By TIOL News Service

CHENNAI, DEC 10, 2014: THIS Civil Miscellaneous Appeal was filed by the appellant against the order of the Customs, Excise and Service Tax Appellate Tribunal - 2014-TIOL-1439-CESTAT-MAD raising inter alia the following substantial question of law:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the activity of trading to be considered as exempted service for the period prior to 01.04.2011 even though the same has been identified as an exempted activity only from 01.04.2011?

The appellant is engaged in the manufacturing of parts of pre-heater and clearing the same to Dalmia Cement (B) Ltd., Dalmiapuram on payment of excise duty and the contract was for Rs.41.45 crores . It is the case of the Department that out of the contract valued at Rs.41.45 crores , the appellant manufactured and supplied the goods to the value of Rs.5.41 crores only during January, 2004 and the remaining value of the goods to the tune of Rs.36.04 crores were supplied by procuring them from outside. In other words, the value of goods at Rs.36.04 crores was traded from a third party source and not manufactured by the appellant in their unit. M/ s.Adhunik Corporation, Calcutta had received sales commission of Rs.2.00 crores from the appellant for procuring the above mentioned contract valued at Rs.41.45 crores . M/ s.Adhunik Corporation had paid service tax of Rs.20 ,18,000 /- and the appellant took credit of the said service tax paid.

Department allowed credit only to the extent of service attributable to the manufactured goods and disallowed credit of Rs 17,54,838/- pertaining to traded turnover. The Tribunal also upheld the view of the department and the appellant is before the High Court challenging the order of the Tribunal.

The appellant contended that though the provisions of Rule 2(l) of the Cenvat Credit Rules, 2004 is an inclusive definition and the entire contract has to be taken as a whole, as a consequence, the service tax has been paid by M/ s.Adhunik Corporation, Calcutta can be availed as cenvat credit by the appellant/assessee.

However, the High Court held:

If this definition is understood in a proper manner, it will only reveal that input service means service used by the appellant - manufacturer directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal. In the present case, the pre-heater valued at Rs.5.41 crores is the final product, which was manufactured and cleared from the place of removal, ie ., from the appellant's factory. The remaining goods valued at Rs.36.04 crores were not manufactured as final product and cleared from the place of the appellant. In such a case, it would not qualify for the benefit of cenvat credit under Rule 2(l) of the Cenvat Credit Rules, as rightly upheld by the Commissioner (Appeals) and the Tribunal. The service tax paid on sales commission in respect of procuring orders by M/ s.Adhunik Corporation cannot be utilised by the appellant for taking credit for the goods not manufactured as a final product and cleared from the appellant's manufacturing unit.

(See 2014-TIOL-2186-HC-MAD-CX)