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Birla Corporation Limited V/S Commissioner of Central Excise, Lucknow

Company & Directors' Information:- BIRLA CORPORATION LIMITED [Active] CIN = L01132WB1919PLC003334

    Appeal No. ST/70181/2016-ST[SM] (Arising out of Order-in-Appeal No. 481-ST/APPL/LKO/LKO/2015 dated 10/12/2015 passed by Commissioner of Customs, Central Excise & Service Tax (Appeals), Lucknow) and Final Order No. 71029/2018

    Decided On, 26 April 2018

    At, Customs Excise Service Tax Appellate Tribunal Regional Bench Allahabad

    By, MEMBER

    For Petitioner: Bipin Garg and Stuti Saggi, Advocates And For Respondents: Pawan Kumar Singh, Superintendent (AR)

Judgment Text

1. The present appeal is directed against the impugned Order-in-Appeal No. 481-ST/APPL/LKO/LKO/2015., dated 10-12-2015, wherein the Commissioner (Appeals) has upheld the Order-in-Original dated 20.03.2015, passed by the Assistant Commissioner of Central Excise, Raebareli Commissionerate, Lucknow.

2. The brief facts of the present case are that the appellants are engaged in the manufacture of excisable goods i.e., Cement falling under chapter sub- heading 25232930 of Central Excise Tariff Act 1985. Their main raw materials are clinker and fly ash. The unit is availing Cenvat credit on various inputs, capital goods and service tax under the provisions of Cenvat Credit Rules, 2004. On scrutiny of party's records by the Central Excise audit team it was noticed that during the Financial Year 2010-11 the party has availed the cenvat credit of service tax paid on "success fee" payable against the sale of Certified Emission Reduction vide invoice dated 31.05.2010 raised by M/s. Ernst & Young (P) Ltd. Gurgaon (EYPL).It was observed that the sale of carbon credit earned by party by way of making suitable adjustments for reducing Carbon Emission Reduction (CER's) and that said CER are tradable. On perusal of the agreement of M/s. EYPL, Gurgaon with their clients, it appeared that the said "success fees" has been paid specifically for facilitating sale of CER's. It was noticed that the appellant has wrongly availed and utilized the service tax credit of Rs. 4,95,105/- during the month of June, 2010 in respect of the 'Consultancy Engineering Services' provided by M/s. EYPL, Gurgaon in relation to 'Carbon Credit Management Services', which appeared not to be covered under the definition of "input service" as contemplated under Rule 2(l) of the Cenvat Credit Rules, 2004. Therefore, a show cause notice dated 05.08.2013 was issued to the appellant proposing demand of Rs. 4,95,105/- attributable to Cenvat credit wrongly availed on the said "success fee" which was charged separately as sale proceeds of Carbon Credits.

The appellant refuted the allegation in the show cause notice and the learned Assistant Commissioner vide his order dated 20.03.2015 rejected the submissions of the appellant and confirmed the demand as per the show cause notice along with penalty. Aggrieved by the said order, the appellant filed an appeal before the Commissioner (Appeals) who upheld the demand as confirmed in the Order-in-Original. Hence, the present appeal before this Tribunal.

3. The learned counsel for the appellant submitted that the impugned order is not sustainable in law as the learned Commissioner (Appeals) has failed to consider the submissions made by the appellant and has also not considered the various judgments cited by them. The learned Counsel further submitted that it is clearly transpired by the definition of input service Rule 2 (l) Cenvat credit Rule, 2004 that any activity relating to business use by the manufacturer whether directly or indirectly or in relation to manufacture of final products are well within the definition of input service and eligible for Cenvat credit.

4. The learned Counsel for the appellant further submitted that the Carbon credit are related with the manufacturing activity and are a key component of National and International attempts to mitigate the growth in concentration of greenhouse gases. Burning of fossil fuel is major source of industrial greenhouse gas emission specially for power, cement, steel, textile, fertilizer, and many other industries which rely on fossil fuels, The major greenhouse gases emitted by these industries are Co2, methane, nitrous oxide, hydro fluoro carbon (HFC) all of which increases the atmospheres ability to trap infra red energy and thus effect the climate. Since, the activity of earning carbon credits are closely related to business and manufacturing activity of the appellant therefore, the carbon credit is legally available to the appellants.

5. The learned Counsel also submitted that the Cement Industry are required to comply with the various environmental acts and regulations notified by the Ministry of Environment and Forests (MoEF), etc., which covers different spheres of the environment, encompassing emissions of air pollutants, consumption of water, generation and discharge of trade effluents, utilization and storage of hazardous waste, noise generation, utilization of forest land and wildlife areas under various acts passed by the Parliament. He further submitted that in order to comply with the statutory requirements of environmental protection norms and India being a signatory to the Kyoto Protocol, the appellants have registered with the State Pollution Control Board and also obtained approval from the National Clean Development Mechanism (NCDM) Authority under the Ministry of Environment and Forests, Government of India, in order to participate in the Clean Development Mechanism project activity as per the Kyoto Protocol. He also submitted that the appellants have received consultancy services from M/s. EYPL, Gurgaon for services in relation to greenhouse gas emission reduction and carbon credit management Engineering services as per the guidelines under the Kyoto Protocol which includes assessment, validation and monitoring the appellants' premises for meeting the requirements of reduced emission norms.

6. He also submitted that the 'consultancy engineering service' received by the appellants as per the mandatory requirement of Kyoto Protocol are in relation to the manufacture as it will reduce the use of clinker in the manufacture of cement and also reduce the emission of CO2.

7. On the other hand, the learned AR for the Respondent-Revenue supported the Order In Appeal.

8. Heard both the parties and perused the records.

9. The only issue involved in the present case is whether the appellants are entitled to service tax credit on 'Consultancy Engineering Services' in relation to sale of Certified Emission Reduction. It is necessary to analyze the definition of Rule 2(l) of the Cenvat Credit Rules, 2004, which is reproduced herein below :

RULE 2.(l)

"input service' means any service, -

(i) used by a provider of taxable services for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,

and includes services used in relation to modernization, renovation or repair, 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 up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, business exhibition, legal services, inward transportation of inputs and capital goods and outward transportation up to the place of removal"

As is clear from the definition any service used by the "manufacturer whether directly or indirectly in or in relation to the manufacture of final products constitutes input service". Various services are set out in the definition expressly, as constituting input service. It also includes transportation of inputs or capital goods and outward transportation up to the place of removal. Therefore, the test is whether the service utilized by the assessee is for the manufacture of final product. Such service may be utilized directly or indirectly. Such service may be in the nature of transportation of inputs or capital goods, up to the factory premises or if the final product is removed from the factory premises for outward transportation up to the place of removal. It is an inclusive definition. The services mentioned in the Section are only illustrative and it is not exhaustive. Therefore when a particular service not mentioned in the definition clause is utilized by the assessee/manufacturer and service tax paid on such service is claimed as Cenvat credit, the question is what are the ingredients that are to be satisfied for availing such credit. If the credit is availed by the manufacturer, then the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacture of final products or u

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sed in relation to activities relating to business. If any one of these two tests is satisfied, then such a service falls within the definition of "input service" and the manufacturer is eligible to avail Cenvat credit of the service tax paid on such service." 10. I find that an identical issue was considered by the Tribunal in the case of Heidelberg Cement India Ltd. v. Commr. of Central Excise, Bangalore reported in: 2017 (47) STR 98 (Tri.-Bang.), wherein the consultancy services used for greenhouse gas emission reduction and Carbon Credit Management Services were held to be cenvatable. To the similar effect is another decision in the case of Shree Bhawani Paper Mills Ltd. v. Commissioner of Central Excise, Lucknow reported in : 2012 (28) STR 409 (Tri-Del). 11. By following the ratio of the above decisions, impugned order is set aside and appeal is allowed with consequential relief to the appellant.