Mrs. Archana Wadhwa, J.
For the Appellant: Shri Hemant Bajaj, Advocate
For the Respondent: Shri R.K. Verma, A.R.
JUDGEMENT
Per Mrs. Archana Wadhwa:
The brief facts of the case are that the appellant is engaged in the manufacture of white cement. The appellant appeared to have wrongly taken and utilized cenvat credit amounting to ₹ 46,265/- on handling of coal fly ash which is obtained from burning of coal during the course of generation of electricity which is non-excisable and exempted product. The appellant is clearing coal fly ash at zero value. M/s Shankar Singh Jodha is providing handling service to the appellant for handling of coal fly ash and charging service tax. The coal fly ash is not an excisable goods and handling of coal fly ash is also not an input service for the appellant which is not covered under the definition of Input services as defined under rule 2(l) of the Cenvat Credit Rules, 2004 as it is not used in or in relation to manufacture of final product or for providing of output service as there is no nexus with manufacture of final product and clearance of final product from the place of removal and for providing of output service. Accordingly, a show cause notice dated 18.3.2009 was issued to the appellant for recovery of wrongly taken cenvat credit amounting to ₹ 46,265/- and for imposition of penalty. After considering the submissions of the appellant, the adjudicating authority disallowed the cenvat credit amounting to ₹ 46265/- and ordered recovery of the same in terms of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A(1) of the Central Excise Act, 1944. A penalty of ₹ 46265/- was also imposed under Rule 15(2) of the Cenvat Credit Rules, 2004.
2. Being aggrieved with the said order, the appellant filed an appeal before Commissioner (Appeals) and specifically contended as under:
i) That they have Captive Power Plant (CPP) where coal is used for generation of power. The said power in turn is captively used for the manufacture of cement at the factory of the appellant. It is submitted that now a days CPP is almost sin-qua-non for every industry due to erratic power conditions. Thus CPP is an essential part of business carried on by the appellants. The CPP during its operations generates a lot of Fly ash, which is a residue left after burning of Coal. The said fly ash is very fine and dust-like and may pollute the atmosphere around the plant area of the appellant unless the same is disposed off or used in some manner. Further unless the said fly ash is removed from CPP, the CPP cannot be operated leading to stoppage of power generation and thus hampering the production process. Thus the removal of fly ash from CPP is essential for carrying on the manufacturing process done by the appellant and the services incurred for removal of fly ash can safely be said to be used by the manufacturer in or in relation to manufacture of our final product. Thus the credit in respect of said service may please be allowed to the appellant as eligible Input Service under Rule 2(l) of the Cenvat Credit Rules, 2004, being directly eligible under the said definition. In this regard they relied upon the following decisions:-
(a) Sanghi Industries Ltd. vs. Commissioner of Central Excise, Rajkot reported in 2009(236) E.L.T. 617 (Tri.- Ahmd.)
(b) Hindalco Industries Ltd. vs. Commissioner of Central Excise, Allahabad reported in 2008 (12) S.T.R. 337(Tri.- Del)
(ii) That further and without prejudice to above a perusal of Rule 2(l) ibid would show that, inter alia, services used in relation to activities relating to business are to be treated as input services. In this connection it is submitted that a perusal of submissions made in para (a) above would show that the process of generation of power has a direct connection with the business of appellant. It is therefore submitted that such activity is very well covered under the definition of Input service as activities relating to the business. Thus the availment of the aforesaid credit may please be held as correctly availed in terms of Rule 2(l) of the CENVAT Credit Rules, 2004. In this regard they relied upon the decision passed in the case of Coca Cola India Pvt. Ltd. vs. CCE, Pune-II reported in 2009 (15) S.T.R. 657 (Mum.).
(iii) That a penalty of equivalent amount of ₹ 46265/- has been imposed on the appellant under the provisions of Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944. In this connection it is submitted that owing to the above decision in favour and the position of law as understood by the appellant, the appellant was under a bonafide belief that the credit on said Services was available to them and further by taking and utilizing the aforesaid credit they are not contravening any of the provisions of law. Further the taking of such credit was disclosed in returns filed with the department, further during the entire disputed period, the records of the appellant were audited by the various Audit teams of the department and no objection was raised on this point. The appellant was never questioned as to taking of such credit except the present show cause proceedings. Thus it cannot be said that the appellants have suppressed the information of taking of such credit with an intent to evade payment of duty. It is submitted that charge of suppression can be made out only when there is corresponding duty to disclose. In the present case the appellant was never obliged to divulge out information which as per belief of the appellant was already known to the department. It is submitted that mens rea is an essential element for invocation of Section 11 A of the Act. In recent decision in the case of UNION OF INDIA vs. RAJASTHAN UDYOG LIMITED reported in 2008 (222) ELT 366 (RAJ) the HON'BLE RAJASTHAN HIGH COURT has held that Mens-rea is essential for invocation of Section 11 AC. In the case of CCE, MUMBAI vs. DAMNET CHEMICALS PVT. LTD. reported 2007 (216) ELT 3 (S.C.) it has been observed by the Hon'ble Apex Court that suppression or mis-statement must be willful for invoking Section 11A. The above view has also been propounded in the case of ANAND NISHIKAWA COMPANY LIMITED v/s COMMISSIONER OF CENTRAL EXCISE, MEERUT reported in 2005 (188) ELT 149 (SC). In a very recent decision relating to service tax matters, it has been held by the Hon'ble Tribunal in the case of ON SAI PROFESSIONAL DETECTIVE and SECURITY SERVICES PVT. LTD., v/s CCE, GUNTUR reported in 2008 (84) RLT 668 (T) that where the department has proceeded on the basis of certain information’s contained in Income-tax Returns filed by the appellant, the extended period has been held as not invokable in view of the fact that since the appellant has declared the income in his income-tax returns (though not in service tax returns) it cannot be called that there is any suppression of facts even while proceeding under service tax laws. In this connection it is submitted that the conditions for imposition of penalty u/s 11AC.
3. The appellate authority however disagreed with the above contention of the appellant and observed that though providing such handling services of coal fly ash may be a necessity for the captive power plant but to qualify as an input service, the essential condition of the law is that an input service should have been used in providing output service or used in or in relation to manufacture of finished goods. He rejected the appellant’s plea that these services are part of business activity and without removing the coal fly ash from the captive power plant, the same cannot work on the ground that said coal fly ash is not excisable. As such, removal of the same cannot be held to be as cenvatable input service. Accordingly, he rejected the appeal.
4. After hearing both the sides I find that the issue required to be decided in the present appeal is as to whether the services obtained by the appellant for removal of coal fly ash from the captive power plant which is used for generation of power, which in turn, is captively consumed for manufacture of excisable goods, can be held to be an eligible cenvatable input service. As is seen from the submission of the appellant reproduced above, the removal of coal fly ash from captive power plant is a necessity and without such removal, the captive power plant cannot work. As such, removal of coal fly ash is admittedly connected with the production of power, which in turn, has nexus with the manufacturing of the appellant final product. Revenue’s objection is that since the coal fly ash is non-excisable item, removal of the same cannot be held to be an input service, cannot be appreciated , inasmuch as the admissibility of the input service credit is not dependent upon the product, in respect of which services are availed, to be excisable or non-excisable. Admittedly the appellant’s final product was excisable and was cleared on payment of duty. The Tribunal in the case of Sanghi Industries Ltd. vs. C.C.E., Rajkot 2009 (236) ELT 617 (Tri-Ahmd.) has observed as under:
As regards the service tax paid on overhauling of DG set, the Commissioner (Appeals) has taken a view that the final product is electricity which is exempt and therefore, credit is not admissible. Now the law is well settled that Cenvat credit used on inputs/capital goods used in power plant set up by the manufacturer is admissible if the final product is dutiable and therefore, in this case also the Cenvat credit of input services for overhauling of DG set is admissible. Accordingly, the appeal is allowed on the above terms.
5. Further in the case of Hindalco Industries Ltd. vs. C.C.E.,Allahabad - 2005 (12) STR 337 (Tri-Delhi), the Tribunal observed that the service tax credit paid on insurance premium of the captive power generation plant was held to be an admissible cenvatable service.
6. The Hon’ble Mumbai High Court in the case in the case of Coca Cola India Pvt. Ltd. vs. C.C.E., Pune II - 2009 (15) STR 657 (Mum.) held that any such service used in relation to manufacturing activity and relating to business are required to be held as cenvatable service. To the same effect is another decision of the Hon’ble Bombay High Court in the case of C.C.E. Nagpur vs. Ulratech Cement Limited and Another -2010 TIOL 745 HC- Mum ST laying down that a necessity requisite for production of final product or relatable to any business activity of the assessee has nexus with the assessee’s final activities to be held as cenvatable service.
7. By applying the ratio of the above decision to the facts of the present case, I am of the view that removal of coal fly ash is one of the necessity for running of the captive power plant. Without such removal of the coal fly ash from the captive power plant, the same cannot operate and run, in which case, the power won’t be generated and the appellant would not be in a position to manufacture their final product. The fact that removal of coal fly ash is technically necessity also stands admitted by the Commissioner (Appeals). As such, I am of the view that appellants are entitled to service tax paid on the services used by them for removal of coal fly ash from the captive power Plant. The impugned order is set aside and the appeal is allowed with consequential relief.
(Pronounced in the open Court on 26/06/2013)
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