M/s. Hindustan Petroleum Corporation Ltd. vs Commissioner Of GST And Central Excise

Brief facts are that the appellants are engaged in manufacture of lube oil. They have manufacturing facilities at Chennai, Mumbai, Silvassa and Kolkata. The present dispute relates to Chennai factory. Apart from the registration of the premises at Chennai as factory, it is also registered as a depot. The lube oil manufactured at other places are stock transferred to the Chennai premises and sold as depot sale. The appellant availed CENVAT credit on inputs, input services and capital goods used in manufacture of these final products. The present dispute pertains to the credit availed on input services. Show Cause Notice was issued to the appellant alleging that the appellant has to reverse the credit availed on input services used for carrying out trading of lube oil in the factory premises at Chennai in terms of Rule 6(3) of CENVAT Credit Rules, 2004.

The ld. Consultant Shri Baratwaj appeared and argued on behalf of the appellant. He submitted that the premises at Chennai was acting as a depot of the manufacturer so as to facilitate the storage and distribution activity. The department grossly misunderstood the nature of activity carried out at the Chennai lube plant in alleging that the activity carried out in the depot of manufacture is a trading activity. In terms of Rule 2(l) of CENVAT Credit Rules, 2004, input service means 'used in relation to manufacture of the final product and clearance of final products upto the place of removal'. Thus, the Chennai lube plant is also a place of removal from where the final sale takes place. In fact, the central excise duty is paid at the respective manufacturing plant as per the price applicable for sale at Chennai lube plant as well as at the final lube depot but received product through Chennai lube plant. That the appellant does not engage any trading activity at the Chennai depot.

He adverted to the Order-in-Appeal No. 88/2017 (CXA-I) dated 24.3.2017 and submitted that for a different period, the Commissioner (Appeals) has appreciated their arguments and held that there is no requirement to reverse the credit as there is no sale taking place. It is submitted by him that the said decision of the Commissioner (Appeals) has not been appealed by the department and has attained finality. He relied upon the decision in Boving Fouress Ltd. Vs. CCE, Chennai reported in 2006 (202) ELT 389 (SC) to argue that when the department has not appealed against an order and the principle laid down in the order has been accepted by the department, the issue has to be held as having attained finality and the department cannot take a different stand.

The ld. AR Smt. T. Sridevi appeared for the department. She supported the findings in the impugned order.

Heard both sides.

It was noticed by the department that the appellant had availed CENVAT credit on various input services based on the invoices issued by the service provider as well as on the basis of ISD invoices issued by their regional and head office. The department entertained a view that as the appellants were carrying out trading in the factory premises where from the lube oil received from other factories were sold and since trading is deemed as exempt services, the appellants have to reverse the credit availed on the input service used for such trading activity. The question as to whether the depot sale can be considered as trading has been analysed in the appellant's own case by the Commissioner (Appeals). The relevant portion of the order is reproduced as under:-

"13(ii) I find force in these arguments of the appellant since a deposit of a manufacturer is also a place of removal as recognized by sec. 4(3)(c) of the CEA, 1944. This argument has been lost sight of by the respondent whohas misled himself into concluding that the deposit is involved in trading activities without even going into the actual gamut of operations of such depots. As rightly pointed out by the appellant, the term 'trading' though not defined in the Central Excise Statute, means 'buying and selling of goods'. In the case on hand, various lube products of M/s. HPCL manufactured by Chennai Lube Plant and other sister units are received and distributed through their depots. Central Excise Duty is paid at the respective manufacturing plants as per the prices applicable for sale at Chennai Lube Plant as well as at the final lube depot who receive product through the Chennai Lube Plant. For issuance of cenvat invoices to eligible customers, the depot is required to be registered as a dealer as per the Central Excise Rules, which has been duly complied with. The respondent has not made out a case that the depot at Chennai is engaged in buying from any external agencies for subsequent sale. It is undisputed fact that the depot is only receiving the manufactured goods of Chennai Lube Plant and also from their sister units at Silvaasa, Mumbai, Mazagaon etc. though stock transfer advice along with cenvat documents for sale / distribution to dealers, depots and direct consumers. In my considered view, it is wrong to conclude that such activities normally carried out by a depot tantamounts to trading to get covered as an exempted service. Hence going by the factual details of the operations carried out by the depot, not disputed or countered by the respondent in the impugned order, I deem it fit to concede the appeal to the appellant on the ground that no trading activity takes place in the registered depot located in the appellant's factory and hence cannot be treated as exempted service to attract the mischief of rule 6(3) of CCR, 2004".

The appellant has also produced a copy of the reply to the RTI application dated 10.8.2021 wherein department has stated that no appeal has been filed against the order passed by the Commissioner (Appeals). It was held by the Commissioner (Appeals) that no exempt services / trading is rendered by the appellant through their registered depot at the Chennai lube plant which is only a place of removal for various manufacturing units.

From the above, we have no hesitation to hold that the demand cannot sustain. The impugned orders are set aside and the appeals are allowed with consequential reliefs if any, as per law.

(Operative portion of the order was pronounced in open court)