2012 (12) TMI 741 - AT - Central Excise

Denial of Cenvat Credit - input service distributor - services of M/s. Ernst & Young Pvt. Ltd. were used for the project of Certified Emission Reduction Sale of Carbon - Held that - 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. 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. Admittedly, the main activity of the appellant is to manufacture paper for which electricity is used from captive power plant & as the paper being manufactured by them is leviable to excise duty no reason to deny the benefit of Cenvat credit availed on the said services - in favour of assessee.

Issues:
1. Availment of Cenvat credit on consultancy services for modernization of power plant.
2. Denial of Cenvat credit by revenue for earning Certified Emission Reduction Sale (CERS) income.
3. Applicability of Service Tax on consultancy services related to CERS income.
4. Eligibility of Cenvat credit for services used in relation to modernization of the power plant.

Analysis:
1. The appellants availed Cenvat credit on consultancy services provided by M/s. Ernst & Young Pvt. Ltd. for modernizing their power plant used in the manufacture of paper. The services aimed at increasing efficiency and profitability by reducing the cost of power. The appellant utilized the credit for paying Central Excise duty on their final product.

2. Revenue initiated proceedings to deny the Cenvat credit, contending that the consultancy services were used for earning CERS income, which they claimed was neither dutiable nor taxable. The show cause notice was adjudicated, confirming the demand for denial of credit, along with interest and penalty, which led to the present appeal.

3. The tribunal noted that the services were availed in relation to the power plant used for manufacturing paper, which is subject to excise duty. The appellant earned CERS income through an agreement with M/s. EDF Trading Ltd., aimed at reducing carbon emissions. The revenue argued that such income was not liable to Service Tax, therefore, the appellant should not be entitled to avail the credit.

4. The tribunal disagreed with the revenue's contention, stating that the consultancy services for modernizing the power plant, used in manufacturing paper subject to excise duty, were eligible for Cenvat credit. The income earned through CERS was not connected to the availment of credit. The services for modernization were considered input services under the Cenvat credit rules, as they facilitated the installation of high technical equipment to reduce carbon emissions.

5. As the main activity of the appellant was manufacturing paper using electricity from a captive power plant, and the services were utilized for plant modernization, the tribunal found no reason to deny the Cenvat credit benefit. The impugned order was set aside, and the appeal was allowed with consequential relief to the appellants. The plea of limitation was not considered as the appeals were allowed on merits.

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