By TIOL News Service

NEW DELHI, JULY 07, 2017: THE appellant is a PSU and is engaged in producing coal at its mines located in Madhya Pradesh. The dispute in the present appeal relates to the denial of CENVAT credit in respect of certain inputs claimed by the appellant.

CENVAT credit has been disallowed for the period March 2011 to June 2012 on -

(A) ++ Lubricants/lubricating oils used by the appellant for dumpers used in mines on the ground that Dumpers are classifiable under chapter 87 and cannot be treated as capital goods. [Appellant claims credit on the ground that lubricating oils are inputs covered under rule 2(k) of CCR, 2004]

The Bench inter alia held -

+ Definition (of input in rule 2(k)) nowhere provides that any machinery in which input is used must be a capital goods as defined under rule 2 (a)(A) of the CCR. The only criteria for admissibility of CENVATcredit on input is that the same must be used in the factory by the manufacturer of the final product.

+ There is no dispute that heavy earthmoving machinery such as dumpers are used in the production of coal and for proper functioning of the said machines the appellant uses the lubricant.

+ For the production of coal, the entire mine becomes the place of manufacture and since the disputed goods are no doubt used in relation to the manufacture of excisable goods, the said goods will fall under the purview of the definition of ‘input' for availment of Cenvat credit.

(B) ++ Water sprinkler system .

Held:

This system is used in the coal mine for minimizing the emission of dust and it is also mandatory in terms of the Coal Mines Regulations, 1957 to install water sprinkling systems to check emissions from coal crushing operations etc. From the definition of inputs, it is evident that the use of water sprinkler systems is within the mine area and these goods are very much covered under the definition of inputs. Consequently, the credit on these goods cannot be denied.

(C) & (D) ++ Service tax paid on tyre re-treading services, maintenance of vehicles and security services availed at residential colonies.

Held:

+ The definition of input service is inclusive and wide in nature and includes any service used in or in relation to the manufacture of final products. It is not in dispute that the subject services are used in relation to dumpers which are used in mines for producing coal on which excise duty has been paid. Consequently, we find no reason to deny the credit on these input services (viz. tyre re-treading services, maintenance of vehicles).

+ The appellant has admitted that they are not entitled to the credit on such services (security services at residential colonies) and have already reversed the credit along with applicable interest on the above service without disputing the same well before the issue of show cause notice.

Penalty:

+ Appellant has taken credit for the Security service used for housing colony by mistake. Upon realization of their mistake, they have promptly reversed the said amount along with applicable interest even before the same was noticed by the Department and show cause notice was issued for reversal of the same.

+ No penalty is impossible as has been held by the coordinate bench in the case of Castrol India Ltd. - 2012-TIOL-2024-CESTAT-AHM.

The appeals were allowed.

(See 2017-TIOL-2311-CESTAT-DEL)