Pollution Control Services Of Factory Are Input Services, Eligible For Cenvat Credit: CESTAT

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that services that are in relation to pollution control in the factory are input services in terms of Rule 2(l) of the Cenvat Credit Rules, 2004 and hence are eligible for Cenvat credit.

The bench of Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) has observed that services related to pollution control as input services and credit were allowed even though such services are not directly used in the manufacture of the final product.

The appellant/assessee acquired the Polymer Division of the factory of Gharda Chemicals Ltd. The appellant obtained central excise registration on May 16, 2006, and undertook the manufacture of excisable goods under Chapter 39 of the Central Excise Tariff at the said factory. The other two appellants are employees of the appellant company, M/s. Solvay Specialities India Pvt. Ltd. For the purpose of acquiring the factory, the appellant commissioned the services of a technically qualified environmental consultancy firm called Environmental Resources Management, Belgium (ERM) to carry out “environmental due diligence auditing” of the site for the investigation of environmental impact by way of contamination of the soil and groundwater.

However, the report of the environmental due diligence audit was also required to obtain consent, and there was no objection from the Gujarat Pollution Control Board to the acquisition of the factory by the appellant.

The department denied the Cenvat credit for the pollution control services of the factory.

The assessee contended that service is clearly covered under the meaning of input service given in Rule 2(l) of CCR, 2004. The services are essential to comply with the pollution control law, and without obtaining the requisite permission and consent from the pollution control authority, the manufacture of final products cannot be undertaken. Therefore, the services are necessary for carrying out the production activity in the appellant’s factory.

The department contended that because services of environmental audit were received before the takeover of the factory and commencement of manufacture, they cannot be input services, which is untenable by law. So long as service is required for the operation of the factory and carrying out production, irrespective of the time of service received, i.e., even before the acquisition of the factory, the credit cannot be denied.

The tribunal held that the services related to pollution control are in relation to the production in the factory; therefore, the time of receipt of the service is immaterial, so long as it is undisputed that the services were used in pollution control, which is, in turn, necessary for running the production activity in the appellant’s factory. Therefore, even if the services were received prior to the acquisition of the factory, the fact remains that the services were received by the appellant only, and the invoices were therefore also issued in favour of the appellant.

“Even though the services were received prior to the commencement of production so long it is in relation to the manufacturing activity of the assessee, the cenvat credit cannot be denied only because the same were received prior to the acquisition of the factory and/ or commencement of the production,” the CESTAT noted.

Counsel For Appellant: J.C Patel

Counsel For Respondent: Tara Prakash

Case Title: Solvay Specialities India Pvt Ltd Versus C.C.E. & S.T.-Surat-ii

Case No.: Excise Appeal No. 11293 of 2013 -DB

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