CENVAT Credit Rules | Storage Of Finished Goods Outside Factory Due To Space Constraints Covered Under Rule 2(l); Credit Cannot Be Denied: CESTAT

The Allahabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that storing finished goods outside the factory premises due to space constraints is connected with the assessee's business operation. Therefore, CENVAT (Central Value Added Tax) credit on 'warehousing services' is admissible as an 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004 and cannot be denied.

P.K. Choudhary (Judicial Member) stated that how a business has to be run cannot be dictated by the officers of the Department, and it should be left to the prerogative and wisdom of the business enterprises to address their business exigencies in the best possible manner, and the options available to them.

In the case at hand, the assessee/appellant was engaged in the manufacture of sugar and molasses and was availing CENVAT Credit on duty paid on inputs, capital goods and input services used/utilised for the manufacture of their final products.

During the course of the scrutiny of the ER-1 Return, it was observed that the CENVAT Credit availed of Service Tax on the basis of invoices issued by M/s Central Warehousing Corporation, Muzaffarnagar.

From the documents submitted by the Assessee, it was evident that they have availed CENVAT Credit of Service Tax on input services, namely 'Storage and Warehouse service' used for storage of their duty paid final product, i.e. sugar in the warehouse of M/s CWC, Muzaffarnagar.

It is the case of the Department that the 'Storage and Warehousing services' availed by the assessee for storage of their duty-paid final product, i.e. sugar outside the factory premises, are not covered by the definition of input services in terms of Rule 2(l) of the CENVAT Credit Rules, 2004.

Accordingly, a Show Cause Notice was issued to deny the CENVAT Credit of Rs.3,20,896/- and to impose a penalty under the provisions of Rule 15 of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944.

The Adjudicating Authority disallowed the CENVAT Credit and confirmed the demand as proposed in the SCN and also imposed a penalty of an equal amount under the provisions of Rule 15 of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944.

Being aggrieved, the Assessee filed an appeal before the First Appellate Authority, which was rejected.

The assessee argued that to store the sugar produced, the factory did not have sufficient space, and hence they had to take the godown of M/s CWC, Muzaffarnagar, on rent. The duty-paid sugar was stored at the CWC godown and was cleared from time to time for the customers.

It was further submitted that since the activity was related to the business of the factory, CENVAT Credit on 'Warehousing Services' is admissible under the definition “Input Service' under Rule 2(l) of the CENVAT Credit Rules, 2004.

The bench noted that there was a dearth of storage space within the factory premises of the assessee, and the final product, i.e. sugar, had to be stored properly and hence storage space was taken on rent at CWC, Muzaffarnagar, and the finished product, sugar, was removed from the factory on the basis of appropriate Central Excise invoices.

When there is not enough storage space within the factory of the assessee, what better option Department could have offered then the option availed by the assessee. These practices should be avoided by the officers of the Department in the larger interest of trade, commerce and industry and to contribute in true sense of nation building, stated the bench.

The Tribunal opined that the role of the Department is now no more of a tax collector but is that of a tax facilitator. The endeavour of the Departmental officers should not only be to collect appropriate tax but also to guide the taxpayers/Assessee and not to harass them.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s Dwarikesh Sugar Industries Ltd. v. Commissioner, CGST & Central Excise, Meerut-I

Case Number: Excise Appeal No.70294 of 2025

Counsel for Appellant/ Assessee: Aalok Arora

Counsel for Respondent/ Department: A.K. Choudhary

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