Whether credit admissible for transport expenses incurred for disposal of hazardous waste?

PJ/Case Law /2016-17/3322

Case:-INDIA PESTICIDES LTD. VERSUS COMMISSIONER OF C. EX. & S.T., LUCKNOW

Citation:- 2016(43) S.T.R.459(Tri.-All.)

Brief Facts:-The appellant are manufacturer of insecticides, is in appeal against order-in-appeal dated 15-12-2014 passed by the Commissioner (Appeals) Customs, Central Excise and Service Tax, Lucknow by which Cenvat credit availed on transportation charges in the process of cleaning and disposal of waste have been disallowed.

SCN dated 24-10-2013 was issued for the period April11 to March 12, as during course of audit it came to notice of the revenue that the appellant have utilised Cenvat credit of Rs. 65,475/- paid vide GAR-7 Challan Number 00052, dated 9-6-2011 and credits it vide RG23 A part-II Entry Number 14/223, dated 29-7-2011 being transporting charges paid on cleaning and disposal of hazardous waste services provided by Ramki Enviro Engineers Ltd., Kanpur. It appeared to revenue that the Cenvat credit is inadmissible as there is no prescribed document to avail credit as per the provisions of Rule 9(1)(e) of Cenvat Credit Rules, 2004. It further appeared that credit is not available as the service does not have any nexus with manufacture and clearance of goods, upto the place of removal and does not fall in the ambit of the definition of input service, in terms of Rule 2(l) of CCR, 2004. The appellant contested the show cause notice and the same was adjudicated vide Order-in-Original dated 28-2-2014, confirming the proposed demand on the transportation charges incurred for disposal of hazardous waste, generated in the course of manufacture along with interest and further equal amount of penalty was imposed under Rule 15 of CCR read with Section 11AC of Central Excise Act. Being aggrieved the appellant preferred appeal before ld. Commissioner (Appeals) who vide the impugned order allowed the appeal in part with respect to Consultancy Charges for Interior Works, and have been pleased to disallow the Cenvat credit on transportation charges for disposal of hazardous waste. It has been observed, agreeing with the appellant, that it is essential for them to dispose of properly the hazardous waste products for smooth functioning of the business, but at the same time the ld. Commissioner finds that the definition of input services, provides that services be used directly or indirectly in the manufacture of final products and clearance of final products up to the place of removal only. Further observed, the inclusive part of the definition also restricts the outward transportation upto the place of removal only. Accordingly considering the transport expenses so incurred, to having been incurred beyond the place of removal, the disallowance was upheld. As regards penalty, observed that there is no deliberate intention on the part of appellant to evade the payment of duty, and availed the inadmissible credit. Credit was availed on the basis of available documents. On scrutiny of the documents by Audit and in the response to objection by the audit team, finding of discrepancies or irregularities, appellant had reversed the credit. Mere discovery of excess availment of Cenvat credit, cannot be a condition for invoking the clause of ‘fraud and suppression’ in the absence of any evidence to support the allegation. Accordingly penalty under Rule 15 of CCR was reduced to Rs. 10,000/- (Rupees Ten Thousand only).

Appellant’s Contention-Being aggrieved the appellant is in appeal before the Tribunal. The ld. Counsel urges that there is no dispute as regards the incurring of transport expenses for disposal of the hazardous waste. Further there is no dispute as evident from the impugned order, that disposal of such hazardous waste is essential for the manufacture of taxable output/products, being insecticides. It is further urged that the ld. Commissioner erred in considering the disposal of waste generated, as incurred beyond the place of removal. It is here that the ld. Commissioner (Appeals) erred because the concept of ‘place of removal’ is applicable in respect of removal of the excisable finished products. The same does not have any relevance with the disposal of waste products generated in the course of manufacture of excisable products. He further points out from the definition given in Rule 2(l) clause (ii) that any input service utilised by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final product - thus disposal of hazardous waste is an essential activity for the manufacture of taxable products, without which there can be no effective, manufacture. Accordingly prays for allowing the appeal with consequential benefits, he also relies on the ruling of SMB Bench of this Tribunal in the case of CCE v. EID Parry India Ltd. reported in 2005 (186) E.L.T. 417 (Tri.-Chennai) wherein it has been held, even post manufacturing expenses incurred by a chemical industry, for the pollution control, have been held to be integrally connected with the process of manufacture of chemical products (Taxable).

Respondent’s Contention-The learnedly A.R. for Revenue relies on the impugned order.

Reasoning Of Judgement-Having considered the rival contentions, the Tribunal held that disposal of hazardous waste by the appellant is an essential activity, without which, the final products being excisable insecticides, cannot be manufactured. Thus the Tribunal held that, the transport service in question have been incurred in relation to the manufacture of final taxable products. Accordingly, the Tribunal set aside the impugned order to the extent, it disallows Cenvat credit on Transport Expenses incurred for disposal of hazardous waste. Thus the appeal is allowed. The appellant will be entitled to consequential benefits in accordance with law. The penalty imposed and or retained by Commissioner (Appeals) of Rs. 10,000, (Rupees ten thousand only) is also set-aside.

Thus the appeal is allowed.

Decision- Appeal allowed.

Comment- The gist of the case is that transport expenses incurred for disposal of hazardous waste is an essential activity for manufacture of final product viz. insecticides, hence, it is an input service and credit on expenses incurred for such transport is admissible .Therefore, demand and penalty were set aside in accordance with Rule 2(l) of Cenvat Credit Rules, 2004.

Prepared By -Praniti Lalwani

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PJ/Case Law /2016-17/3322

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