Custom, Excise & Service Tax Tribunal
Chenmplast Sanmar Limited vs Ltu Chennai on 25 June, 2024
CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
COURT HALL - I
Excise Appeal No.41311 of 2014
(Arising out of Order-in-Original No. LTUC/26/2014 (C) dated
11.3.2014 passed by the Commissioner, LTU, Chennai)
M/s. Chemplast Sanmar Ltd. Appellant
Plant II, Mettur Dam
Salem - 636 403.
Vs.
Commissioner of GST & Central Excise Respondent
No. 1, Foulkes Compound
Anaimedu, Salem - 636 001.
APPEARANCE:
Smt. Radhika Chandrasekar, Advocate for the Appellant
Shri M. Selvakumar, Authrozied Representative
for the Respondent
CORAM
Hon'ble Shri P. Dinesha, Member (Judicial)
Hon'ble Shri M. Ajit Kumar, Member (Technical)
Final Order No.40747/2024
Date of Hearing : 19.06.2024
Date of Decision: 25.06.2024
Per P. Dinesha,
Facts of the case as set out in the impugned
order are that the taxpayer was found to have earned Carbon Credits towards Certified Emission Reduction (CER for short) under their Clean Development Mechanism (CMD for short) Project. HFC - 23 (R 23) is a by-product generated during the production of Mettron - 22 (R 22) refrigerant gas. Under the CMD project, R-23 produced during the manufacture of R - 22 and normally released into the atmosphere, would 2 E/41311/2014 be destroyed using thermal oxidation technology and the taxpayer would get CER points which are commonly referred to as Carbon Credits (CC for short) for such incineration; each of such CC being equal to one ton of carbon dioxide emission. The CC thus earned are tradable; such CER's could be exchanged, brought or sold in the international market at the prevailing market rates. The appellant had during the year earned CC in excess of the required level and hence, the same was sold at the international market using the services of EVIPL. The service tax paid by EVIPL in this regard was sought to be availed as input service credit by the appellant, which is the origin of the present dispute.
2. During the year under dispute, it was noticed by the Revenue during audit that the taxpayer had sold such CC through M/s. Emergent Ventures India Pvt. Ltd. (EVIPL for short), they had availed service tax credit on CMD consultancy charges paid to EVIPL on the basis of ISD invoices issued by their corporate office at Chennai. It was thus the case of the Revenue that the credit so availed for the period from May 2009 to February 2011 was not allowable under Rule 2(l) of CCR, 2004 since any credit on input services could be availed only when such services are used in or in relation to the manufacture of final products or providing of output services; the consultancy service availed from EVIPL for trading carbon credit points 3 E/41311/2014 was neither connected with the manufacture or for providing any output service.
3. In this background show cause notice dated 26.09.2013 was issued proposing inter alia to demand the credit so availed by the taxpayer, under Rule 14 of CCR, r/w proviso to section 11(A)(1) of CEA, 1944. It appears from the record that the taxpayer filed a detailed reply justifying the availing of credit on the consultancy charges paid, but not satisfied with the reply, the adjudicating authority confirmed all the demands vide Order in Original No. LTUC/26/2014 (C) dated 11.3.2014 that were proposed in the show cause notice. The adjudicating authority has inter alia held that the services of EVIPL were used by the assessee solely for the trading of carbon credits and, which is not used in anyway in connection with their manufacturing process. And for this reason, the original authority tried to distinguish the order of Delhi Tribunal. With regard to the activities relating to business, the original authority has opined that there is no nexus between the services utilised and the activities of manufacture of final products. It is against this order that the present appeal has been filed before us.
4. Heard Smt. Radhika Chandrasekar, learned Advocate for the appellant and Sri M. Selvakumar, learned Authorized Representative for the Revenue. 4
E/41311/2014
5. It is the contention of the assessee that primarily under the definition of input service under Rule 2(l) of CCR, any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of the same, could avail the credit. Accordingly, the appellant having received the consultancy services from EVIPL in relation to carbon credit management services as per the guidelines under Kyoto protocol for meeting with the requirements of reduced emission norms and for trading of carbon credit. Therefore, the consultancy services was clearly in relation to the carbon credit management, which squarely falls within the definition of input service.
6. Reliance is placed in this regard on an order of Delhi tribunal in the case of Shree Bhawani Paper Mills Ltd. Vs. CCE - 2012 (28) STR 409, Heidelberg Cement India Ltd. Vs. CCE, Bangalore - 2017 (47) STR 98, Birla Corporation Ltd. Vs. CCE (2017) SCC Online CESTAT 2178 and Dwarakish Sugar Industries Ltd. Vs. CCE - (2017) SCC Online CESTAT 11025.
7. It is their further case that the period involved is prior to 01.04.2011 from which date the definition of input service became restrictive, but however, for the periods under challenge, the definition covered within its ambit even the activities relating to business and in this regard, they have placed reliance on the 5 E/41311/2014 decision of Hon'ble High Court of Bombay in the case of CCE, Nagpur Vs. Ultratech Cement Ltd. - 2010 (260) ELT 369 (Bom.).
8. Without prejudice to the above, it is their further case that the show cause notice is issued proposing to demand the duty by invoking the extended period of limitation of five years, all the details have been picked up from the books of account and therefore, there was no scope whatsoever to allege suppression. Moreover, the credit availed was also recorded in the books from where it was picked up and therefore, there was nothing that was suppressed and consequently, the invocation of extended period of limitation was not in accordance with law.
9. Per contra, ld. Authorized Representative has supported the findings of the lower authority.
10. After hearing both sides and having perused the documents as well as orders relied upon during the course of arguments, we find that the only issue to be decided by us is, "whether the appellant was eligible for availing the input service credit on the service charges paid by it"?
10. Rule 2(l) of the CCR as it stood at the relevant period and prior to 1.4.2011 reads as under:
"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 6 E/41311/2014 products and clearance of final products up to the place of removal, And includes services used in relation to setting up, modernisation, renovation or repairs of factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to 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 up to the place of removal."
[emphasis supplied]
11. It is not the case of the Revenue that the appellant was using separate establishment for the manufacture of R-23. It is the admitted position that the R-23 gas is the most natural by-product generated during the manufacture of R-22, which is destroyed without releasing into the atmosphere for which the manufacturer becomes eligible to earn CC towards CER norms of the Kyoto protocol. Learned adjudicating authority has analyzed the genesis of CC in the context of Kyoto Protocol which is undisputed at paras 11 to 14.
12. Viewed thus, we find that the order of Delhi Bench in the case of Shree Bhavani Paper Mills Ltd. (supra) would apply to the facts of the present case as well. The relevant paragraph in the said order reads as under:
"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 7 E/41311/2014 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."
13. In view of the above, we are also of the opinion that the credit claimed and availed by the taxpayer is in accordance with law as applicable during the year under dispute and therefore the denial of the same was uncalled for. Resultantly, we set aside the impugned order and allow the appeal, with consequential benefits, if any, as per law.
(Order pronounced in open court on 25.06.2024) (M. AJIT KUMAR) (P. DINESHA) Member (Technical) Member (Judicial) Rex