CENVAT Credit Rules Do Not Make Ownership Of Goods A Condition For Availing Credit: CESTAT Chandigarh

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the CENVAT Credit Rules do not make ownership of goods a condition for claiming CENVAT credit. It observed that CENVAT credit is attached to inputs and not to persons.

The tribunal, however, ruled that a manufacturer cannot claim credit on inputs where the contractor has availed the benefit of abatement under the Works Contract (Composition Scheme), as that would result in the same tax benefit being availed twice.

A bench of Judicial Member S.S. Garg and Technical Member P. Anjani Kumar partly allowed the appeals filed by HPCL Mittal Energy Limited. It also held that the extended period of limitation could not be invoked because the company had regularly filed statutory returns, undergone departmental audits, and furnished the information sought by the Department.

The tribunal observed, "We find that this objection does not seem to have any legal basis. In the scheme of things, Cenvat Credit is attached to inputs not the persons. We find that Cenvat rules nowhere attach any condition as to the ownership of the goods or their belongingness to a person. The primary and essential condition required is that the goods must be duty paid and must be used in or relation to excisable goods directly or indirectly in the factory of production."

HPCL Mittal Energy Limited, which operates a petroleum refinery, engaged contractors to fabricate storage tanks and mechanical piping required for its refinery. The company supplied stainless steel sheets, plates, valves, bolts and similar materials to the contractors free of cost. The contractors procured certain other materials required for the work. The invoices for those materials identified the company as the consignee, and it reimbursed the applicable taxes.

Following an audit, the Department denied CENVAT credit of more than ₹42.68 crore. It contended that the disputed inputs were used by the contractors while executing works contracts and therefore qualified as inputs only for them. Interest and equal penalties were also imposed.

Before the tribunal, the company argued that the disputed goods qualified as inputs under the CENVAT Credit Rules. It submitted that the inputs were received in its factory, duty had been paid on them and the prescribed documentary requirements had been fulfilled. The Revenue maintained that the manufacturer was not entitled to CENVAT credit, particularly where contractors had opted for the Works Contract (Composition Scheme).

The tribunal found that the company had satisfied the conditions for availing CENVAT credit under the Rules. It rejected the Department's contention that the disputed goods could qualify as inputs only for the contractors. The tribunal held that the Rules do not attach any condition relating to ownership of goods for claiming CENVAT credit.

However, it drew a distinction in cases where contractors had availed abatement under the Works Contract (Composition Scheme).

It observed, "Thus, we are of the considered opinion that the appellants are not entitled to Credit on the inputs on which the benefit of abatement has been availed by the Contractor-service Provider."

The tribunal held that allowing CENVAT credit in such cases would permit the same tax benefit to be availed twice in the supply chain. It partly allowed the appeals and remanded the matter for re-quantification of the admissible CENVAT credit.

On limitation, the tribunal ruled in favour of the company. It held that the extended period could not be invoked because the company had regularly filed statutory returns, undergone departmental audits, and provided the information sought by the Department.

It further held that the company could not be accused of suppressing facts merely because the prescribed returns did not require disclosure of how the inputs were used.

For Appellant: Advocates B.L. Narasimhan, Ms. Krati Singh and Shri Monarch Mittal,

For Respondent: S.K. Meena, Authorized Representative