By TIOL News Service

MUMBAI, JUNE 19, 2014: THE CCE, Raigad has confirmed a demand of Rs.1.21 crores against the appellant on the ground that the appellant is not eligible for availing CENVAT Credit of service tax on "dredging services" as the same does not come within the purview of "input service" as defined in Rule 2(l) of the CCR, 2004.

The appellant is before the CESTAT and submits that they have an agreement with Maharashtra Maritime Board as per which they were permitted to construct a jetty on the water front near Salav Village, Revdanda Port, District Raigad. As per the said agreement, they had agreed to provide all services at or around jetty including dredging, navigational aid, water supply, etc. Through the jetty, they undertake inward transportation of raw materials and outward transportation of finished goods. There is a water channel which provides access to the jetty which needs to be dredged to facilitate navigation of ships and barges. The said channel is a common channel which is also used by others including the appellant and to keep the water channel functional, they have been undertaking dredging of the channel on which they have paid service tax. It is their contention that the said activity of dredging would come within the purview of "input services" as defined under Rule 2 (l) and, therefore, they are rightly entitled for the credit. Reliance is placed on the decisions in their own case viz. 2012-TIOL-1662-CESTAT-MUM & 2013-TIOL-1499-CESTAT-MUM and 2013-TIOL-1500-CESTAT-MUM & also the decision of the Bombay High Court in the case of Deepak Fertilizers and Petrochemicals Corporation Ltd. 2012-TIOL-212-HC-MUM-CX in support. It is also submitted that the fact that they were availing service tax credit on 'dredging service' was declared to the department as early as in October 2006 in the returns filed and, therefore, suppression cannot be alleged.

The Revenue representative reiterated the findings of the adjudicating authority.

The Bench while noting that the case laws cited by the appellant were distinguishable observed -

++ Dredging is undertaken in the navigation channel which leads to the jetty of the appellant. The channel is not the private property of the appellant but belongs to the Maharashtra Maritime Board and the channel is also used not only by the appellant but also by several others and therefore, it cannot be said that the benefit of dredging of the channel accrues only to the appellant and not to others and such dredging is entirely in relation to the manufacturing activity undertaken by the appellant.

++ In an identical matter relating to dredging services in respect of Sanghi Industries Ltd., Vs. CCE, Rajkot, a co-ordinate bench at Ahmedabad took the view that the issue is contentious and accordingly, pre-deposit of about Rs.10 lakhs against the demand of Rs.55 lakhs was ordered. Therefore, it cannot be said that the issue is settled in favour of the appellant and against the Revenue.

++ However, there is merit in the contention of the appellant that they had disclosed the fact of availing CENVAT Credit on dredging services as early as in October 2006 and, therefore, invoking of extended period of time is not justified.

In fine, the Bench directed the appellant to make a pre-deposit of Rs.7.5 lakhs being the amount pertaining to normal period of limitation and report compliance for obtaining stay.

(See 2014-TIOL-1065-CESTAT-MUM)