Custom, Excise & Service Tax Tribunal
M/S Megha Engineering & vs Commissioner Of Central Excise, ... on 10 September, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH
BANGALORE
Appeal(s) Involved:
E/26943/2013-DB, E/ 20488/2014, E/21022/2015
[Arising out of Order-in-Original Nos. 4/13 dated 15/03/2013; 81/2013 dated 29.10.2013 & HYD-EXCUS 004-COM 022-14-15- dated 20.03.2015 passed by Commissioner Of Central Excise, Customs and Service Tax , HYDERABAD-IV ]
For approval and signature:
HON'BLE SMT ARCHANA WADHWA, JUDICIAL MEMBER
HON'BLE SHRI ASHOK K ARYA, TECHNICAL 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 Megha Engineering &
Infrastructure Ltd
Survey No 512, Gowdavalli
Medchal Mandal)
Ranga Reddy Distt A.P.
Appellant(s)
Versus
Commissioner of Central Excise, Customs and Service Tax Hyderabad-ii
L.B STADIUM ROAD,
BASHEERBAGH,
HYDERABAD, - 500004
ANDHRA PRADESH
Respondent(s)
Appearance:
Mr. G. Natarajan, Mr B. Venugopal, Advocates For the Appellant Mr. Ajay Saxena, A.R. For the Respondent Date of Hearing: 10/09/2015 Date of Decision:
CORAM:
HON'BLE SMT ARCHANA WADHWA, JUDICIAL MEMBER
HON'BLE SHRI ASHOK K ARYA, TECHNICAL MEMBER
Final Order No. / 2015
Per : ARCHANA WADHWA
As per facts on record, the appellant M/s Megha Engineering and Infrastructure Ltd (hereinafter referred to as Megha) is engaged in the manufacture of MS Pipes in their factory located at Gowdavalli, Hyderabad. They are availing the benefit of CENVAT credit of duty paid on MS Plates and other inputs procured by them for use in the manufacture of MS Pipes. The said pipes were being cleared by them on payment of duty of excise by utilizing the credit so availed. However in some cases of clearance of pipes, the same were exempted from payment of duty of excise on the ground of being used in various Govt Projects and the appellant was reversing 6% of the price of the said exempted pipes in terms of the provisions of Rule 6 of the CENVAT Credit Rules 2004. There is no dispute on the said count.
2. M/s Megha was also providing services of laying down of pipelines for irrigation, lift irrigation schemes, drinking water supply schemes for various State, Central and Govt undertakings as also were executing similar works contracts awarded to them by various commercial undertakings such as ONGC, APGENCO etc. for which purpose they have taken a centralized service tax registration at their registered office located at Balanagar Hyderabad. For the purpose of payment of service tax on the said services of works contract, they opted for composition schemes and were accordingly discharging their service tax liability. However, it is seen that the appellants were first availing the benefit of the CENVAT credit of duty paid on the pipes procured by them from their manufacturing unit but such irregularly availed credit was brought by them to the notice of the Revenue and the same was reversed along with payment of interest. There is no dispute in respect of the said fact.
3. The dispute lies in a different arena. Rule 3 of the Works contract (Composition Scheme for payment of Service Tax) Rules 2007 requires an assessee to pay service tax as per the composition scheme enumerated therein subject to fulfillment of certain conditions. For better appreciation relevant Rule 3 is being reproduced below:
3.(1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to four per cent of the gross amount charged for the works contract.
Explanation. - For the purposes of this sub-rule, gross amount charged for the works contract shall be the sum, -
(a) including
(i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and
(ii) the value of all the services that are required to be provided for the execution of the works contract;
b) excluding
(i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and
(ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire:
Provided that nothing contained in this Explanation shall apply to a works contract, where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July 2009.
(2) The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2OO4.
(3) The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract. As seen from above, the sub-rule 2 of the said Rule 3 is to the effect that the provider of taxable service shall not take CENVAT credit of duties paid on any inputs, used in or in relation to the said works contract. The appellants, for the purpose of providing the said services were procuring the duty paid pipes from their manufacturing unit but were not admittedly availing any CENVAT credit of duty of excess paid on such pipes. Thus according to the appellants they satisfied the said sub-rule 2 of Rule 3.
4. However, the Revenue was of the view that inasmuch as the manufacturing unit of the appellant and the service providing unit of the appellant is one and the same, the manufacturing unit having availed the credit of duty paid on the steel plates used in the manufacture of pipes, which stand utilized by them for payment of excise duty on the pipes, would amount to as if the service providing unit has availed the CENVAT credit. Accordingly after making investigation, a show cause notice dated 02.04.2012 was issued to the appellant proposing to deny the irregularly availed CENVAT credit of Rs 85.90 crores availed during the period June 2007 to December 2011. The notice also proposed confirmation of interest and imposition of penalty.
5. During the course of adjudication, the appellant took a categorical stand that they are doing two activities, one for the manufacture of pipes and the other providing services under the category of works contract. As a manufacturer of pipes, they are entitled to avail the CENVAT credit of duty paid on the inputs inasmuch as the said pipes were being cleared by them on payment of duty. As a service provider, they have not taken any credit of duty paid on the pipes used for providing such services. As such there is no contravention of any provision of law by them. They specifically contended that the manufacturing of the pipes at their separate manufacturing premises located at Gowdavalli is a separate role played by them as a manufacturer and as soon as the goods are cleared from their factory on payment of duty, such role gets complete and over. The role of a service provider starts thereafter from their registered office located at Balanagar, Hyderabad and the two roles are not required to be intermixed. Inputs for providing the works contract service is the pipes and not the inputs used for the manufacture of the pipes. The pipes procured by them are duty paid and they have not availed any credit of duty paid on the same so as to deny them the benefit of the composition scheme. The demand was also challenged on the point of limitation.
6. However, the adjudicating authority did not find favour with the above contentions of the appellants. He held that inasmuch as both the wings of the appellants i.e. the manufacturing wing and the service provider wing relate to the same assessee, it has be held that the EPC contract obtained by the assessee, which involved execution of the works contract from the stage of procurement of material involved in its execution would start from the stage of procurement of raw materials for the MS pipes. Inasmuch as the appellant has availed credit on the inputs used in the manufacture of the pipes and inasmuch as the appellant is one and only one, they would not be entitled to avail the said credit. Accordingly, he confirmed the demand along with confirmation of interest and imposition of penalty of identical amount under Section 11AC.
7. Hence the present appeal
8. We have heard both sides duly represented by Shri G Natarajan and Shri B. Venugopal for the appellants and Shri Ajay Saxena, A.R. for the Revenue. We note that the facts are not in dispute. The appellant is a manufacturing unit as also a service provider, though from two different locations. As such, it becomes clear that the appellant is duly registered one as a manufacturer of pipes and the other as a service provider. At the time of manufacture of the pipes, the appellant is availing CENVAT credit of duty paid on the plates used in the manufacture of the pipes which is being utilized by them for payment of duty of excise on the pipes so cleared by them to independent buyers as also to their own unit located at the registered office. Such manufacturing activities fall under the realm of central excise and as per the central excise law read with the CENVAT credit rules, the appellant is entitled to avail the credit and use the same for payment of duty on their final product. Such final product is being cleared by them on payment of duty to the service providing wing also, apart from clearing the same to other independent buyers.
8. The second role of the appellant is that of a service provider. They procured the goods from the manufacturing unit and did not take any credit of duty paid by the manufacturing unit on these pipes. The pipes so procured by them from the manufacturing unit could have been procured by them from an outside independent manufacturer also, in which case, there would have been no dispute about fulfilment of the condition of non-availment of the credit in terms of the composition scheme. In fact, the Commissioner in his impugned order has also observed that if the pipes would not have been produced by the service provider from their own manufacturing unit, there would have been no dispute as long as service provider unit does not avail credit on the MS pipes. We really fail to understand as to how the fact of procurement of MS pipes for completion of the service contract from the appellants own manufacturing unit would change the scenario. The role of the appellants as a manufacturer was over when the pipes were cleared by them on payment of duty. Thereafter, their role as service provider emerged. The Revenues view that the service activity would start from the stage of procurement of inputs used in the manufacture of pipes cannot be appreciated inasmuch as there was no obligation on the part of the service provider for manufacturing the pipes themselves. If the service provider was at liberty to procure the pipes from another manufacturer who could have availed the credit on the inputs used for the manufacture of pipes, the appellants as a service provider would have been entitled to the composition scheme inasmuch as admittedly they have not availed credit of duty paid on the MS pipes. Merely because the appellant is performing two separate roles, as a manufacturer and also as a service provider under two different registrations, the denial of the credit to the appellant is neither justified nor warranted. The provisions of Rule 3 (2) of the said rules contained a condition to the effect that no credit would be availed by them as service provider. Admittedly the service provider has not availed any CENVAT credit. There is no stipulation in the said rule to the effect that when the manufacturer of the pipes (even though it happens to be same person) availed the credit of duty paid on the inputs used in the manufacture of such pipes, the composition scheme would not be available. As a manufacture of the goods, the appellant is entitled to avail the credit.
9. The problem can also be viewed from another angle. If the Revenue is of the view that the EPC contract entered into by the service provider starts from the stage of procurement of raw materials for the pipes, then there was no requirement to pay duty of excise on the pipes as the entire process would get covered by the services so provided by the assessee attracting the composition scheme. No doubt the Revenue has considered the appellants as a manufacturer also so as to collect the duty of excise on the pipes so cleared by them. No objection was ever raised by the Revenues at the time of collection of duty of excise from their manufacturing unit located at Gowdavalli. It is only when the service provider located at an altogether different unit opted for composition scheme, the Revenues objection in respect of their manufacturing unit at Gowdavalli was raised. Even if the Revenues contention that both the wings of the appellant i.e. the manufacturing unit as also the service provider belongs to the same assessee is taken into consideration, we find that both the roles of the assessee are separately defined roles covered by different fields of law. i.e. one by the excise law and the other by the service tax law. Mixing up of the two cannot be appreciated. There is no prohibition under the law for one person to be a manufacturer as also a service provider. The activity of providing service starts from procurement of pipes, where the activity of manufacture of pipes ends. As such we find no justifiable and valid reasons to deny the CENVAT credit of duty paid on the inputs used in the manufacture of pipes manufactured by the appellant as a manufacturer. Accordingly, the impugned order is set side and appeal is allowed with consequential relief to the appellants. Inasmuch as the same issue is subject matter of all the appeals, all the three appeals are allowed with consequential relief to the appellants, by setting aside the impugned orders.
(Order pronounced in open court )
ASHOK K ARYA
TECHNICAL MEMBER
ARCHANA WADHWA
JUDICIAL MEMBER
pnr
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