Custom, Excise & Service Tax Tribunal
Cce, Tirunelveli vs M/S. Tuticorin Alkali Chemicals And on 8 February, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
ST/525, 526/2010
(Arising out of Order in Appeal No. 155 & 156/2010 dated 3.0.04.2010 passed by the Commissioner of Central Excise (Appeals), Madurai).
For approval and signature
Honble Mr. M. VEERAIYAN, 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?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether the Honble Member wishes to see the fair :
copy of the Order.
4. Whether order is to be circulated to the :
Departmental Authorities? ___________________________________________________________
CCE, Tirunelveli Appellants
Vs.
M/s. Tuticorin Alkali Chemicals and Respondents
Fertilizers Ltd.
Appearance Shri C. Rangaraju, SDR, for the appellants Shri Savith V. Gopal, Adv., for the respondents CORAM Mr. M. VEERAIYAN, Technical Member Date of hearing : 08.02.2011 Date of decision : 08.02.2011 ORDER No._____________ Per: M. Veeraiyan, These two appeals are by the department arising out of common order-in-appeal No. 155 & 156/2010 dated 30.04.10.
2. Heard both sides extensively.
3. The respondent is a manufacturer of products like soda ash and ammonium chloride etc. At about a distance of 5 kms. from the factory they have a captive saltpan and salt produced there is being used by the respondents entirely in their factory as raw material. The dispute relates to availability of credit of service tax paid on security services which was provided for the saltpan. Two Show Cause Notices both dated 21.02.07 were issued, one demanding a sum of Rs. 54,617/- denying the credit for the period January, 2005 to January, 2006 and proposing imposition of penalties and another notice demanding a sum of Rs. 39,315/- denying the credit relating to the period February, 2006 to September, 2006 and proposing imposition of penalties. The original authority confirmed the demands as per the show cause notices and imposed penalties under Section 76 and 78 of the Finance Act, 1994. On appeal by the party, the Commissioner (A) has set aside the orders of the original authority.
4. Ld. SDR, reiterating the grounds of appeal, submits that the saltpan is not part of the factory manufacturing excisable goods. The definition of factory as per Section 2 (e) of the Central Excise Act specifically excludes premises where salt is produced. Therefore, whatever services utilized in a saltpan cannot be treated as input services in relation to the factory which uses the salt as input. He also submits that the respondents, while taking credit of service tax, have not indicated that the security services were provided to saltpan. Therefore, he submits that the orders of the Commissioner (A) are not legal and proper and the same should be set aside and the orders of the original authority should be restored.
5.1 Ld. Advocate for the respondents strongly supports the orders of the Commissioner (A). The salt is undisputedly the input for the factory of the respondents and saltpan was also owned by the respondents and the entire salt produced in the saltpan is being utilized in the respondents factory. The entire process is integrally connected. The respondents also procure raw materials from other saltpan as they are not able to meet the entire demand from the saltpan owned by them. The equipments in use in the saltpan are also entered in the asset register maintained by the respondents company. In view of the above, the security services provided to the saltpan should be treated as used indirectly and in relation to manufacture of soda ash etc., by the respondents company. The term input services as defined in Rule 2 (l) of Cenvat Credit Rules, is vide enough to cover such services utilized in the captive saltpan of the respondents . In this regard, he relies on the decision of the Honble High Court of Bombay in the case of CCE, Nagpur Vs. Ultratech Cement Ltd. 2010 (20) STR 577 (Bom.).
5.2 Alternatively, he submits that invocation of extended period is not justified. The fact of captive saltpan supplying salt to the respondents company is a well known fact and no relevant information has been suppressed. Mere payment of duty as pointed out by the audit does not amount to admission of any guilt. The demand beyond the normal period is clearly time barred. Further, this case clearly involves interpretation of legal provisions, no malafide on the part of the respondents can be attributed and therefore imposition of penalties under Section 76 and Section 78 are not warranted.
6.1 I have carefully considered the submissions from both sides and perused the case records. The definition of input services as per Rule 2 (l) reads as follows:-
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; 6.2 However, Section 2(e) of the Central Excise Act clearly excludes salt factory/works from the ambit of definition of factory. This definition is clearly applicable to service tax matters as clarified by definition 2(t) of the Cenvat Credit Rules, 04, which reads as under.
Words and expressions used in these rules and not defined but defined in the Excise Act or the Finance Act shall have the meanings respectively assigned to them in those Acts. 6.3 No doubt, the term input services is vide enough in respect of certain services, for example, in respect of advertisement services, the same is not linked to the factory of the manufacturer. Advertisements are required to be given mostly outside the factory as they are aimed at the ultimate consumers. However, security services are area specific services. In the context of a factory, the security services have to be rendered within the factory and within the precincts of the factory. The security services used within the factory of the respondents are clearly input services. The security services used in the saltpan though belonging to the respondents are clearly outside the factory premises as recognized under the central excise law. In view of the specific exclusion salt pan from the definition of the term factory which definition is applicable to the Cenvat Rules, the security services which are area specific cannot be treated as input services.
7. Incidentally, the respondents are also procuring salt from other saltpans. Salt is subject to nil rate of duty. Therefore, other independent suppliers of salt cannot avail credit of security services utilized in their saltpan.
8. However, the submissions of the Ld. Advocate that the issue involves interpretation of legal provisions and the respondents cannot be held to have suppressed any relevant information and that extended period is not invokable and no penalty is imposable, deserves to be accepted. The belief of the respondents that they were eligible to take credit of service tax paid on security services utilized in a captive saltpan cannot be treated as other than bonafide belief. Therefore, no demand can be sustained invoking the extended period and further penalties are not justified.
9. In view of the above, the appeals are disposed of as follows:-
(a) Orders of the Commissioner (A) are set aside and orders of the original authorities are restored.
(b) While restoring the orders of the original authorities, the demand of Rs. 54,615/- relating to the period January, 2005 to January, 2006 though sustainable on merits, the same is held to be time barred.
(c) The demand of duty relating to the period February, 2006 to September, 2006, of Rs. 39,315/- along with interest is upheld.
(d) The penalties are set aside.
(Order pronounced and dictated in the open Court) (M. VEERAIYAN) TECHNICAL MEMBER BB 7