Whether non mentioning of the units to whom input service credit would be distributed in ST-1 be reason for denial of credit?

Case:-HINDALCO INDUSTRIES LTD. VERSUS COMMISSIONER OF C.EX., ALLAHABAD

Citation:-2013(292) E.L.T. 416 (Tri.-Del.)

Brief Facts:- M/s.Hindalco Industries Ltd., Renukoot (U.P.) (hereinafter referred to as the applicant) have filed the stay petition seeking waiver of pre-deposit and stay of recovery of Excise Duty amounting to Rs. 18,02,65,970/- and equal amount of penalty imposed under Rule 15 of the Cenvat Credit Rules read with the provisions of Section 11AC of the Central Excise Act.
The applicant is engaged in the manufacture and sale of aluminium and aluminium products falling under Chapter Heading 76 of the First Schedule to the Central Excise Tariff Act. The applicant is also availing Cenvat credit facility in respect of service tax paid on various input services received in different mines of bauxite, located at Lohardaga, Jharkhand and another at Samri Chhattisgarh. M/s. Hindalco Industries Ltd. is the name of a company having several units all over India manufacturing and processing different dutiable and exempted goods. All the units have one single PAN number, common Board of Directors and a Head office. All the units are registered separately in the Central Excise Act and a consolidated balance sheet is prepared for the company, incorporating trial balance sheets of all the different units. M/s. Hindalco Industries, Renukoot is one of the unit of company i.e. M/s. Hindalco Industries Ltd. Bauxite mines located in different places are also independent units having separate set up and they had taken separate service tax registration number for GTA services received by them. The offices of these mines are situated at Lohardaga and Samri respectively. On the basis of correspondence with Supdt. of Central Excise Range, Ranchi it is gathered that M/s. Hindalco Industries Ltd. Lohardaga is registered for GTA services with effect from 16th March, 2005 and input service distributorwith effect from 17th February, 2006. Similarly M/s. Hindalco Industries, Samri in Chhattisgarh also registered separately the GTA service and input service distributor. On the basis of the scrutiny of the records, it was found by the departmental officers that applicant has availed and utilised inadmissible Cenvat credit of input services received at Lohardaga and Samri mines located in different States treating them as captive mines and also on the basis of the fact that the mines were registered with jurisdictional Central Excise department as input service distributor. On further investigation by the department, it was found that M/s. Hindalco Industries Ltd. Lohardaga as well as Samri, Chhattisgarh have not shown the details of unit to whom the credit will be distributed as ISD as required in Col. 5(d) of their ST-I application for registration. On the basis of investigation a Show Cause Notice was issued to the applicant denying Cenvat credit availed by them in respect of input services utilised at Lohardaga and Samri road etc. and also taking a view that ISD invoices issued by mines located at different places are not valid documents for taking credit against the input services by the applicant. Show Cause Notice was confirmed by the Commissioner of Central Excise, Allahabad vide impugned order under which a demand of Rs. 18,02,65,970/- had been confirmed along with interest and equal amount of penalty under Rule 15 of the Cenvat Credit Rules read with the provisions of Section 11AC of the Central Excise Act.

Appellant Contention:-The Appellant submitted that mines located at Lohardaga, Samari are the captive mines of the applicant and as per decision of Hon’ble Supreme Court in the case of Vikram Cement reported in 2006 (194)E.L.T. 3 (S.C.) and 2006 (197)E.L.T. 145 (S.C.) these mines are to be treated as captive mines and credit in respect of the input services available in mines is required to be allowed to them.
As regards ISD invoices issued by the mines located at different places, he submits that these invoices are valid documents for the purpose of taking credit against the input service. He further submits that input service available is qua a manufacturer and not qua factory. Since M/s. Hindalco Industries Ltd. is a company having many units, the input service credit is available to M/s. Hindalco Industries company. He further states that the Cenvat credit availed on input services can be distributed to the manufacturing unit by the input service distributor. Since the service credit has been distributed by the ISD, manufacturing unit is eligible for availing the Cenvat credit. He also states that service received in the mines formed part of the activities relating to business of the appellant.He also mentioned that three Show Cause Notices dated 5th April 2010, 25th February 2010 and 29th April 2011 were issued covering the period March, 2005 to October, 2010, Show Cause Notice dated 5-4-2010 is issued by invoking the extended period of limitation under proviso to Section 11A of Central Excise Act. He submits that substantial portion of the demand raised in the impugned order is time-barred. He also relied upon the decision of Tribunal in the case of M/s. Hindalco v. CCE, Allahabad Order No. A/561/2011-Ex.(BR), dated 7th May 2012 - 2012 (27)S.T.R. 401 (Tri.) in support of his contention that the mines are captive mines of M/s. Hindalco Industries and submits that the applicant has a strong case for waiver of pre-deposit for hearing the appeal.

Respondent Contention:-The Respondent submitted that M/s. Hindalco Industries is having several units all over the India and the applicant M/s. Hindalco Industries, Renukoot is one of the manufacturing unit of the main company. He submits that the mines located under Lohardaga and Samari are located at different places and are separately registered for the purpose of service tax with their jurisdictional Central Excise officers and they are also separately registered as input service distributor. He also submits that none of the input service distributor in their ST-I application has mentioned the name of M/s. Hindalco Industries for the purpose of distribution of the Cenvat credit. He submits that Commissioner has discussed all the submissions of the applicant and denied the Cenvat credit in respect of the services availed in the mines located at Lohardaga and Samri etc. He further mentioned that the decision of the Hon’ble Supreme Court in the case of Vikram Industries was also considered by the Commissioner who distinguished the case from the facts of the present case.
Reasoning of Judgment:- We have considered the submission from both the parties and perused the record, we find that the credit has been denied by the department taking a view that mines located at Lohardaga and Samri are not the captive mines of the applicant and also ISD invoices issued by the mines are not valid documents. We find that this is a fact that Lohardaga and Samri mines are situated far away from the manufacturing unit of the party in the different States of Jharkhand and Chhattisgarh and they are having separate identity as evident from independent financial accounting and business transactions. We also find that if the mines are captive mines of the applicant then the entire bauxite ore produced in the mines should be consumed by the applicant. But from the record, we find that M/s. Hindalco Industries Ltd. Chottamuri, Ranchi have also received the bauxite ore from these mines during the period from 2005-2006 to 2010-2011 (up to September) as per details given below :-

YEAR	Qty. (in Mt.)
2005-06	374323.00
2006-07	397533.158
2007-08	351458.988
2008-09	591759.925
2009-10	735526.190
2010-11 (up to Sept.)	444766.110

Therefore the contention of the party that entire bauxite produced in the mines is received in applicant’s unit at Renukoot is not entirely correct and in such a scenario when the bauxite ore is supplied to other units other than one based in Renukoot it is difficult to accept that these mines are exclusive captive mines of the applicant. Decisions cited by the applicant are distinguishable as in the present case bauxite ore is also being supplied to unit other than applicant. On perusal of the ST-I application filed with the jurisdictional Range Supdt. it is found that the mines having their office at Lohardaga, Samri and Baguru have taken service tax registration for GTA services received by them separately and independently and in their ST-I application they have not mentioned any name and detail of the unit to whom they will distribute the credit of input service as required at Sr. No. 5(d) of ST-I application. We find that in the form ST-I application at Sr. No. 5(d) reads as under :-

“5(d) In case of application for Input Service Distributor, furnish address of all the premises to which credit of input services is distributed or intended to be distributed”

We are therefore of the view that without mentioning the name and details of the premises to whom the credit is to be distributed Cenvat credit on the basis of such ISD invoice will prima facie may not be available to the applicant.

We note that under Rule 7 of the Cenvat Credit Rules manner of distribution of the credit has been prescribed, Rule 7 of the Cenvat Credit Rules is reproduced below :

“7. Manner of distribution of credit by input service distributor :-
The input; service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following condition, namely :-

(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or
(b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.”

On going through the above Rule 7, we find that input service distributor may distribute the Cenvat credit to its manufacturing units or units providing output service, subject to the conditions (a) and (b) of the rule. From the wording of the rule, we find that input service distributor has to be only one and the credit can be given to different manufacturing units because the “manufacturing units” is used in the rule in plural whereas the input service distributor is mentioned as singular. In the present case we find that the input service credit is being taken by M/s. Hindalco Industries Ltd. at Renukoot whereas the input service distributor are more than one as separately registered as Lohardaga and Samri, etc.
In view of the above, we are of the prima facie view that the Cenvat credit of service tax paid on input services utilised by the mines located at Lohardaga and Samri, etc., is not available to the applicant.

We find that the three Show Cause Notices were issued to the applicant by the department out of which Show Cause Notice dated 25th November, 2010 and 29th April, 2011 are within time limit whereas in the Show Cause Notice dated 5th April, 2010 extended period has been invoked. We note that party vide their letter dated 19th October, 2007 had informed the department about availment of the credit of service tax paid on the services received at their captive mines through ISD invoices. We are therefore of the prima facie view that extended period may not be applicable to the present case. After taking into consideration the amount of Cenvat credit in respect of normal period of limitation of one year, we direct the applicant to make deposit of Rs. 2 crores (Rupees Two crores) within a period of eight weeks and report compliance on 1-5-2013. On due compliance, there shall be stay of balance amount of tax, interest and penalty till disposal of the appeal.

Decision:-Part stay application allowed.
Comment:-The essence of this case is that prima facie the credit is not admissible to the appellant as the contention that the mines at which credit is taken are captive mines is false and the credit that is to be distributed to different units has also not been mentioned in the ST-1 application.

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PJ/Case Law/2013-14/1708

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