By TIOL News Service

AHMEDABAD, JUNE 09, 2014: THE appellant is engaged in the manufacture of Polyester Chips, Lump Waste, and Polymer Waste [Ch. 39] and availing CENVAT. The appellant also manufactured Polyester Chips on job work basis out of raw materials received from their own factory, located at Athola, Silvassa and sent back the same to their Athola factory without payment of central excise duty in terms of Notf. No. 214/ 86-CE dated 25.03.1986.

The Department entertained a view that the CENVAT Credit of service tax paid on input services, used by the appellant in the manufacture of goods on job work basis, exempted under Notf. No. 214/86-CE was not admissible to the appellant in terms of the provisions of Rule 6(1) of the CCR, 2004. Department also viewed that the appellant had rendered 'Business Auxiliary Service' [Exempt under Notf. No. 8/2005-ST dated 01.03.2005] to its own factory M/s JBF Industries Limited, Athola inasmuch as the appellant undertook 'production or processing of goods' (working upon raw material supplied by the client) on behalf of the client as mentioned in sub-clause (v) of clause (19) of Section 65 of the Finance Act, 1994), and hence CENVAT Credit of service tax paid on input services used in providing exempted 'Business Auxiliary Service' was not admissible to them in terms of the provisions of Rule 6 (1) of the CCR, 2004.

The Commissioner disallowed the CENVAT Credit of Rs.71,80,949/- and also imposed equivalent penalty and interest.

Before the CESTAT, the appellant inter alia relied upon the Tribunal Larger Bench decision in Sterlite Industries (I) Limited 2005-TIOL-305-CESTAT-MUM-LB as upheld by the Bombay High Court and submitted that the credit cannot be denied.

The Revenue representative submitted that as the processes undertaken by the appellant amounts to manufacture, no service tax is payable under the 'Business Auxiliary Services' as the same is exempted and, therefore, credit on input services cannot be taken with respect to exempted services.

The Bench observed that the issue whether the CENVAT Credit of input services taken by the appellant and used by them in the manufacture of job-worked goods (exempt under Notfn. No. 214/ 86 CE) is admissible to the appellant or not in view of the provisions contained in Rule 6(1) of the CCR, 2004 is no more res integra and has been decided by the Larger Bench in the case of Sterlite Industries (I) Limited (supra) by holding that credit availed by the job worker cannot be denied where inputs were used in the manufacture of goods which were cleared without payment of duty under Notification No. 214/ 86-CE.

On the second proposition made by the AR for denial of credit viz. that the production or processing of raw materials, which amounted to ‘manufacture' in terms of Section 2(f) of the CEA, 1944 was an exempted or non-taxable service and hence CENVAT Credit of input services was not available, the Bench observed –

+ We find that the job work activity of the appellant is amounting to manufacture and is not one of providing any 'service'. The appellant factory cannot be both a 'manufacturer' and a 'service provider' at the same time in relation to a particular activity. It is settled proposition in central excise matters that a job worker is a 'manufacturer' and hence the appellant factory cannot be treated as a service provider rendering exempted/ non-taxable service for the manufacturing activity. Therefore, there is no force in the Revenue's contention that the appellant had rendered exempted/ non-taxable service to its sister concern located at Athola.

The appeal was allowed by setting aside the Order of the adjudicating authority.

(See 2014-TIOL-972-CESTAT-AHM)