CENVAT - Argument that CNG needs recompression at DBS in order to fill product into vehicle is without any merits inasmuch CNG is already a marketable commodity and activity of recompression is neither incidental nor ancillary for manufacture - Credit rightly denied on Cascade: CESTAT
By TIOL News Service
MUMBAI, FEB 23, 2016: THE appellant is holding centralized CE Registration for manufacture of Compressed Natural Gas (CNG) and avails CENVAT Credit. The appellant availed CENVAT Credit of duty paid on cascades which are used for transportation of CNG to their Daughter Booster Stations (DBS) for eventual sale during the period March 2001 to December 2004.
Revenue authorities were of the view that the CENVAT Credit cannot be availed on cascade without bottle or cylinders which are mounted on vehicles as the DBS cannot be considered as manufacturing premises or factory.
SCNs were issued for denial of CENVAT credit invoking the normal as well as extended period. The demands were confirmed by the lower authorities with penalties etc.and, therefore, the appellant is before the CESTAT.
The appellant submitted that CNG is volatile in nature and has to be transferred in cascades to DBS, where they are filled into individual vehicles; that when CNG is filled in cascade and transported to DBS, the pressure of the gas in cascades reduces and gas cannot be filled into any vehicle. Accordingly, compressors are installed at DBS which recompress the CNG in order to attain the desired pressure which would enable the filling stations to load CNG in the vehicles. Adverting to Chapter Note 5 under Chapter 27 the appellant submits that unless the CNG is further re-compressed in DBS (which process of attaining marketability amounts to manufacture), the product cannot be filled in the vehicles. Moreover, the appellant had got these DBS registered as factory premises for dispensing the CNG. The appellant also sought to derive support from the Board Circular No. 875/13/2008-CX dated 16.10.2008 and the decisions in Vikram Cement - 2006-TIOL-150-SC-CX & Deepak Fertilizers & Petrochemicals Corpn. Ltd. - 2013-TIOL-212-HC-MUM-CX. The demand is also argued on the point of limitation by submitting that the SCN dated 18.4.2005 for the normal period April, 04 to Dec, 04 is issued first and the one invoking extended period is issued on 27.10.2005 and which would mean that Revenue was aware to the facts.
The AR reiterated the finding of the lower authorities.
The Bench observed that the contentions of the appellant is devoid of merits on account of the following -
(i) Firstly, it is undisputed that the compression of natural gas takes place at Mother Station where the appellants have installed various machines where the compression of natural gas is considered as an activity of manufacturing. Hence, CENVAT Credit availed on such capital goods at mother station is quite rightly undisputed. Subsequent to compression, the CNG which comes into existence is filled in the cascades into bottle/cylinder which is used for transporting the CNG to DBS, wherein the same are filled by using compressors into the vehicles. In our considered view these cascades are only transporting the CNG which has already come into existence as a manufactured product and is a marketable commodity. The argument of the learned Counsel that the CNG needs recompression into DNS in order to fill the product into vehicle is without any merits inasmuch CNG is already a marketable commodity, and the activity of recompression is neither incidental nor ancillary for manufacture of CNG at DBS as the recompression is of CNG.
(ii) Secondly, reliance was placed on the Chapter Note 5 to the Chapter 27. The said Chapter Note will not be of any help to the appellant's case as the said Chapter Note talks about the compression of natural gas for the purpose of marketing the CNG would amount to manufacture, in the case in hand, the compression of natural gas takes place at mother station. At DBS the recompression of CNG does not bring into existence any new product which is distinct.
The case laws cited by the appellant were distinguished and held not applicable.
The plea of limitation was also rejected by observing that the availment of CENVAT Credit of the capital goods at the Mother Station is only declared to the Revenue authorities but the credit of duty paid on cascades and compressor used at DBS were not indicated as being installed and commissioned at DBS.
The appeals were rejected.
In passing: Perhaps, this is not the end of the cascade!
(See 2016-TIOL-497-CESTAT-MUM)
