By TIOL News Service

NEW DELHI, FEB 14, 2017: PROCEEDINGS were initiated against the appellant to deny a total Cenvat credit of Rs.55.01 crores on the following grounds -

(a) Rs.5,91,15,893/- availed on goods used for fabrication of plant and machinery as the contractor who executed the work is the manufacturer;

(b) Rs.33,77,73,662/- availed on capital goods could not have been taken as they have not commenced production at the relevant time;

(c) Rs.15,32,12,449/- availed on input services for construction of factory is with reference to immovable property.

The CCE confirmed the demand and also imposed equivalent penalty.

Before the CESTAT the appellant contested the findings in the impugned order by placing reliance on a host of case laws.

The AR summed up the case thus - that the credit availed in respect of supporting structures and foundation created by using various steel items are immovable assets and cannot be categorized as capital goods;that no credit can be allowed in respect of immovable assets for creation of which the duty paid iron and steel items were used.

The Bench observed -

+ Whereas the Original Authority accepted the plea of the appellant that appellants are to be considered as manufacturers and not the contractors,however, he proceeded to deny the credit on a different ground that the appellants are not eligible for the credits as the items used are for fabrication of plant and machinery embedded to earth and these items are mainly foundation or supporting structures; that the allegation made in the show cause notice was not the basis on which a final decision was taken by the Original Authority. On this ground alone the confirmation ordered can be held as unsustainable;the impugned order travelled beyond the show cause notice and the same is not permissible. [Toyo Engineering India Ltd. 2006-TIOL-111-SC-CUS relied upon]As there is no discussion regarding the actual use of the iron and steel items and the allegation in the notice is entirely on different ground, we find that denial of credit of Rs.5,91,15,893/- as ordered by the Original Authority is not legally sustainable. [Singhal Enterprises 2016-TIOL-2451-CESTAT-DEL relied upon]

+ Circular dated 26/12/1994 relied upon by the Original Authority has no relevance to the dispute at hand. The said circular dealt with the provisions of erstwhile Rule 57Q and the declaration to be filed for availing credit. We find the credit availed by the appellant are in terms of CCR, 2004 which does not provide for any declaration etc. for availing credit. Apparently after setting up of such plant only, production of final product can commence. The appellant necessarily has to keep account of all the duty paid capital goods alongwith quantum of eligible credit on such capital goods. It is not the case of the Revenue that the appellants have utilized any of the credit availed on these capital goods before the commencement of production.

+ The capital goods as they were received by the appellant were duty paid and the credit on the same cannot be denied on the ground that they were embedded to earth after installation. The excisability of capital goods is not a point for decision. There is no irregular utilization of credit by the appellant and no such allegation has been made in the show cause notice. We find no justification to deny Cenvat credit on capital goods which are otherwise legitimately available to the appellant.

+ Credits were denied by the Original Authority on the ground that credit on input services can be allowed only if used for provision of a service liable to service tax or manufacture of goods liable to excise duty. We note that the reliance placed by the Original Authority on the said circular (dated 04/01/2008) is misplaced and not appropriate. The said circular dealt with specifically 'commercial or industrial construction service' and 'renting of immovable property service'. Presently, we are dealing with various input services availed by the appellant to set up their production factory. "Input service" in terms of Rule 2 (l) of Cenvat Credit Rules, 2004 means any service used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products and includes services used in relation to setting up, modernization, renovation or repairs of a factory. The credits availed by the appellant are with reference to construction of factory. The said activity is covered by the definition of input service during the relevant time. The findings recorded by the Original Authority is without any legal support and application of an interpretation which is not relevant to the facts of the present case.

The impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-432-CESTAT-DEL)