. The learned counsel for the revenue relied on the decision of the apex court reported in 2007 (214) e.l.t 481 (sc) = (2007-tiol-135-sc-cx) (collector of central excise v. Solaris chemtech limited) to contend that if manufacture of final product cannot take place without the process in question then that process is an integral part of the activity of manufacture of the final product. Thus, the learned counsel by taking support from such decision contended that the words "in relation to the manufacture of final product" should convey the expanded meaning in order to bring even the inputs which even do not enter into finished goods. In the above said decision of the apex court, the facts show that inputs viz., lshs and furnace oil on which modvat credit availed have been used for generation of electricity, which is non-excisable product which was again used for the manufacture of cement/ caustic soda etc., therefore, the inputs that were used in relation to the manufacture of final products viz., cement and caustic soda were allowed modvat credit."

Thus, in the fact and circumstances of the case, the present appeal, in view of the ruling of thehon'ble madras high court in the case of eid parry (i) ltd. (supra), they hold that there is no infirmityin the order of commissioner (appeals) and he has rightly held that manpower also consumed forthe purpose of handling waste and compost etc. Is an essential part of manufacture of theproduct being excisable goods, etc. And accordingly, the same is fully allowable.

In view of the aforesaid observation and findings, the appeal of the revenue is dismissed.

Decision:-appeal dismissed.

Comment:-the analogy of the case is that manpower recruitment services used for handling, loading and unloading of compost & boiler ash is allowable as cenvat credit as it is an essential part of manufacture of excisable sugar. In this regards, reliance can be placed on the decision of hon'ble madras high court in the case of eid parry (i) ltd.

Prepared by:- monika tak

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