In a ruling providing relief to Hindustan Zinc, the Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that reverse credit availed is not reversible as providing capital goods to contractors for use within captive mines does not amount to ‘removal’.
The appellant/assessee is in the business of mining ores and concentrating the same, for which the mining activity was outsourced. The appellant supplied input and capital goods such as explosives, detonators, lubricants, components, pipes, rods, etc., on which they availed of the CENVAT credit.
A show cause notice was issued alleging that the appellant assessee, Hindustan Zinc Limited were liable to reverse the credit availed on inputs and capital goods removed as such under Rule 3(5) of the CCR as these goods were transferred by the appellant to the contractors for execution of both contracts. Therefore, the appellant was required to pay an amount equal to the cenvat credit availed on duty paid on these items under Rule 3(5) of the CCR.
The show cause notice was adjudicated by whereby the recovery of cenvat credit along with interest and penalty was ordered. The assessee raised the issue of whether the appellant is required to reverse cenvat credit availed on the inputs and capital goods such as explosives, detonators, lubricants, components, etc. provided to the contractors for mine development work or ore production in terms of Rule 3(5) of the Cenvat Credit Rules, 2004.
As per Rule 3(5) of the Cenvat Credit Rules, 2004, when inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods.
The two-member bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that there is no sale and no removal of inputs and capital goods when the assessee supplied the same to the contractor, which was used for mine development activity, and, therefore, the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004 are not applicable.
While allowing the appeal, the Customs, Excise, and Service Tax tribunal held that the material, equipment, facilities, explosives, and detonators were provided by the assessee free of charge to the contractors for use in the work of their company. It cannot be said that the assessee has sold these items to contractors, as there is evidence of the free supply of these items by the assessee to the contractors.
S.C. Vaidyanathan appeared for the appellant and M.K. Chawda appeared for the respondent.
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