TMI Blog2019 (3) TMI 854X X X X Extracts X X X X X X X X Extracts X X X X ..... is squarely applicable to the present case, where it was held that Tribunal was in error in coming to the conclusion that the Appellant was dis-entitled to the benefit of Cenvat credit in respect of the input services used in or in relation to the manufacture of dutiable final products on the ground, as the Tribunal held, that crude oil which is subject to a further process of manufacture at the Uran plant for the production of dutiable final products is exempted from central excise duty. Credit allowed - appeal allowed - decided in favor of appellant. - Appeal Nos. E/10276-10281/2016, E/10686, 10736-10739/2017-DB - A/10510-10520/2019 - Dated:- 14-3-2019 - Mr. Ramesh Nair, Member (Judicial) And Mr. Raju, Member (Technical) Shri V. Sridharan, Sr. Advocate and Shri Anand Nainawati and Shri Jigar Shah, Advocates for the Appellant Shri Sameer Chitkara, Additional Commissioner (AR) for the Respondent ORDER Per: Raju These appeals have been filed by M/s. Oil and Natural Gas Corporation Limited (ONGC Limited for short) against denial of Cenvat credit on the input services utilized for the drilling activities undertaken at Mumbai offshore fields. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as is called as sour gas and condensate is sour condensate as it contains Hydrogen Suiphide (H2S) and Carbon Dioxide (C02). H2S and CO2 necessarily have to be removed from the gas to make it saleable. Appellant constructed offshore platform for initial processing of sour gas and Hazira Plant for the final processing of sour gas before sale. The entire quantity of sour gas extracted from BPA BPB platforms is transported to Hazira plant and no gas is sold from the Processing Platforms. The Hazira Unit was created specifically for processing of sour natural gas and its condensate which arises during the transportation of natural gas through sub-sea high pressure process pipeline from Bombay offshore to Hazira. The H2S and CO2 are not removed at the Process Platforms. The place where H2S and CO2 are removed from the gas is known as Gas Sweetening Unit at Hazira. The Gas Terminal at Hazira receives a mixture of sour gas and gas condensate through high pressure pipeline from Mumbai offshore. The gas and condensate are separated in the slug catcher and sent to Gas Sweetening Unit (GSU) and Condensate Fractionating Unit (CFU), respectively. In view of the above processes resulting in pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice dated 23.05.2014, for the period September 2013 to February 2014 for demanding duty of ₹ 59,82,12,591/-. (c) Show cause notice dated 10.03.2015, for the period March 2014 to November 2014 for demanding duty of ₹ 35,62,54,292/-. Ld. Counsel submits that the credit was sought to be denied on the ground that the Appellants were not eligible to avail credit of service tax distributed by ISDs on the reasons mentioned in the cause notice. The show cause notices alleged that the Cenvat Credit distributed by the lSDs pertains to input services availed and used exclusively at the oil fields of Mumbai offshore. It alleged that Crude oil and natural gas were produced / manufactured at Mumbai offshore. The Show cause notices consider the crude oil and natural gas as final products and state that crude oil and natural gas are exempted excisable goods therefore, Cenvat credit of services used at Mumbai Off shore is not admissible. The show cause notices also alleged that input service credit was also not admissible for the reason that the services had no nexus with the manufacture at Hazira Plant because the services have been used exclusively in Mumbai Offshore prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is transferred or sold in part to other purchasers at Mumbai Offshore. According to the Tribunal, the input services are entirely being used in the manufacture of crude oil/natural gas both of which are exempted from duty and that in consequence the Appellant is not entitled to Cenvat credit. The Appellant, as a manufacturer of exempted products would not be entitled to Cenvat Credit on such quantity of input service which is used in the manufacture of exempted goods, this being the plain stipulation contained in rule 6(1). This is subject to Rule 6(5) which has an over-riding provision which allows the availment of Cenvat credit in respect of certain specified taxable services unless they are used exclusively in or in relation to the manufacture of exempted goods. But the point to note is that merely because the Appellant manufactures exempted goods, that would be no justification to disallow to it the benefit of availing of Cenvat credit on that quantity of input service which is utilised in or in relation to the manufacture of dutiable final products. As we have noted earlier, the definition of the expression input service is cast in broad terms. The expression input servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt would be required to comply with the discipline and rigour of rule 6 and would be entitled to take Cenvat credit only on that quantity of input service which is used in the manufacture of the ultimate dutiable product. We accordingly answer question (a) in the negative. It was submitted that following the above order of the Hon ble Bombay High Court, the Commissioner of Central Excise, Raigad, vide Order-in-Original No. 82- 83/MAK(82-83)COMMR/RGD/13-14 dated 17.10.2013, dropped the demand pertaining to the Appellant s Uran plant for the same issue. Further, the Hon ble CESTAT, Ahmedabad, vide Order No. A/12220-12243/2014 dated 24.11.2015 allowed 25 appeals of the Appellants pertaining to the same issue. He submits that the Ld. Commissioner has completely ignored the same and proceeded to confirm the demand in gross violation of principles of judicial discipline. He argued that the impugned order passed is without application of mind and without appreciating the facts as well as the submissions of the appellants. 3.4 Ld. Counsel argued that the Commissioner placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of B.G. Exploration Production In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; that the natural gas can be ascertained and appropriated at the Mumbai offshore; that ONCG Limited pipelines are used for transportation purpose; that sour gas and sweet gas are more or less one and that as per the demand of Gas Authority of India Limited (GAIL), they have to sell sweetened gas at the sweetening process available at their Hazira Plant and the process of sweetening of sour gas, carried out at their Hazira Plant, does not amount to manufacture as there is not much change in the basic characteristics in these gases. Whereas, in their submissions in the instant case, they stated that Natural Gas and Sour Gas are two distinct items; that no natural gas is produced at Mumbai Offshore and only sour gas is produced; that sour gas is an intermediate product for the manufacturing of final goods at their Hazira Plant; that s sour gas is very toxic and cannot be marketed in such form and that transmission lines from Mumbai offshore to Hazira Plant makes them an integrated manufacturing unit. He argued that the Hon'ble High Court of Gujarat came to the following conclusion :- On a conjoint reading of the Production sharing contract and Interim sales and purchase ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax attributable to service used wholly by a unit shall be distributed only to that unit; and (d) credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period. The appellants have distributed credit availed by them in respect of services availed at their offshore facility which is separately registered under Central Excise. The credit was also distributed to their plant located at Raigad. In the case of plant located at Raigad, the matter went up to the Hon'ble High Court of Bombay. The Hon'ble High Court vide order reported at 2013 (32) STR 31 (Bom.) held that the said distribution of credit cannot be denied. The Hon'ble High Court observed as follows:- 14. Now, in the present case, ONGC is a manufacturer both of dutiable and exempted products. Crude oil as well as natural gases are exempted products. The Tribunal has held against the Appellant in regard to its entitlement to avail of input service on the ground that crude oil at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or indirectly, in or in relation to the manufacture of final products. Such a construction as proposed by the Revenue is impermissible. These words used in the subordinate legislation fulfill the statutory object and purpose of presenting a cascading effect and burden of duty. They must be given their plain and natural meaning. At the same time, it would be necessary to clarify that Cenvat credit can be availed of only on that quantity of input service which is used in the manufacture of dutiable goods. 17. For these reasons, we have come to the conclusion that the Tribunal was in error in coming to the conclusion that the Appellant was disentitled to the benefit of Cenvat credit in respect of the input services used in or in relation to the manufacture of dutiable final products on the ground, as the Tribunal held, that crude oil which is subject to a further process of manufacture at the Uran plant for the production of dutiable final products is exempted from Central Excise duty. ONGC admittedly also produces dutiable final products. The production of those dutiable products is possible only on the continuous supply of crude oil. We, however, clarify that as a manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X
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