The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru, has held that a manufacturer is entitled to avail CENVAT credit on input services used for maintenance of fly ash ponds, loading, unloading and transportation of fly ash, even though such services are rendered outside the factory premises.
The bench of Justice R. Muralidhar (Judicial Member) and R. Bhagya Devi (Technical Member) ruled that there is no requirement under the CENVAT Credit Rules that eligible input services must be received within the factory premises.
The appellant/assessee is a manufacturer of cement, procures fly ash from NTPC’s thermal power plants for use as a raw material in the manufacture of cement. As per environmental regulations and conditions imposed by NTPC and the Pollution Control Board, fly ash is deposited in fly ash ponds. The assessee was required to extract the fly ash, undertake maintenance of the ponds, load and transport the material to its manufacturing unit, and unload it at the factory.
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The company availed CENVAT credit on Services relating to maintenance of the fly ash pond; Loading and unloading services; Freight incurred for transporting fly ash to the factory; and Inputs, capital goods and input services used for maintenance of the fly ash pond.
The department issued a show cause notice covering the period January 2016 to June 2017, alleging that these services were performed outside the factory premises and therefore did not qualify as “input services” under the CENVAT Credit Rules, 2004. The adjudicating authority confirmed a demand of ₹56,69,721, which was subsequently upheld by the Commissioner (Appeals), prompting the assessee to approach the Tribunal.
The principal question before the Tribunal was whether a manufacturer could avail CENVAT credit on input services connected with procurement and transportation of fly ash when those services were performed outside the factory premises, particularly after the amendment to the definition of “input service” with effect from 1 April 2011.
The assessee argued that the controversy was no longer res integra and relied upon several Tribunal decisions, including UltraTech Cement, Birla Corporation, General Motors India, Linde India, and Mangalam Cement, all of which recognised the admissibility of CENVAT credit in similar circumstances. It contended that fly ash is an indispensable raw material for cement manufacture and that the services availed for extraction, maintenance, loading and transportation bear a direct nexus with the manufacturing process.
The department maintained that since the fly ash pond was situated outside ACC’s factory premises, the associated services could not qualify as input services. It further argued that the amendment to Rule 2(l) after 1 April 2011 narrowed the scope of admissible credit, making such claims ineligible.
The Tribunal observed that there was no dispute regarding the fact that fly ash constituted a raw material used in the manufacture of cement. The Tribunal noted that the services relating to loading, unloading, freight and maintenance of the fly ash pond were intrinsically connected with bringing the essential raw material to the factory for use in manufacture.
The Bench examined Rule 2(l) of the CENVAT Credit Rules and observed that the definition of “input service” covers services used directly or indirectly in or in relation to manufacture and nowhere stipulates that such services must necessarily be rendered within the factory premises.
The Tribunal placed substantial reliance on the Bombay Bench decision in UltraTech Cement, wherein it was held that denial of CENVAT credit merely because services were received outside factory premises was unsustainable since Rule 2(l) imposed no such territorial restriction.
It also referred to Birla Corporation Ltd., where the Tribunal had held that services relating to erection, maintenance and insurance of fly ash extraction facilities at NTPC’s thermal power plant qualified as input services because they were directly connected with cement manufacturing. The earlier Tribunal had rejected the department’s argument that extraction of fly ash amounted to manufacture of an exempted product, terming the contention “absurd.”
Further, the Bench relied on Linde India Ltd. and Mangalam Cement Ltd., which clarified that even after the 2011 amendment, services used in relation to manufacture continue to qualify for CENVAT credit under the principal part of the definition, provided they are not specifically excluded. The Tribunal reiterated that activities directly or indirectly related to manufacture remain eligible input services notwithstanding the deletion of “setting up of factory” from the inclusive clause.
The CESTAT set aside the impugned order and allowed the appeal. The Tribunal ruled that the assessee was entitled to CENVAT credit on services used for maintenance of fly ash ponds, transportation, loading, unloading and related activities connected with procurement of fly ash for cement manufacture. The appellant was also held entitled to consequential relief in accordance with law.
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