CESTAT Mumbai Allows Appeal for Restoration of Disallowed CENVAT Credit

Case Name:

Excise Appeal No: 1795 of 2011 - Hindustan Coca-Cola Beverages Pvt Ltd vs. Commissioner of Central Excise, Thane – I

Key Takeaways:

1. The eligibility of CENVAT credit on ‘outward transportation’ up to the place of removal has been settled by previous court decisions.
2. Show cause notices dropping the demand for CENVAT credit were issued long after the impugned order, indicating a contradiction in the stand taken by the authorities.
3. The original authority failed to scrutinize the documents with due diligence, warranting a fresh determination of the demand for recovery of credit.
4. The eligibility of credit on ‘outdoor catering service’ and charges levied by Mumbai International Airport Ltd needs to be evaluated based on settled law and the factual matrix.
5. The impugned order did not adequately examine the context and scope of availability of credit in accordance with the CENVAT Credit Rules, 2004.

Case Synopsis:

This document is a Final Order issued by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Mumbai, West Zonal Bench. The appeal in question is Excise Appeal No: 1795 of 2011, arising from an Order-in-Original passed by the Commissioner of Central Excise, Thane – I.

The appellant in this case is Hindustan Coca-Cola Beverages Pvt Ltd, and the respondent is the Commissioner of Central Excise, Thane – I. The appeal seeks restoration of credit availed under the CENVAT Credit Rules, 2004, which had been disallowed as ineligible. The disallowed credit amounts to ₹ 1,75,49,220/-, and the appellant also faces interest and penalty charges.

The issue in this case revolves around the eligibility of CENVAT credit on various taxable services procured by the appellant for their business of manufacturing ‘aerated water’. The disallowed credits include those related to ‘goods transport agency service’, ‘outdoor catering service’, ‘manpower recruitment and supply agency service’, and services rendered by the Mumbai International Airport Authority.

The appellant argues that the eligibility of CENVAT credit on ‘outward transportation’ up to the place of removal has been settled by the decision of the Hon’ble High Court of Karnataka in Commissioner of Central Excise, Bangalore v. ABB Ltd [2011 (23) STR 97 (Kar.)], which was upheld by the Hon’ble Supreme Court in Commissioner of Central Excise, Belgaum v. Vasavadatta Cements Ltd [2018 (11) GSTL 3 (SC)]. They also contend that show cause notices issued by other jurisdictions had been dropped or allowed by the first appellate authority, which contradicts the impugned order.

The CESTAT finds that the issue of eligibility prior to 1st March 2008 has been settled, allowing the availment of credit on ‘outward transportation’. However, for the period thereafter, the show cause notices dropping the demand were issued long after the impugned order. The CESTAT notes that the original authority failed to scrutinize the documents with due diligence. Therefore, the demand pertaining to the recovery of credit of tax paid on ‘goods transport agency service’ for the period from 1st March 2008 is set aside for a fresh determination.

Regarding the eligibility of credit on ‘outdoor catering service’, the CESTAT finds that one of the issues in dispute is the extent to which the cost has been recovered from employees. Although the appellant argues that this was not raised in the show cause notice, the CESTAT believes that the applicability of settled law needs to be ascertained, and the facts must be evaluated.

As for the demand related to the credit of tax paid on charges levied by Mumbai International Airport Ltd, the CESTAT notes that the activity for which the availment was claimed pertains to trading, which is an exempt service. Therefore, it is not entitled to the benefit of CENVAT credit of any input service. The CESTAT suggests that the impugned order did not examine the context in which the activities were undertaken by the appellant and did not consider the scope of availability of credit in accordance with the CENVAT Credit Rules, 2004.

Considering the lack of detailed examination of the appellant’s submissions regarding the various heads on which CENVAT credit was directed to be recovered, the CESTAT sets aside the impugned order and remands the dispute back to the original authority for fresh determination. The appellant will be given an opportunity to present their submissions, and the adjudicating authority will determine the scope and extent of recovery proposed in the show cause notice based on settled law and the factual matrix.

In conclusion, the appeal is allowed by way of remand, and the matter will be decided afresh by the original authority.

FAQ:

Q1: What was the appeal about?

A1: The appeal sought the restoration of disallowed CENVAT credit under the CENVAT Credit Rules, 2004.

Q2: What services were involved in the disallowed credit?

A2: The disallowed credit included ‘goods transport agency service’, ‘outdoor catering service’, ‘manpower recruitment and supply agency service’, and services rendered by the Mumbai International Airport Authority.

Q3: What were the key findings of the CESTAT?

A3: The CESTAT found that the eligibility of CENVAT credit on ‘outward transportation’ had been settled by previous court decisions. It also noted contradictions in the stand taken by the authorities and the lack of scrutiny of documents by the original authority.

Q4: What is the outcome of the appeal?

A4: The appeal was allowed by way of remand, and the case was sent back to the original authority for a fresh determination of the demand for recovery of credit based on settled law and the factual matrix.

This appeal of M/s Hindustan Coca-Cola Beverages Pvt Ltd, arising from order of Commissioner of Central Excise, Thane – I in which recovery of ₹ 1,75,49,220/- has been confirmed under section 11A of Central Excise Act, 1944, along with interest as applicable under section 11AB of Central Excise Act, 1944, besides imposing penalty of like amount under section 11AC of Central Excise Act, 1944 for the period from April 2006 to March 2011, seeks restoration of credit availed under CENVAT Credit Rules, 2004 that had been disallowed as ineligible.

2. Proceedings were initiated against the appellant in relation to certain taxable services, procured in pursuit of their business of manufacturing ‘aerated water’, and the tax so discharged were claimed as eligible credit which was sought to be denied for reasons peculiar to each. Accordingly, credit attributable to ‘goods transport agency service’ for outward transportation up to the place of buyer, amounting to ₹ 1,25,79,059/- was disallowed as also 6,428/- on such service for transport of inputs cleared as such, to ‘outdoor catering service’ to the extent of ₹ 19,95,382, to ‘manpower recruitment and supply agency service’ to the extent of ₹ 25,932/- and for services rendered by Mumbai International Airport Authority amounting to 29,42,220/- were enumerated as ineligible.

3. It is the contention of Learned Counsel for the appellant that the issue of eligibility of CENVAT credit on ‘outward transportation’ up to the place of removal, for the period from prior to 1st March 2008 stands settled by the decision of the Hon’ble High Court of Karnataka in Commissioner of Central Excise, Bangalore v. ABB Ltd [2011 (23) STR 97 (Kar.)] that was upheld by the Hon’ble Supreme Court in Commissioner of Central Excise, Belgaum v. Vasavadatta Cements Ltd [2018 (11) GSTL 3 (SC)]. It was further contended that for the period thereafter the show cause notice issued to the appellant by other jurisdictions had been allowed by the first appellate authority or dropped by the original authority which precludes contrary stand that has actuated the impugned order.

4. It was further submitted that the ‘place of removal’ was the premises of buyer and that all the sales were effected ‘free on road (FoR)’ basis. It was further submitted that the documents evidencing terms of the contracts, though placed before the original authority, was disregarded.

5. We find that the issue of eligibility prior to 1st March 2008 stands settled thus enabling availment of credit on ‘outward transportation’ in view of the order of Hon’ble Supreme Court in re Vasavadatta Cements Ltd. Demand for the period will not sustain. For the period thereafter, on examination of the several decisions cited by Learned Counsel, we find that show cause notices dropping the demand at the original stage or at the first appellate stage, had been issued long after the order now impugned before us. It would appear that the contrary stand taken by the adjudicating/ appellate authorities, since the passing of the impugned order, is at variance with stand of Revenue in order before us. Besides, it is on record the original authority had failed to scrutinize the documents with due diligence. It would, therefore, be appropriate that this be undertaken for which purpose the demand pertaining to recovery of credit of tax paid on ‘goods transport agency service’ for the period from 1st March 2008 is set aside for a fresh determination.

6. Insofar as the eligibility of credit on ‘outdoor catering service’ is concerned, it would appear that one of the issues in dispute is the extent to which such cost has been recovered from employees. Though the Learned Counsel argued that this had not been a ground raised in the show cause notice, we, nonetheless, are of the opinion that applicability of the law as settled by judicial decisions needs ascertainment and, therefore, the facts must be subjected to evaluation.

7. Insofar as the other portion of the demand is concerned which is availment of credit of tax paid on charges levied by Mumbai International Airport Ltd in connection with the vending machines and kiosks installed in the airport premises being denied on the ground that the goods themselves are exempt from duty of central excise, it would appear that the activity towards which the availment was claimed, pertains to trading which, being an exempt service, would not be entitled to the benefit of CENVAT credit of any input service. It is the contention of the Learned Counsel that the authorization for operation of these counters/kiosks issued by Mumbai International Airport Ltd contains details of the responsibilities of the appellant. It was submitted that the availment had been permitted in decisions of the Tribunal elsewhere in relation to their activities within those jurisdictions. It would appear that the impugned order has not examined the context in which the activities were undertaken by the appellant and had not examined the scope of availability of credit in accordance with CENVAT Credit Rules, 2004.

8. Learned Authorised Representative also placed several decisions for our perusal.

9. Considering the lack of detailed examination of the submissions of the appellant herein in relation to the several heads on which CENVAT credit was directed to be recovered, it would be appropriate for the matter to be decided afresh for which purpose, we set aside the impugned order and remand the dispute back to the original authority for fresh determination. Needless to say, appellant herein shall be given an opportunity to present their submissions and the adjudicating authority shall, thereafter, determine the scope and extent of recovery proposed in the show cause notice in terms of settled law and the factual matrix.

10. Appeal is accordingly allowed by way of remand.

(Order pronounced in the open court on 01/11/2023)

(AJAY SHARMA)

Member (Judicial)

(C J MATHEW)

Member (Technical)