By TIOL News Service

MUMBAI, JAN 23, 2018: THE appellant is engaged in the manufacture of excisable goods namely cold rolled sheets/galvanized sheet, colour coated sheets of Iron and Steel (Ch.72).

The dispute relates to availment of Cenvat Credit of Service Tax paid on the consulting engineering services received by the appellant in relation to structural design and drawing of cellar foundation of 6 HI Mill Project. The period involved is April, 2013 to March, 2014.

The lower authorities have denied the credit by observing that the services of consulting engineer, which are used by the appellant for construction activity stands excluded from the definition of input services as provided under Rule 2(l) of CCR, 2004 w.e.f 01.04.2011.

On the other hand, the appellant's contention is that the said services are not the construction services which have been specifically excluded from the definition, but the same are consulting engineering services which are covered by the main definition clause of Rule 2(l).

The definition of Input Service contained in rule 2(l) w.e.f 01.04.2011 reads -

(l) "Input service" means any service,-

(i) used by a provider of [output service] for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement of sales promotion, market, research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

[but excludes],-

[(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods;

Except for the provision of one or more of the specified services;

Or]

…………………………………..

………………………………….

…………………………………."

After considering the above, the Bench observed thus -

On Merits:

++ The expression used in the exclusion clause is those services, insofar as they are used for, construction or execution of works contract of a building or a civil structure. As expression used is "in so far as they are used for", the said exclusion clause read with section 66E makes it very clear that the exclusion does not stand restricted only to works contract service or construction services, but the same relates to the services which are used for execution of a civil construction.

++ The language used in the said exclusion clause clearly indicates that any service used for execution of works contract or construction services would also get ousted from the definition of input service. Admittedly the consulting engineer services stand used by the appellant for the purpose of execution of the construction of structural design and drawing of cellar foundation of 6 HI Mill Project. As the exclusion is not only in respect of the actual services mentioned in the exclusion clause, but also refers to the services used for execution of such construction, I am of the view that the lower authorities have rightly denied the credit of the Service Tax paid on the consulting engineer services.

++ It may be clarified here that inasmuch as the exclusion is only in respect of works contract or construction services and the renovation or repair or modernization of factory continues to be covered by the main definition of input services and if such consulting engineer services are used for said purposes of repair or renovation they would not get excluded, inasmuch as the exclusion would only be limited to such services used for the works contract or construction services.

++ In the present case, it is not the appellant's case that such consulting engineer services were used for renovation or repairs, but admittedly used for construction purposes.

Penalty:

+ Inasmuch as the issue is a bona fide dispute of legal interpretation of the newly introduced provisions, and inasmuch as the credit was availed by reflecting the same in the Cenvat accounts, no malafide can be attributed to the assessee so as to call for imposition of any penalty.

Conclusion:

While upholding the demand along with interest, the penalty is set aside.

The Appeal was disposed of.

(See 2018-TIOL-300-CESTAT-MUM)