Hindustan Zinc Limited v. Commissioner Of Cgst, Excise Customs, CESTAT, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

Excise Appeal No. 50326 of 2019, Excise Appeal No. 50327 of 2019 and Excise Appeal No. 50328 of 2019

Attorney(S)

Shri B.L. Narasimhan, Shri Shashwat Arya & Ms. Sukriti Das, Advocates
Shri Rakesh Agarwal, Authorized Representative of the Department

Judges

Dilip Gupta, President
P. Anjani Kumar, Member (Technical)

Acts

rule 2(l) of the Credit Rules w.e.f. E/50326/2019, E/50327 & E/50328 01.04.2011.
SECTION 65 FINANCE ACT
clause (b) of section 66E of the Finance Act (hereinafter referred
sub-clauses of clause (105) of section 65 of the Finance Act
Rule 2 (l) (ii) of the CENVAT Credit Rules, 2004
rule 14 of the CENVAT Credit Rules, 20042
clause of rule 2(l) of the Credit Rules.
section 2(f) of the Central Excise Act.
Rule 2(l) of the Credit Rules. 20.
rule 2(l)(A) of the Credit Rules.
Central Excise Tariff Act, 1985.
rule 7 of the Valuation Rules,
rule 2(l) of the Credit Rules,
Rule 2(l)(A) Order
Rule 2(l)(A)(a) &(b).
Rule 2(l)(a)(A).
Rule 2(l) (ii)
Rule 2(l)(A.

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Smart Summary

Factual and Procedural Background

The appeals concern the denial of input service credit (CENVAT credit) claimed on various services such as decline excavation, blasting, sealing, and mucking, used for mine development at Kayad captive mines by the appellant engaged in manufacturing Zinc and Lead Concentrates. The appellant received show cause notices dated 01.10.2013, 28.10.2015, and 31.03.2016 proposing recovery of CENVAT credit claimed on mining-related services. Initial adjudication orders confirmed demands with penalties and interest, leading to appeals before the Tribunal.

The Tribunal, in earlier orders dated 14.08.2017 and 17.11.2017, held that the services were connected with the manufacture of the final product and prima facie eligible for CENVAT credit. It remanded the matters to the Adjudicating Authority to re-examine the nexus between the services and the final product, allowing fresh evidence and opportunity to the appellant. On remand, the Commissioner issued a common order dated 25.05.2018 denying the credit and confirming demands, which is challenged in these appeals.

Legal Issues Presented

Whether the Commissioner, on remand, was justified in denying CENVAT credit on the ground that services related to construction, development, and setting up of mines were excluded from the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004.
Whether the Commissioner exceeded the scope of the remand orders by examining issues beyond the nexus between the services and the final product as directed by the Tribunal.
Whether the appellant was entitled to CENVAT credit under the "means clause" of the definition of input service despite amendments excluding certain services from the "includes" clause.
Whether the impugned order went beyond the grounds raised in the show cause notices, thereby violating principles of natural justice and procedural fairness.

Arguments of the Parties

Appellant's Arguments

The services received were input services as defined under Rule 2(l) of the CENVAT Credit Rules and were not excluded from credit eligibility.
The Commissioner exceeded the scope of the remand orders by denying credit on grounds other than the nexus between the services and the final product.
The "means clause" of the definition of input service, which remained unchanged post-amendment, covers services used directly or indirectly in or in relation to manufacture, including mine development services.
The impugned order went beyond the scope of the show cause notices, which only alleged inadmissibility of credit on the basis that services were received outside factory premises.

Department's Arguments

The remand order was wide enough to permit examination of all issues relating to admissibility of credit, not limited to nexus alone.
The services in question related to construction and development of mines, which are excluded from input services under the amended Rule 2(l) of the Credit Rules effective from 01.04.2011.
Mine development was carried out under a works contract, and thus the services fall within excluded categories.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Customs (EP) v/s National Steel & Agro Industries Ltd., 2015 (322) E.L.T. 690 (Bom.)	Limits on scope of adjudicating authority on remand orders	Held that when remand is for a limited purpose, the authority cannot exceed the scope stated in remand order; applied to hold Commissioner exceeded remand scope.
Commissioner of Central Excise, Agra v/s Okay Glass Industries, 2015 (330) E.L.T. 872 (All.)	Authority on remand must comply with remand directions and cannot confirm demand on same grounds set aside by Tribunal	Applied to conclude Commissioner ignored remand directions and confirmed demand on excluded grounds.
Commissioner Of Central Excise, Nagpur v. Ballarpur Industries Ltd., (2007) 8 SCC 89	Show cause notice as foundation for levy and recovery; limits on grounds not raised in notice	Reinforced that adjudication cannot go beyond grounds raised in show cause notice; impugned order found violative.
Nestor Pharmaceuticals Ltd. v/s Commissioner of Central Excise, Delhi, 2000 (116) E.L.T. 477 (Tribunal)	Commissioner (Appeals) cannot decide matters beyond scope of show cause notice	Supported appellant’s submission that impugned order exceeded scope of show cause notice.
Tata Johnson Controls Automotive v/s Commissioner of Customs, Mumbai, 2004 (167) E.L.T. 93 (Tri. Mum.)	Commissioner (Appeals) cannot create new case beyond show cause notice	Applied to hold impugned order invalid for deciding on grounds not in show cause notice.
Pepsico India Holdings (Pvt.) Ltd. vs. Commissioner of Central Tax, Tirupati, 2021 (7) TMI 1094 CESTAT Hyderabad	Interpretation of "means clause" of input service definition post amendment	Held that services used directly or indirectly in or in relation to manufacture qualify as input service even if excluded from "includes" clause; relied upon to support appellant’s entitlement.
Kellogs India Pvt. Ltd vs. Commissioner of Central Tax, Tirupathi, GST 2020 (7) TMI 414-CESTAT Hyderabad	Services used in setting up of plant covered under means clause despite exclusion from includes clause	Confirmed wide scope of means clause covering services necessary for manufacture; applied to appellant’s case.

Court's Reasoning and Analysis

The Court analyzed the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules as it stood before and after amendments effective 01.04.2011 and 01.07.2012. It noted that while the "includes" and "excludes" parts of the definition were amended to exclude services related to construction and setting up of mines, the "means clause" remained unchanged. This clause defines input service as any service used directly or indirectly in or in relation to the manufacture of final products and their clearance.

The Tribunal had earlier found the services in question were connected with the manufacture of the final product and prima facie eligible for credit, directing the Adjudicating Authority to examine the nexus between the services and the final product on remand.

The Court held that the Commissioner exceeded the scope of the remand orders by denying credit on grounds unrelated to the nexus, specifically by classifying the services as construction services excluded under the amended rules. The Commissioner was bound to restrict the examination to the nexus issue as directed by the Tribunal.

Further, the Court emphasized that the impugned order went beyond the grounds raised in the show cause notices, violating the principle that adjudication must be confined to issues raised in the notice. The Court relied on binding precedents that limit the authority of adjudicating officers and Commissioners on remand and prohibit deciding matters beyond the scope of show cause notices.

On the substantive issue of eligibility, the Court accepted the appellant’s argument, supported by Tribunal decisions including Pepsico India Holdings and Kellogs India Pvt. Ltd, that the broad "means clause" covers services used directly or indirectly in or in relation to manufacture, including mine development services, even if such services are excluded from the "includes" clause. Therefore, the appellant was entitled to CENVAT credit on the input services utilized for mine development.

The Court rejected the Department’s emphasis on the "includes" and "excludes" clauses as misplaced when the "means" clause provides a wider scope for credit eligibility.

Holding and Implications

The Court set aside the impugned order dated 25.05.2018 passed by the Commissioner denying CENVAT credit and confirming duty demands and penalties in all three appeals.

The direct consequence is that the appellant is entitled to the input service credit claimed on services utilized for mine development at Kayad captive mines. The Court held that the Commissioner exceeded the remand scope and violated procedural fairness by deciding on grounds not raised in the show cause notices.

No new precedent was laid down; rather, the Court affirmed existing principles limiting the scope of remand and emphasizing the primacy of the show cause notice’s grounds, while endorsing the broad interpretation of the "means clause" of input service definition as established by prior Tribunal decisions.

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Hindustan Zinc Limited v. Commissioner Of Cgst, Excise Customs

JUSTICE DILIP GUPTA The issue in all the three Excise appeals is about denial of input service credit on various services, such as decline excavation, blasting, sealing and mucking, utilized for mine development at Kayad captive mines.

2. The appellant seeks the quashing of the order dated 25.05.2018 passed by the Commissioner, Central Goods and Service Tax Commissionerate, Udaipur1 adjudicating the three show cause notices pursuant to the earlier two orders passed by the Tribunal remanding the case to the Adjudicating Authority for a fresh decision. The Tribunal, after holding that the services were connected with the

1. the Commissioner E/50326/2019, E/50327 & E/50328 manufacture of the final product and so prime facie eligible for CENVAT credit, remanded the case to the Adjudicating Authority to examine the nexus between the services and the final product.

3. The Commisssioner has, by the impugned order dated 25.05.2018, disallowed input CENVAT credit and ordered for recovery of the same under rule 14 of the CENVAT Credit Rules, 20042 with interest and penalty.

4. Details of the period of dispute and the duty demanded in the three Excise Appeals are contained in the following table; Appeal No. E/50326/2019 E/50328/2019 E/50327/2019 Order date 25.05.2018 Date of Show Cause Notices 01.10.2013 28.10.2015 31.03.2016 Period of dispute October 2012 March 2013 October 2014 March 2015 April 2015 September 2015 Duty Demand Rs. 97,08,776 Rs. 4,46,13,883 Rs. 3,11,35,434 Penalty Rs. 5,00,000 Rs. 20,00,000 Rs.15,00,000

5. The appellant is engaged in the manufacture of Zinc and Lead Concentrates falling under Chapter 26 of the First Schedule to the Central Excise Tariff Act, 1985. It availed CENVAT credit on various inputs, capital goods and input services in terms of the provisions of the Credit Rules. It has an ore concentration facility at Rampura Agucha, where mined ores (i.e. their raw material/input) containing mud/impurities are brought for washing and concentrating before they are sent to the captive smelters for smelting. The ore concentrates are

2. the Credit Rules E/50326/2019, E/50327 & E/50328 liable to duty on which, the appellant claims that appropriate excise duty was discharged. The appellant had explored some ore reserves at Kayad Mines, from where the entire quantity of ore that was extracted was transported to the factory at Rampura Agucha for beneficiation/processing for use in manufacture of dutiable goods. The appellant claims that for extraction and procurement of Ores i.e. raw material/input, it had availed mining services and ancillary services at the Kayad Mines, which operated as a captive mine for the appellant.

6. Three show cause notices dated 01.10.2013, 28.10.2015 and 31.03.2016, were issued to the appellant proposing recovery of CENVAT credit of service tax paid on various services in relation to mining development received at the Kayad Mines. The appellant filed detailed replies and denied all the allegations. It was submitted that the services received were covered within the definition of input service and were not excluded from the purview of rule 2(l) of the Credit Rules as alleged by department. The appellant, therefore, stated that the CENVAT credit had been correctly availed by the appellant on the input services.

7. The first show cause notice dated 01.10.2013 was adjudicated by order dated 10.02.2015, wherein out of the total proposed demand of Rs. 1,07,54,425/-, demand of CENVAT Credit amounting to Rs. 1,01,44,896/- was confirmed and the balance demand of Rs. 6,09,529/- was dropped. The appellant, aggrieved to the extent it was prejudicial to its interest, filed Excise Appeal No. 51849 of 2015 before the Tribunal. The Tribunal, by order dated 14.08.2017, remanded the E/50326/2019, E/50327 & E/50328 matter to the Adjudicating Authority to examine the nexus between services received and the final product of the appellant. The relevant portion of the order dated 14.08.2017 passed by the Tribunal is reproduced below:

4. After hearing both the parties and perusal of material on record, it appears that the services pertained to development work of underground mines and fan installation in the mines for the purpose of ventilation. To carry out weighment of the ore, weigh bridge was constructed with the platform. To supply the electricity in the mines, the sub-station was constructed. Fixed phone line was not available in the mining area, so mobile phone was provided to the workers and staff offices. In these circumstances, it appears that the services were carried out to obtain sufficient quantity of raw material, of course outside the factory premises but within the mining area. So, these services are connected with the manufacture of the final product and prima facie eligible for CENVAT Credit. When it is so, then we set aside the impugned order and remand the case back to adjudicating authority for fresh decision after examining the nexus between the services and the final product of the appellant. Adjudicating Authority to examine the issue afresh but by providing a reasonable opportunity to the appellant. Fresh evidence may be admitted as per law. In the result, appeal filed by the appellant is allowed by way of remand. (emphasis supplied)

8. The subsequent show cause notices dated 28.10.2015 and 31.03.2016 were adjudicated by a common order dated 27.03.2017, wherein the entire demand of Rs. 4,46,13,883/- and Rs. 3,11,35,434/- respectively were confirmed with interest and penalties.

9. The appellant filed Excise Appeal No. 51295 of 2017 and Excise Appeal No. 51398 of 2017 against the order dated 31.03.2016 before the Tribunal. The Tribunal, by order dated 17.11.2017, following its earlier order dated 14.08.2017, remanded the matter to the Adjudicating Authority with a direction similar to that it had issued on E/50326/2019, E/50327 & E/50328 14.08.2017 in Excise Appeal No. 51849 of 2015. The relevant portion of the order is reproduced below:

4. After hearing both sides and on perusal of material available on record, it appears that identical issue has came up before the Tribunal in assessees own case as Hindustan Zinc Ltd vs. CCE, Jaipur [Final Order No. 56292/2017 dated 14.08.2017] wherein it was observed that: XXXXXXXXXXXXX

5. By following our earlier order (supra), we set aside the impugned order and remand the case back to the adjudicating authority with the similar direction (supra).

10. On remand, the Commissioner adjudicated all the three show cause notices by a common order dated 25.05.2018. Except for a demand of Rs. 10,45,649/- out of the total demand proposed in the first show cause notice dated 01.10.2013, the remaining demand proposed in this show cause notice and the remaining show cause notices dated 10.02.2015 and 27.03.2017 were confirmed.

11. The table below would give a brief summary of the allegations contained in the show cause notices, the findings in the initial adjudication order and the findings recorded by the Commissioner in the order passed after remand by the Tribunal. Period and date of show cause notice Allegation in the show cause notice Finding in first adjudication order Finding in order dated 25.05.2018 after remand Oct 2012 March 2013 01.10.2013 Services have been received outside the factory premises. Thus, CENVAT Credit is inadmissible. Order dated 10.02.2015 CENVAT Credit of input services received in the captive mines is admissible if these are otherwise covered in definition of input service. There is no mention that input service credit is not available for services utilized outside factory. There is no mention that input service credit is not available for services utilized outside factory. Services are related to construction, development and setting up of Kayad mines. The activities were for construction and all such activities relating to construction or execution of a works contract of a building or a civil structure have been excluded from the definition of input service w.e.f. 01.04.2011 E/50326/2019, E/50327 & E/50328

12. Shri B.L. Narasimhan, learned Counsel appearing for the appellant made number of submissions to assail the impugned order, but the submission that the impugned order has travelled beyond the directions issued by the Tribunal in the remand orders since the Commissioner was only required to examine the nexus which the services had with the final product, needs to be first examined. This submission has been seriously refuted by Shri Rakesh Agarwal, learned Authorized Representative appearing for the Department.

13. To appreciate this submission, it will be appropriate to reproduce the definition of input service under rule 2(l) of the Credit Rules, as it stood prior to 01.04.2011, from 01.04.2011 to 30.06.2012 and then w.e.f. 01.07.2012. Services are in relation to 'setting up' of mines and service portion of construction services has been omitted and has been put into exclusion part of the definition of input services w.e.f. 01.04.2011. Thus, credit is not admissible. under Rule 2(l)(a)(A). Thus, credit is not admissible. Oct 2014 March 2015 28.10.2015 Services are in relation to 'setting up' of mines which stands omitted w.e.f. 1.04.2011 from the includes clause of input service. Further, the services are in relation to 'construction' and execution of a works contract of a building or a civil structure, which is excluded under Rule 2(l)(A) Order dated 7.03.2017 Services are in relation to 'setting up' of mines which stands omitted w.e.f. 01.04.2011 from the includes clause of input service. Further, the services are in relation to 'construction' which is excluded vide Rule 2(l)(A. Thus, credit is not admissible. Order dated 25.05.2018 Work was basically development of civil structure of mining area by way of construction of decline/ramp, etc. and the same merits classification as construction service. These have been clearly excluded under Rule 2(l)(A)(a) &(b). Thus, credit is not admissible. April 2015 Sept 2015 31.03.2016 E/50326/2019, E/50327 & E/50328 Prior to 01.04.2011 2(l) input service means any service,-

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

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final product and clearance of final products upon the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs 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 upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal. (emphasis supplied) From 01.04.2011 upto 30.06.2012 2(l) "input service" means any service,-

(i) used by a provider of taxable service 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 upto the place of removal, and includes services used in relation to modernization, renovation or repairs 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 upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training , computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes services,- A. specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for- a. construction of a building or a civil structure or a part thereof; or b. laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or xxxxxxxxx (emphasis supplied) E/50326/2019, E/50327 & E/50328 With effect from 01.07.2012 2(l) input service means any service,-

(i) used by a provider of output service 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 upto the place of removal, and includes services used in relation to modernization, renovation or repairs 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 upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal. but excludes- (A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for- (a) construction or execution of works contract of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or (emphasis supplied)

14. It would be seen from the aforesaid definition of input service in rule 2(l) of the Credit Rules that while the means part of the definition has continued to remain the same pre amendment or post amendment, but the includes part and the excludes part of the definition of input service have underdone changes. Though services used in relation to setting up of a factory was included in the inclusive part of the definition of input services prior to 01.04.2011 but it was deleted w.e.f. 01.04.2011. The excludes part in the definition of E/50326/2019, E/50327 & E/50328 input service was added w.e.f. 01.04.2011 and it provided that services specified in certain sub-clauses of clause (105) of section 65 of the Finance Act in so far as they were used for construction of a building or a civil structure or a part thereof were excluded w.e.f. 01.04.2011. It is also seen that the excludes part of the definition of input service was further amended w.e.f. 01.07.2012.

15. Learned Counsel for the appellant has placed emphasis on the means clause of rule 2(l) of the Credit Rules. It continued to remain the same whether before 01.04.2011 or after 01.04.2011. In this connection, learned Counsel emphasized that input service would mean any service 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.

16. To appreciate whether the impugned order has travelled beyond the directions contained in the two orders passed by the Tribunal, it would be necessary to examine the orders.

17. The show cause notice dated 01.11.2013 alleged that CENVAT credit was inadmissible as the services were received outside the factory premises. The first order dated 10.02.2015 passed by the Adjudicating Authority decided this issue in favour of the appellant by holding that CENVAT credit of input services received in the captive mines is admissible since the definition does not mention that input service credit would not be available for services utilized outside the factory. However, CENVAT credit has been denied for the reason that the services were in relation to setting up of mines and service E/50326/2019, E/50327 & E/50328 portion of construction services has been omitted w.e.f. 01.04.2011 and has been put in the exclusion part of the definition. It is for this reason that the learned Counsel for the appellant contended that the finding recorded in the first impugned order is also beyond the show cause notice dated 01.10.2013, but this submission would be examined, if considered necessary, at a later stage. When the matter came before the Tribunal, as noticed above, it was found that services pertained to development work of underground mines and fans installation in the mines for the purpose of ventilation. The Tribunal, therefore, observed that since services were carried out to obtain sufficient quantity of raw material outside the factory premises but within the mining area, the services were connected with the manufacture of final product and prima facie eligible for CENVAT credit. The Tribunal, therefore, set aside the impugned order and remanded the case to the Adjudicating Authority for a fresh decision to examine the nexus between the services and final product of the appellant after providing a reasonable opportunity to the appellant and even fresh evidence could be admitted, if law permitted.

18. Learned Counsel for the appellant submitted that it was imperative for the Commissioner to have examined only that issue which was remanded by the Tribunal, but the Commissioner denied CENVAT credit on different grounds, as would be seen from the order and, therefore, the order went beyond the remand order.

19. A perusal of the impugned order dated 25.05.2018 passed by the Commissioner indicates that in regard to the first show cause E/50326/2019, E/50327 & E/50328 notice CENVAT credit has been denied even after holding that input service credit would be available for services utilized outside the factory premises for the reason that the services related to construction, development and setting up of Kayad Mines. These activities related to construction or execution of a works contract of a building or a civil structure, but such activities had been excluded from the definition of input service w.e.f. 01.04.2011 under Rule 2(l) of the Credit Rules.

20. Whether this was at all required to be examined by the Commissioner after remand by Tribunal is the bone of contention between the appellant and the respondent.

21. Learned Counsel for the appellant submitted that once the order passed by the Tribunal on 14.08.2017 remanding the case to the Commissioner had attained finality, the Commissioner could have examined only that particular issue that was remanded. Learned Authorized Representative for the Department, however, contended that the remand order was a very wide order and when the Adjudicating Authority was directed to examine the issue fresh by providing a reasonable opportunity to the appellant, it implies that all the issues were left open to be decided by the Commissioner and, therefore, it cannot be urged that the Commissioner went beyond the directions contained in the remand order.

22. This submission advanced by the learned Authorized Representative for the Department cannot be accepted. The order in its entirety has to be read and when so read, it clearly transpires that E/50326/2019, E/50327 & E/50328 a direction was issued to the Adjudicating Authority to take a fresh decision after examining the nexus between the services and final product of the appellant. The Commissioner had, therefore, to restrict his consideration to this issue alone. The subsequent sentence directing the Adjudicating Authority to examine the issue afresh has to be read in the light of the direction contained in the previous sentence. The Tribunal, in its order dated 14.08.2017, had recorded a categorical finding that services were connected with the manufacture of the final product and, therefore, prima facie were eligible for CENVAT credit. The Commissioner could have only examined only this issue, but it was not examined. The Commissioner, on the other hand, examined whether the services related to construction, development and setting up of Khayad Mines. This was not only beyond the scope of the remand order dated 14.08.2017, but it can also be urged that it went beyond the scope of the first show cause notice.

23. In Commissioner of Customs (EP) v/s National Steel & Agro Industries Ltd.3, the Bombay High Court observed that when the remand is for a limited purpose, the Adjudicating Authority cannot travel beyond the purpose stated in the remand order.

24. The Allahabad High Court, in Commissioner of Central Excise, Agra v/s Okay Glass Industries4, observed that when the remand order attains finality, it is not open to the Commissioner, on remand, to pass an order ignoring the remand directions and confirming the

3. 2015 (322) E.L.T. 690 (Bom.)

4. 2015 (330) E.L.T. 872 (All.) E/50326/2019, E/50327 & E/50328 demand on the same grounds as contained in the first order, which order had been set aside by the Tribunal.

25. There is, therefore, no manner of doubt that the order passed by the Commissioner adjudicating the first show cause notice is beyond the scope of the remand order.

26. In regard to the subsequent show cause notices dated 28.10.2015 and 31.03.2016 for the period from October 2014 to September 2015, it is seen that the show cause notices were issued on a ground different from that contained in the first show cause notice. The show cause notices mention that the services were in relation to setting up, of mines, which service stood omitted w.e.f. 01.04.2011 from the inclusive clause of the definition of input service under rule 2(l) of the Credit Rules. They also mention that the services were in relation to construction and execution of a works contract of a building or a civil structure, which service was excluded under rule 2(l)(A) of the Credit Rules. The Commissioner, in the first order dated 27.03.2017, confirmed the demand. However, the Tribunal in the order dated 17.11.2017, after making reference to the order dated 14.08.2017 earlier passed by the Tribunal in Excise Appeal No. 51849 of 2015, issued the same direction to the Adjudicating Authority to take a fresh decision after examining the nexus between the services and the final product of the appellant. The Department did not file any appeal against this order dated 17.11.2017 of the Tribunal and so the order passed by the Tribunal attained finality. The Commissioner was, therefore, required to examine only this limited issue on remand, but E/50326/2019, E/50327 & E/50328 as the order would indicate, the Commissioner denied CENVAT credit observing that the work was basically of development of a civil structure of mining area by way of construction of decline/ramp and the same would merit classification as construction services, which services had been excluded under rule 2(l)(A) of the Credit Rules w.e.f. 01.04.2011. The Commissioner, therefore, in regard to the subsequent two show cause notices also went beyond the remand order.

27. There is, therefore, no hesitation in holding that the order dated 25.05.2018 passed by the Commissioner has travelled beyond the scope of the remand orders passed by the Tribunal on 14.08.2017 and 17.11.2017 and, therefore, cannot be sustained.

28. Learned Counsel for the appellant also challenged the order dated 25.05.2018 passed by the Commissioner in relation to the first show cause notice dated 1.10.2013 for the reason that the order went beyond the scope of the show cause notice.

29. This submission deserves to be accepted. The show cause notice proceeded on the footing that the services had been received outside the factory premises and, therefore, CENVAT credit was not admissible. The impugned order holds that CENVAT credit would be admissible even if services were utilized outside the factory premises, but still denies CENVAT credit for the reason that the services were in relation to construction, development and setting up of Khayad mines, but construction related activities had been excluded from the definition of input service under rule 2(l) of the Credit Rules w.e.f. E/50326/2019, E/50327 & E/50328 01.04.2011. The confirmation of the duty demand for this period, therefore, is liable to be set aside on this ground also.

30. In Commissioner Of Central Excise, Nagpur v. Ballarpur Industries Ltd. . Ltd.5, the Supreme Court observed that it is well settled that a show cause notice is the foundation in the matter of levy, recovery of duty, penalty and interest and if there was no invocation of rule 7 of the Valuation Rules, 1975 in the show causes notice, it would not be open to the Commissioner to invoke the said Rule.

31. In Nestor Pharmaceuticals Ltd. v/s Commissioner of Central Excise, Delhi6, a Division Bench of the Tribunal observed that the Commissioner (Appeals) cannot go beyond the scope of the show cause notice and that no matter can be decided on a ground other than the grounds raised in the show cause notice.

32. In Tata Johnson Controls Automotive v/s Commissioner of Customs, Mumbai7, a Division Bench of the Tribunal observed that it was not open to the Commissioner (Appeals) to make out a new case and, therefore, the order passed by the Commissioner (Appeals) deserved to be set aside on this ground alone.

33. The order passed by the Commissioner adjudicating the first show cause notice dated 01.10.2013 for the period October 2012 to March 2013, therefore, deserves to be set aside for this reason also.

34. The order passed by the Commissioner denies CENVAT credit for the reason that the services were construction related services which had been excluded from the definition of input service and also for

5. (2007) 8 (2007) 8 SCC 89

6. 2000 (116) E.L.T. 477 (Tribunal)

7. 2004 (167) E.L.T. 93 (Tri. Mum.) E/50326/2019, E/50327 & E/50328 the reason that services in relation to setting up of a mine had been deleted from the definition of input service w.e.f. 01.04.2011.

35. Learned Counsel for the appellant submitted that the appellant would be eligible for CENVAT Credit on the input services in question under the means clause of the definition of input service that provides used in or in relation to the manufacture of final products. The submission is that even post the amendment in the definition of input service w.e.f. 01.04.2011, the means clause continues to remain the same. It is also the submission that means clause of the definition is very widely worded and words such as directly or indirectly and in or in relation to, further expand the scope of the definition. In this connection, reliance has been placed on the decision of the Tribunal in Pepsico India Holdings (Pvt.) Ltd. vs. Commissioner of Central Tax, Tirupati8.

36. Learned Authorized Representative of the Department, however, submitted that the development of mines was done under a works contract. Learned Authorized Representative also submitted that since mine development is a process of constructing a mining facility, the impugned services were only for construction and development of the mine.

37. As noticed above, emphasis has been placed by the appellant on the means clause of the definition of input service under rule 2(l) of the Credit Rules. The Department however has placed emphasis on the includes clause of the definition as also the excludes clause of the definition of input service. The decision of the Tribunal in

8. 2021 (7) TMI 1094 CESTAT Hyderabad E/50326/2019, E/50327 & E/50328 Pepsico India Holdings, on which reliance has been placed by the appellant, also interpreted the means clause of the definition of input service. It would, therefore, be appropriate to consider this decision.

38. What came up for decision before the Tribunal in Pepsico India Holdings was whether the appellant was entitled to CENVAT credit on the input services used in the setting up of the plants. In particular, what was considered was whether setting up of the plants would be a service falling in the means clause of the definition of input service, even if setting up was deleted from the includes clause of the definition of input service w.e.f. 01.04.2011. The Tribunal observed that the definition of the means part of the definition was very wide and services used in setting up of the factory would be covered under the input services, under rule 2(l) of the Credit Rules in the means part of the definition of input service even if the said service had been deleted from the includes part of the definition of input service. The relevant portion of the decision is reproduced below:

11. Before 1.4.2011, the term input service had number of types of services included in the main part of the definition and then it had a inclusive part of the definition which specifically provided for credit of service tax paid on services used in setting up of the plant. After 1.4.2011, the definition was revised and it had three parts, the main part, an inclusion part and an exclusion part. The cenvat credit on input services used in setting up of the plant was neither in the inclusive part of the definition nor in the exclusive part of the definition. However, he would argue that these services were necessary to set up the plant and manufacture the goods. Thus, these services are directly connected to the manufacture of the goods and hence they are covered in the main part of the definition of the input service after 1.4.2011 and therefore credit is available even though such services were no longer specifically in the inclusive E/50326/2019, E/50327 & E/50328 part of the definition. Such a view was taken in the case of Kellogs by this Bench and in other cases cited above. He, therefore, prays that the appeals may be allowed and the impugned orders may be set aside.

12. Learned Departmental Representative vehemently opposes these arguments and supports the impugned orders and asserts that since the services related to setting up of a factory were removed from the inclusive part of the definition, it would mean no CENVAT credit was available. On a specific query from the bench, he submits that in the case of Kellogs this Bench held that CENVAT credit was available and the Revenue has appealed against the order which appeal is pending before the High Court of Andhra Pradesh for admission. xxxxxx

15. The department wants to deny them the benefit of the CENVAT credit on the ground that services related to setting up of a factory which were specifically included prior to 1.4.2011 were no longer specifically included post 1.4.2011.

16. We find that the definition of input service prior to 1.4.2011 had two parts- a main part of the definition and an inclusive part of the definition. This inclusive part specifically included the services availed for setting up the factory. After 1.4.2011, it has three parts- a main part, an inclusive part and an exclusive part. The services used for setting up the factory are neither in the inclusive part of the definition nor the exclusive part of the definition. Therefore, such services were neither specifically included nor were specifically excluded.

17. It takes us to the main part of the definition which must be examined. If it is wide enough to cover the services in question, CENVAT credit will be available, otherwise it will not be available. The main part includes services 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. The term manufacture is not defined in the Rules. xxxxxxxxx

21. For a service to qualify as input service under CENVAT Credit Rules, 2004 post 2011, the service in question need not be covered even by the very wide definition of manufacture under section 2(f) of the Central Excise Act. Any service which is used not only in manufacture but also in relation to manufacture will also qualify as input service. The scope of input service is further enlarged with the expression E/50326/2019, E/50327 & E/50328 whether directly or indirectly used in the definition of input service. Thus, there are:

a) Actual manufacture;

b) Processes incidental or ancillary to manufacture which are also manufacture;

c) Activities directly in relation to manufacture (i.e., in relation to a and b above);

d) Activities indirectly in relation to manufacture (i.e., in relation to a and b above);

22. All four of the above qualify as input service as per Rule 2(l) (ii) as applicable post 1.4.2011. Although setting up the factory is not manufacture in itself, it is an activity directly in relation to manufacture. Without setting up the factory, there cannot be any manufacture. Services used in setting up the factory are, therefore, unambiguously covered as input services under Rule 2 (l) (ii) of the CENVAT Credit Rules, 2004 as they stood during the relevant period (post 1.4.2011). The mere fact that it is again not mentioned in the inclusive part of the definition makes no difference. Once it is covered in the main part of the definition of input service, unless it is specifically excluded under the exclusion part of the definition, the appellant is entitled to CENVAT credit on the input services used. This Bench has already taken this view in Kellogs. Similar views have been taken by the other Benches in the other cases mentioned above. (emphasis supplied)

39. It needs to be noted that in Kellogs India Pvt. Ltd vs. Commissioner of Central Tax, Tirupathi9, the Tribunal observed:-

11. Therefore, we find that the services used in relation to setting up of a plant are neither specifically included nor specifically excluded during the relevant period. That takes us to the main part of the definition which, with respect to manufacturer allows CENVAT credit of services used in or in relation to manufacture whether directly or indirectly. This definition, in our considered view, is wide enough to cover in its compass any services used for setting up a Plant especially when the services are used for obtaining the land on lease. Without such land no factory can be set up nor can any manufacture take place. We find a direct nexus between the manufacture of the final products and the services used for setting up of plant by leasing the land.

9. GST 2020 (7) TMI 414-CESTAT Hyderabad E/50326/2019, E/50327 & E/50328

40. In this view of the matter, when the services received by the appellant are covered within the means clause of the definition of input service, the appellant was justified in availing CENVAT credit on various services utilized for mine development at Khayad captive mines.

41. Such being the position, emphasis placed by the Department on either the includes part or the excludes part of the definition of input service in rule 2(l) of the Credit Rules is mis-placed.

42. The Commissioner was, therefore, not justified in examining the includes part or excludes part of the definition of input service when it had been contended on behalf of the appellant that the services utilized for mine development would be input service under the means clause of the definition of input service.

43. Thus, for all the reasons stated above, the order dated 25.05.2018 passed by the Commissioner deserves to be set aside and is set aside. The appeal is, accordingly, allowed. (Order pronounced on 19.08.2021) (JUSTICE DILIP GUPTA) PRESIDENT (P. ANJANI KUMAR) MEMBER (TECHNICAL) Rekha/JB/Shreya E/50326/2019, E/50327 & E/50328

Hindustan Zinc Limited v. Commissioner Of Cgst, Excise Customs

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Department's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Hindustan Zinc Limited v. Commissioner Of Cgst, Excise Customs

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