Whether credit denied on the ground that the raw material was directly sent to the job worker’s factory?

PJ/Case Laws/2012-13/1388

Case:- COMMISSIONER OF CENTRAL EXCISE, JAIPUR V/S KEC INTERNATIONAL LTD.

Citation:- 2012 (28) S.T.R. 399 (Tri. – Del.)

Brief Facts: - The present appeal has been filed by the revenue on being aggrieved with the order passed by the Commissioner Appeals. The respondents – assessee were engaged in the manufacture of galvanized parts of transmission tower and lining falling under Chapter 73 of the Schedule to the Central Excise Tariff Act, 1985. The starting raw material for the said final product is billets which the assessee is procuring from outside. Instead of bringing billets into their factory, they purchased the same and sent it directly to the factory of job worker who convert the same into angles and channels. Duty of Excise paid on the said billet is availed as modvat credit by the said job workers. The angle and channels were manufactured by the job workers and supplied to the assessees who further converts into their final products.
The main dispute here in the present appeal relates to the availment Cenvat credit of Service tax paid by the respondents on the GTA service so received by him for transportation of billets. The Revenue alleges that as the said billets are not brought into the respondent’s factory and are directly sent to the job workers factory, the Service tax paid by the assessee for transportation of said billets is not available to them as credit.

Reasoning of Judgment: - The Hon’ble Tribunal held that it is rightly accepted by the Commissioner (Appeals) that as the respondents have paid freight along with the Service tax and billets are essential inputs, the credit of Service tax paid by them should be allowed. They further reiterated the finding of the Commissioner (Appeals) that there is no dispute that the assessee has purchased the raw material namely MS billets which have been used in the manufacture of finished goods MS Angles/Channels manufactured by the job worker and supplied to them. Then after taking Cenvat credit on these MS Angles/Channels these have been used by the assessee in the manufacture of galvanized parts of transmission tower and lining. The transportation charge on MS billets from the supplier to the job worker premises including service tax has actually been borne by the assessee and finished goods manufactured by using the input MS Billets which got converted into Angles/channels by job worker and then got converted into galvanized parts of transmission tower and lining by the assessee were sold by the assessee themselves. Further it was observed that the expense incurred by the assessee on GTA service for procurement of MS Billets is definitely an ingredient cost of galvanized parts of transmission tower and lining sold by the assessee and thus the GTA service is input service under Rule 2(l) of Cenvat Credit Rules, 2004.
Further, they find that Hon’ble Apex Court in case of Regional Director v. High Land Coffee Works [(1991) 3 SCC 617] has held that the word “include” is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not restriction. Similar view has been taken by the Larger Bench of the Tribunal in Commissioner of Central Excise v. GTC Industries Ltd. [2008 (12) S.T.R. 468 (S.C.). In this case since the cost of all these services indicated in the chart submitted by the assessee are included in the cost of the final product, hence they are to be treated as input service in terms of said order of the Larger Bench of CESTAT. Further Hon’ble Larger Bench of CESTAT in the case of M/s. GTC Ltd. - 2008-TIOL-1634-CESTAT-Mumbai and Hon’ble High Court of Bombay in the case of M/s. Coca Cola India vide its order dated 26-8-2009 - 2009 (242) E.L.T. 168 (Bom.) has held that any input service which form part of the value of final product on which duty is paid, should be eligible for Cenvat credit. Thus, following the said decisions the Commissioner (Appeals) hold that GTA service for procuring the MS billets which ultimately has been used for manufacture of galvanized parts of transmission tower and lining sold by the assessee is an input service and they are entitled for the Cenvat credit amounting to Rs. 289008/- and thus they set aside the impugned order confirming the demand for recovery of Cenvat credit amounting to Rs. 289008/-.
Thus, they held that from the said order of the Commissioner (Appeals) it is found that the billets are admittedly the raw material for the respondents final product, if the said billets are brought to the factory by the respondents and then sent to the job workers, there could be no dispute about the availability of credit of Service tax paid on GTA services. Merely because to save transportation, the billets are directly offloaded in the factory of job workers, should not be adopted as a reason for denial of credit, especially when the freight as also Service tax stand paid by the respondents. Undoubtedly, the billets are first required to be converted into angles and/channels which are further converted into the final product. As such, the billets are essentially starting raw materials for the final product and their transportation has to be held as an input service. Thus, there is no valid reason to interfere in the impugned order of the Commissioner (Appeals).

Decision: - The department’s appeal was rejected.

Comment:- This is yet another case that confirms the principle of eligibility of input service credit whereby the same is undoubtedly admissible to the assessee if the service is used in the manufacture of final product irrespective of the fact that the said service is directly availed to/from the factory.

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PJ/Case Laws/2012-13/1388

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