Custom, Excise & Service Tax Tribunal
M/S Heidelberg Cement India Limited vs Commissioner Of Central Excise, ... on 8 September, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/28570/2013-SM [Arising out of Order-in-Appeal No. 488/2013-CE dated 24/09/2013 passed by Commissioner of Central Excise (Appeals-I), Bangalore] For approval and signature: HON'BLE SHRI S. S. GARG, JUDICIAL MEMBER 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes M/s Heidelberg Cement India Limited P.O. Ammasandra Appellant(s) Taluk Turuvekere Tumkur, Karnataka 572 211. Versus Commissioner of Central Excise, Bangalore- I POST BOX NO 5400, CR BUILDINGS, BANGALORE - 560001. Respondent(s)
Appearance:
Mr. Raghavendra B. Hanjer, Adv. For the Appellant Mr. Pakshi Rajan, A.R. For the Respondent Date of Hearing: 10/05/2016 Date of Decision: /2016 CORAM:
HON'BLE SHRI S.S GARG, JUDICIAL MEMBER Final Order No. . / 2016 The present appeal is directed against the impugned Order-in-Appeal No. 488/2013-C.E dated 24.09.2016, wherein the Commissioner (Appeals) has upheld the Order-in-Original dated 24.11.2011, passed by the Additional Commissioner of Central Excise, Bangalore-II Commissionerate.
2. Briefly, the facts of the present case are that the appellants, M/s Heidelberg Cement India Ltd. (formerly Mysore Cements Ltd.) are engaged in the manufacture of Cement and Cement Clinker falling under Chapter sub-heading No. 2523 2940 and 2523 1000 respectively. The unit is availing Cenvat credit on various inputs, capital goods and service tax under the provisions of Cenvat Credit Rules, 2004. During the course of audit of the records of the appellants company by the Accountant General Audit party, it was noticed that the appellant has wrongly availed and utilized the service tax credit of Rs. 8,54,471/- during the month of December 2008 in respect of the Consultancy Services provided by M/s CARE Sustainability on Clean Development Mechanism (CDM) Service in relation to Carbon Credit Management Services, which appeared to be not covered under the definition of input service as contemplated under Rule 2(l) of the Cenvat Credit Rules, 2004. Therefore, a Show-Cause Notice dated 21.3.2011 was issued to the appellant proposing demand of Rs. 8,54,471/- attributable to Cenvat credit wrongly availed on Clean Development Mechanism Service in relation to Carbon Credit Management Services. The appellant refuted the allegation in the show-cause notice and the learned Additional Commissioner vide his order dated 23.11.2011 rejected the submissions of the appellant and confirmed the demand as per the show-cause notice along with interest and penalty. Aggrieved by the said order, the appellant filed an appeal before the Commissioner (Appeals) who upheld the demands as confirmed in the Order-in-Original. Hence the present appeal before this Tribunal.
3. The learned counsel for the appellant submitted that the impugned order is not sustainable in law as the learned Commissioner (Appeals) has failed to consider the submissions made by the appellant and has also not considered the various judgments cited by them. The learned counsel further submitted that clean development mechanism service is used for the reduction of emission of toxic gasses in the atmosphere from the manufacturing unit. He further submitted that both the Central Pollution Control Board (CPCB) and the State Pollution Control Board (SPCB) deal with the environment issues. The State Pollution Control Board (SPCB) regularly inspects the cement plants/limestone quarries to verify compliance with emission norms and the Central Pollution Control Board (CPCB) also inspects the cement plants to check compliance with emission standards under environmental surveillance squad activities. Cement plants also have to comply with the charter on Corporate Responsibility for Environment Protection (CREP). The learned counsel also submitted that the Cement Industry are required to comply with the various environmental acts and regulations notified by the Ministry of Environment and Forests (MoEF), etc. which covers different spheres of the environment, encompassing emissions of air pollutants, consumption of water, generation and discharge of trade effluents, utilization and storage of hazardous waste, noise generation, utilization of forest land and wildlife areas under various acts passed by the Parliament. He further submitted that in order to comply with the statutory requirements of environmental protection norms and India being a signatory to the Kyoto Protocol, the appellants have registered with the State Pollution Control Board and also obtained approval from the National Clean Development Mechanism (CDM) Authority under the Ministry of Environment and Forests, Government of India, in order to participate in the Clean Development Mechanism project activity as per the Kyoto Protocol. He also submitted that the appellants have received consultancy services from M/s CARE Sustainability for services in relation to greenhouse gas emission reduction and carbon credit management service as per the guidelines under the Kyoto Protocol which includes assessment, validation and monitoring the appellants premises for meeting the requirements of reduced emission norms.
3.1. The learned counsel also submitted that as per the agreement with M/s CARE Sustainability, the following services are to be provided by way of consultancy services :
(a) Preparation of project design documents addressing the requirements under the Kyoto Protocol;
(b) Assistance in obtaining approvals from Ministry of Environment & Forests;
(c) Assistance in validation and monitoring of the project in terms of meeting the requirements of reduced emission norms;
(d) Assistance in obtaining certified emissions reductions (CERs); and
(e) Transaction of CERs.
He also submitted that the consultancy service received by the appellants as per the mandatory requirement of Kyoto Protocol are in relation to the manufacture as it will reduce the use of clinker in the manufacture of cement and also reduce the emission of CO2.
3.2. The learned counsel further explained the concept of Carbon Credit in the Memorandum of Appeal which as follows :
(i) The concept of Carbon Credit has been introduced as an instrument to reduce the emission of gasses that cause the greenhouse effect. Its main aim is to incentivize the unit which pollute less and dis-incentivize the units that pollute more. A Central Authority sets a limit on the amount of a pollutant that can emitted in totality. Based on this each entity is issued emission permits and holds an equivalent number of allowances which represent the right to emit a specific amount. The total allowances and credit issued to the entities cannot exceed the cap limiting the total emissions to that level. The companies that need to increase the emissions must by credits from the countries that pollute less. This transfer of allowances is referred to as trade, wherein the buyer pays a charge for polluting while the seller is rewarded for reducing emissions by more than what is required. Thus this results in reduction of emissions achieving the pollution reduction at the lowest possible cost to the society.
(ii) These carbon credits are tradable i.e. they can be bought and sol on exchanges set up especially for this purpose. Some of these exchanges are Chicago Climate Exchange. The European Climate Exchange, Nord Pole Power Next etc. In addition to this Carbon Credits may be bought and sold between these organizations / operators. The prices at which these are bought and sold is the prevailing market price determined according to the demand and supply of the same. Trading in carbon credits happens in the form of Certified Emission Reduction (CER).
(iii) The project will reduce clinker consumption by using slag by displacing with slag in the production of Portland slag cement Emissions arising from the calcination of limestone and fossil fuel based process energy will be reduced. By increasing percentage of slag in the cement production which results in reduction in CO2 emissions that are real measurable gives long term benefits to the mitigation of climate change the baseline methodology for increasing the blend in cement production.
3.3. The learned counsel relied upon the following decisions in support of his submissions :
(i) Shree Bhawani Paper Mills Ltd. Vs. CCE, Lucknow [2012 (28) S.T.R. 409 (Tri.-Del.)]
(ii) CCE, Nagpur Vs. Ultratech Cement Ltd. [2010 (260) E.L.T. 369 (Bom.)]
(iii) CCE, Bangalore-III Vs. Stanzen Toyotetsu India Pvt. Ltd. [2011 (23) S.T.R. 444 (Kar.)]
(iv) NTF (India) Pvt. Ltd. Vs. CCE, Delhi-III [2013 (30) S.T.R. 575 (Tr.-Del.)]
(v) Anar Chemicals Pvt. Ltd. Vs. CCE, Ahmedabad [2011 (24) S.T.R. 32 (Tri.-Ahmd.)]
4. On the other hand, the learned A.R. for the Respondent-Revenue submitted that the services provided by the service provider is related to certification of less emission of carbon di-oxide and the said service enables the appellant to earn Carbon Emission Certificates which can be traded in the market. He also submitted that the inclusive part of the definition restricts its scope to the services used in relation to the manufacture or business activity of the kind to give effect to the activities of business and does not include welfare and general activities. He also submitted that the impugned service received by the appellant has no nexus with their manufacturing activity and hence, the same cannot be treated as input service in terms of Rule 2(l) of the Cenvat Credit Rules, 2004. He also submitted that the fact of availment of irregular credit came to the knowledge of the department during the audit and hence, the invocation of longer period and imposition of penalty is justified.
5. Heard both the parties and perused the records.
6. The only issue involved in the present case is whether the appellants are entitled to service tax credit on Consultancy Services used for Clean Development Mechanism (CDM) Service in relation to Carbon Credit Management Service. It is necessary to analysis the definition of Rule 2(l) of the Cenvat Credit Rules, 2004, which is reproduced herein below :
RULE 2. . . ..
(l) input service means any service, -
(i) used by a provider of taxable service for providing an output service, or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
The definition of the terms input service as defined above has two parts
(i) the MEANS part which is the main part of the definition and
(ii) the INCLUSIVE part which is illustrative and certainly not exhaustive.
The means part of the definition covers any service used directly or indirectly, in or in relation to manufacture of the final products and clearance of the final products from the place of removal. It covers within its ambit all services received by the manufacturer of final products, as long as they are related to the manufacturing business of the assessee. A service would qualify as input service even if not covered by the means portion, if it satisfies the includes portion of the definition. In other words, in order to qualify as an input service, a service has to fall either within the means part or includes part of the said definition. The Honble High Court of Bombay in the case of Commissioner of C.E., Nagpur Vs. Ultratech Cement Ltd. [2010 (260) E.L.T. 369 (Bom.)] has observed in Para 27 as under :
27. The definition of input service as per Rule 2(l) of 2004 Rules (insofar as it relates to the manufacture of final product is concerned), consists of three categories of services. The first category, covers services which are directly or indirectly used in or in relation to the manufacture of final products. The second category, covers the services which are used for clearance of the final products up to the place of removal. The third category, includes services namely;
(a) Services used in relation to setting up, modernization, renovation or repairs of a factory,
(b) Services used in an office relating to such factory,
(c) Services like advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,
(d) Activities relating to business such as, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit relating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
Thus, the definition of input service not only covers services, which fall in the substantial part, but also covers services, which are covered under the inclusive part of the definition. Similarly, the Honble High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore-III Vs. Stanzen Toyotetsu India Pvt. Ltd. [2011 (23) STR 444 (Kar.)] has observed in Para 10 as under :
10. As is clear from the definition any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products constitutes input service. Various services are set out in the definition expressly, as constituting input service. It also includes transportation of inputs or capital goods and outward transportation upto the place of removal. Therefore the test is whether the service utilized by the assessee is for the manufacture of final product. Such service may be utilized directly or indirectly. Such service may be in the nature of transportation of inputs or capital goods, upto the factory premises or if the final product is removed from the factory premises for outward transportation upto the place of removal. It is an inclusive definition. The services mentioned in the Section are only illustrative and it is not exhaustive. Therefore when a particular service not mentioned in the definition clause is utilised by the assessee/manufacturer and service tax paid on such service is claimed as Cenvat credit, the question is what are the ingredients that are to be satisfied for availing such credit. If the credit is availed by the manufacturer, then the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacture of final products or used in relation to activities relating to business. If any one of these two tests is satisfied, then such a service falls within the definition of input service and the manufacturer is eligible to avail Cenvat credit of the service tax paid on such service. Further the Tribunals Delhi Bench in the case of Shree Bhawani Paper Mills Ltd. Vs. Commissioner of C. Ex., Lucknow [2012 (28) STR 409 (Tri.-Del.)] has observed as under :
5. After hearing both sides duly represented by Shri Hemant Bajaj, learned Advocate and Ms. Renu Jagdev, SDR it is seen that the services of M/s. Ernst & Young Pvt. Ltd., were availed in relation to the power plant used for manufacture of paper. Admittedly, such paper is liable to duty of excise. As a result of modernisation of power plant, the appellant earned Certified Emission Reduction Sale (hereinafter referred to CERS). Such earning of CERS is on account of appellant having entered into an agreement with M/s. EDF Trading Ltd., company organised under the laws of England. This seems to be scheme for encouraging manufacturer to use fossil fuel to develop their plant in such a manner so as to reduce the carbon emission which vitiates atmosphere. The revenues contention that such earning of carbon credit from the United Nations company was not liable to Service Tax and inasmuch as the services of E & Y were availed for earning of such credits, the appellant is not entitled to avail the credit.
6. I find no merits in the above contention of the Revenue. The services availed from M/s. Ernst & Young Pvt. Ltd., were admittedly for modernisation of the power plant of the appellant. Such power plant is used for manufacture of paper which is liable to Central Excise. In addition, if the appellant, by way of entering into an agreement with the England based company gets profit by way of earning carbon credit, it cannot be held that said services of M/s. Ernst & Young Pvt. Ltd., were for the purpose of earning the credit. I fully agree with the learned advocate that the above contention of the Revenue that the amount earned as a result of consultancy must be either subject to excise duty or should be taxable under the Service Tax is nothing but a fallacy. The amount earned as a result of such service availed by the party is the income of the appellant and is not required to be leviable to Service Tax. As long as the services of consultancy engineering by the appellant are in relation to the development of the power plant, which in turn is used for manufacture of paper, such services get covered under the cover of definition of input services. In fact I note that show cause notice itself admits the factum that the consultancy service provided by M/s. Ernst & Young Pvt. Ltd., to the appellants was to facilitate them in installing projects of high technical equipments to the power plant in which fossil fuel like rich husk are used which reduces carbon emission. They again submitted that installing projects of high technical equipment is nothing but modernisation of a factory and as per Cenvat Credit Rules, 2004, services used in relation to modernisation are eligible for Cenvat credit.
7. Admittedly, the main activity of the appellant is to manufacture paper for which electricity is used from captive power plant. The services were used for modernisation of plant. As a result, the appellant might have made CERS income, which is in no way connected with the availment of Cenvat credit. As the paper being manufactured by them is leviable to excise duty, I find no reason to deny the benefit of Cenvat credit availed on the said services. Accordingly, I set aside the impugned order and allow the appeal with consequential relief to the appellants.
7. After considering the submissions of both the parties and also on going through the judgments cited supra, I am of the view that the service tax paid for providing Consultancy Services in relation to greenhouse gas emission reduction and carbon credit management service as per guidelines under the Koyoto Protocol falls under the definition of input service and the appellants are entitled to Cenvat credit and the impugned order denying the Cenvat credit on the said services on account of lack of nexus is wrong and not sustainable in law. Therefore, I set aside the impugned order and allow the appeal with consequential relief, if any, to the appellant.
(Pronounced in open court on ) (S.S. GARG) JUDICIAL MEMBER /vc/