Ms Hindustan Unilever Ltd vs PONDICHERRY

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
CHENNAI
REGIONAL BENCH - COURT No. I

Excise Appeal No. 41315 of 2016
(Arising out of Order in Appeal No. 125/2016 (CXA-II), dated 31.03.2016 passed by the
Commissioner of Central Excise (Appeals II), 26/1, Mahatma Gandhi Marg, Nungambakkam,
Chennai 600 034).

M/s. Hindustan Unilever Ltd. ...Appellant
Skin Care Unit
NH 45A, Vadamangalam
Puducherry 605 102

Versus

Commissioner of Central Excise and Service Tax ...Respondent
Puducherry Commissionerate
No.1, Goubert Avenue, Puducherry 605 001


APPEARANCE:
For the Appellant :Ms. Mathangi, Advocate for the Appellant
For the Respondent: Mr. R. Govindan, Authorised Representative

CORAM :
HON’BLE MR. AJAYAN T.V. MEMBER (JUDICIAL)


FINAL ORDER No.41113/2026

DATE OF HEARING :13.10.2026
DATE OF DECISION: 22.10.2026

Per AJAYAN T.V.
M/s. Hindustan Unilever Ltd., the appellant herein,
assails Order in Appeal No. 125/2016 (CXA-II) dated 31.03.2016 of
the Commissioner of Central Excise (Appeals II), Chennai. By that
order the Commissioner (Appeals) rejected the appeal preferred
against Order in Original No. 03/2015 dated 20.03.2015, whereby
the Adjudicating Authority disallowed CENVAT credit of Rs.
3,91,207/- availed on input services, ordered its recovery with
interest under Rule 14 of the CENVAT Credit Rules, 2004 (the CCR)

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read with Section 11A(1) of the Central Excise Act, 1944 (the Act),
and imposed a penalty of Rs. 40,000/- under Rule 15(1) of the CCR.

2. The appellant manufactures Ponds moisturising cold cream, Vaseline
pure petroleum jelly, shampoo and talcum powder, classifiable under
Chapter 33 of the First Schedule to the Central Excise Tariff Act,
1985. It takes CENVAT credit of the duty paid on inputs and capital
goods and of the service tax paid on input services, and utilises that
credit towards the duty payable on its final products. On a
verification of the ER 1 returns and the credit records for the period
from December 2012 to February 2013, the Department found that
the appellant had taken credit of Rs.3,91,207/-, inclusive of cesses,
of the service tax charged by several job workers on the job work
charges paid to them.

3. In the view of the Department, Notification No. 25/2012-ST dated
20.06.2012 exempts from the whole of the service tax an
intermediate production process undertaken as job work in relation
to goods on which appropriate duty is payable by the principal
manufacturer. The job work being exempt, the service so received
could not, the Department reasoned, be an input service within the
meaning of Rule 2(l)(ii) of the CCR. Show Cause Notice No. 3/2014
dated 08.01.2014 accordingly alleged that the credit had been taken
in contravention of Rule 3 read with Rule 2(l)(ii) of the CCR. It
proposed recovery of the credit with interest under Rule 14 of the
CCR read with Section 11A(1) of the Act, and a penalty under Rule
15(1) of the CCR.

4. The appellant contested the notice. After a personal hearing, the
Adjudicating Authority nonetheless confirmed the demand with
interest and imposed the penalty noticed above. The Commissioner
(Appeals) affirmed that order. Hence the present appeal.

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Submissions on behalf of the appellant
5. Ms. Mathangi, learned Advocate for the appellant, contended that no
provision of law prevents a job worker from paying service tax on a
service which Notification No. 25/2012-ST would otherwise exempt.
Section 5A(1A) of the Act forbids a manufacturer to pay duty on
goods exempted absolutely. However, Ld. Counsel argued, neither
the Finance Act, 1994 nor the Service Tax Rules, 1994 contains any
corresponding bar. Even on the assumption that Section 5A(1A)
applied, the notification is conditional and the bar would not be
attracted. Once the job workers had paid the tax and the Department
had accepted it without demur, the denial of credit to the recipient
of the service was, she would argue, legally unsustainable.

6. Learned Counsel further urged that the job work bore a direct nexus
with the manufacture of the final products, so that the credit was
lawfully taken. The issue, she maintained, is no longer res integra.
Reliance was placed on Gandhi Special Tubes Limited v. CCE and ST,
Vadodara II, 2023 (10) TMI 673 (CESTAT Ahmedabad), Balaji
Multiflex Pvt. Ltd. v. CCE and ST, Rajkot, 2018 (10) TMI 620
(CESTAT Ahmedabad) and MRF Ltd. v. Commissioner of Central
Excise and ST (LTU), Chennai, 2014 (1) TMI 822 (CESTAT Chennai) .

Submissions on behalf of the respondent
7. Shri R. Govindan, learned Authorised Representative for the
Revenue, reiterated the findings of the impugned order.

Analysis
8. This Tribunal has heard both sides and perused the material on
record. The question which arises for determination is whether the
appellant can be denied CENVAT credit of the service tax paid by its
job workers, on the ground that the job work was exempt under
Notification No. 25/2012-ST and that the tax ought never to have

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been paid. The demand for interest and the penalty would survive
and fail in accordance with the answer to that question.

9. The case of the Revenue rests on a single premise. It assumes that
the provider of an exempt service cannot pay tax on it, and that tax
so paid is not available as credit to the recipient. That premise holds
only if the law compels the provider to avail the exemption. Under
the Central Act, 1944 such a compulsion exists in relation to goods,
for Section 5A(1A) declares that where an exemption from the whole
of the duty of excise has been granted absolutely, the manufacturer
shall not pay the duty. The real question therefore is whether that
provision travels into the Finance Act, 1994 so as to apply to the field
of service tax.

10. This Tribunal is clear that it does not. Section 83 of the Finance Act,
1994 enumerates the provisions of the Act which apply, so far as
may be, in relation to service tax as they apply in relation to a duty
of excise. Of Section 5A, the enumeration takes in only sub section
(2A), which empowers the Central Government to insert a
clarificatory explanation in an exemption notification within one year
of its issue. Sub section (1A) finds no place in it. Where Parliament
has specified with such precision which provisions of one enactment
shall govern another, the omission of sub section (1A) must be taken
to be deliberate. It cannot be supplied by construction. A provider of
a taxable service is accordingly under no obligation to avail an
exemption, and tax paid by it in preference to the exemption is not
tax paid without the authority of law.

11. That is precisely what a Division Bench of this Tribunal held in Gandhi
Special Tubes Limited v. CCE and ST, Vadodara II, reported in 2023
(10) TMI 673 (CESTAT Ahmedabad) . Credit of the service tax paid
by job workers had been denied there on the basis that the job work
was exempt under Notification No. 08/2005-ST and Notification No.

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25/2012-ST. Having reproduced Section 83 of the Finance Act, 1994
and Section 5A of the Act, the Bench held as follows.
“4.2 In terms of subsection (1A) of Section 5A for the purpose of
central excise if an exemption is granted absolutely the
manufacturer of excisable goods shall not have option to pay excise
duty whereas the Notification necessarily to be availed by the
assesse. Unlike sub section (1A) of Section 5A, there is no provision
in the Finance Act, 1994 to compulsorily avail the exemption granted
absolutely. Therefore, Notification No. 08/2005-ST and 25/2012-ST
even though they grant absolute exemption but in absence of
provision such as Sub section (1A) of Section 5A of Finance Act,
1994 the assessee has option either to pay service tax or to avail
the exemption. Therefore, when the job worker has paid the tax
without availing the exemption Notification (Supra) there is no
illegality in payment of such service tax. If this be so, then the
service recipient, in the present case, the appellant are legally
entitled to avail the cenvat credit as there is no dispute that the
input services is directly used in or in relation to manufacture of their
final product.
4.3 Without prejudice, we also find that even though the service
provider paid the service tax which was otherwise not payable but
the payment of service tax and its assessment was not questioned
by the jurisdictional officer of service provider then also the credit
availement by the service recipient cannot be questioned. Therefore,
we do not find anything illegal or wrong on the part of the appellant
in availing the cenvat credit on the input services provided by the
job worker to the appellant. Hence, the impugned order is not
sustainable.”

12. The decision thus rests on two independent grounds. The first is that
Section 5A(1A) has not been made applicable to service tax, so that
the job worker had the option to pay the tax and the recipient was
entitled to credit of the tax so paid on a service used in or in relation
to the manufacture of its final product. The second is that where
neither the payment of the tax nor its assessment has been
questioned by the jurisdictional officer of the service provider, the
credit taken by the recipient cannot be questioned either. The

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decision construes the very notification invoked against the
appellant, and both its grounds apply with full force to the facts of
this case.

13. Balaji Multiflex Pvt. Ltd. v. CCE and ST, Rajkot, 2018 (10) TMI 620
-CESTAT Ahmedabad, is to the same effect, though it arose under a
different notification and was decided by a learned Single Member.
The job worker there had paid tax on the gross value including the
cost of material, without availing the abatement under Notification
No. 12/2003-ST. The credit attributable to the cost of material was
denied to the recipient. The Tribunal held that the recipient was
entitled to credit of the tax paid by the provider irrespective of
whether it was payable. It further held that, unlike Section 5A of the
Act, the service tax law contains no provision compelling the
availment of an exemption notification, and that the provider was at
liberty to pay tax on the entire value.

14. MRF Ltd. v. Commissioner of Central Excise and ST (LTU), Chennai,
2014 (1) TMI 822 (CESTAT Chennai) addressed the question
whether credit was admissible on security services availed by the
manufacturer to guard inputs sent to the premises of its job workers,
and on security services at its guest houses. The Tribunal allowed
the former and denied the latter. It had no occasion to consider
whether credit is admissible on tax paid by a provider who could
have availed an exemption, and it does not decide the question
before this Tribunal. Its assistance is confined to its holding that the
definition of input service, which takes in services used directly or
indirectly in or in relation to the manufacture of final products, does
not require that the service be received or used within the factory.

15. Tested on the anvil of these principles, the demand does not survive.
The show cause notice did not doubt that the job work was used in
or in relation to the manufacture of the appellant's final products. Its
only objection was that the service, being exempt, could not be an

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input service Rule 2(l)(ii) of the CCR, however, defines input service
by reference to its use by the manufacturer in or in relation to the
manufacture of final products. Nothing in it makes the character of
a service as an input service depend on whether the service is
taxable in the hands of its provider. The objection thus reads into the
definition a condition which the definition does not contain. The job
workers paid the tax, there was no legal bar to their doing so, and
the appellant took credit of the tax actually paid. There is nothing
illicit about it.

16. The second ground noticed in Gandhi Special Tubes applies with
equal force. The submission of learned Counsel that the tax paid by
the job workers was accepted by the Department without demur was
not controverted before this Tribunal. Nothing on record suggests
that the assessments of the job workers were reopened or that the
tax collected from them was refunded. The Revenue cannot retain
that tax as validly paid at the end of the provider and at the same
time treat it as tax which ought not to have been paid when the
recipient claims credit of it. To permit that would be to allow the
Revenue to approbate and reprobate.

17. Learned Counsel also urged that Notification No. 25/2012-ST is a
conditional notification, so that Section 5A(1A) would not be
attracted even if it applied. Since it has been held that Section
5A(1A) does not apply to service tax at all, the question whether the
notification grants the exemption absolutely or subject to conditions
does not arise. This Tribunal expresses no opinion upon it.

18. It is noticed that Balaji Multiflex and Gandhi Special Tubes were
rendered after the impugned order was passed. That circumstance
however, does not save the order. The answer lay in the text of
Section 83 of the Finance Act, 1994, which was as available to the
authorities below, as it is to this Tribunal.

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19. The credit having been rightly availed, the demand for its recovery
fails. Interest, being accessory to the demand, cannot survive it. The
penalty under Rule 15(1) of the CCR presupposes that credit has
been wrongly taken or utilised, and its imposition becomes wholly
untenable given the aforesaid finding that the credit was lawfully
taken.

20. The sole ground on which the credit was denied is unsustainable in
law. This Tribunal finds no reason to differ from the view taken by
the Division Bench in Gandhi Special Tubes , which is directly on the
notification in question and which accords with the earlier view in
Balaji Multiflex . Respectfully following those decisions, this Tribunal
holds that the appellant was entitled to the credit of Rs. 3,91,207/-
and that the impugned order cannot be sustained.

21. In view of the aforesaid discussions, the impugned Order in Appeal
No. 125/2016 (CXA-II) dated 31.03.2016 is set aside.

The appeal is allowed with consequential reliefs in law, if any.
(Order pronounced in the open court on 22.10.2026)



(AJAYAN T.V.)
Member (Judicial)
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