2013 (32) STR 31 (Bom.) Oil & Natural Gas Corpn. Ltd. vs. Commissioner of C. Ex., S. T. & Cus., Raigad

Facts:
The appellant was engaged in the manufacture of dutiable goods such as naphtha, ethane-propane, LPG and residual gases at its Uran plant and exempted goods such as crude oil and natural gases at its Mumbai offshore location. The crude oil was either directly sold from Mumbai Offshore or further used to manufacture goods at the Uranplant. The appellant being registered input service distributors, distributed CENVAT credit. Revenue contended that crude oil manufactured at Mumbai Offshore was sold to its buyers therefrom before the Uran plant came into existence. Therefore, crude oil, used at the Uran plant to manufacture dutiable products, cannot be termed as semifinished goods and thereby concluded that input services were entirely used for exempted products and no CENVAT credit was admissible.

Analysing the definition of input services, the appellant contested that the services used whether directly or indirectly in or in relation to the manufacture of a final product are eligible input services to claim CENVAT credit. Accordingly, the definition was wide enough to cover current instance and as per Rule 6(1) and Rule 6(2) of the CENVAT Credit Rules, 2004, the appellant was entitled to CENVAT credit on pro-rata basis of service tax paid on the input services used in the manufacture of final dutiable products only.

Held:
Since the definition of input services under Rule 2(l)(ii) of CENVAT Credit Rules, 2004, uses expressions “directly or indirectly” and “in or in relation to” in conjunction, the intention of the legislature was to widen the scope and purview of the entitlement. Merely because the appellant manufactured exempted goods, the revenue cannot disallow benefit of CENVAT credit on the input services used in or in relation to the manufacture of dutiable final product. The dutiable final products manufactured at the Uran plant were fundamentally premised upon the manufacturing process commenced at Mumbai Offshore i.e., manufacture of dutiable products was impossible unless the process starts at Mumbai Offshore and there is continuous supply of crude oil from Mumbai Offshore to the Uran plant. Therefore, relying on the Hon. Supreme Court’s decisions in case of Escorts Ltd. 2004 (171) ELT 145 (SC) and Solaris Chemtech Ltd. 2007 (214) ELT 481 (SC), it was held that the appellant was entitled to CENVAT credit of input services used even indirectly in manufacture of dutiable final products subject to Rule 6 of CENVAT Credit Rules, 2004.