2014 (1) TMI 1665 - AT - Service Tax

Denial of CENVAT Credit - Construction service - Held that - In view of the clarifications issued by the Circular No. 943/04/2011-CX, dated 29-4-2011 and in view of the fact that services had been rendered and billed prior to 1-4-2011 for which payment has also been paid prior to 1-4-2011. Such input Service Tax credit is allowable and otherwise also as clarified vide the above mentioned Circular. It is also held that the construction activity in the present case supports manufacture both directly and indirectly. - Decided in favour of assessee.

Summary

Issues:
1. Admissibility of CENVAT credit on construction services under Section 2(1) of the CENVAT Credit Rules, 2004.
2. Relevance of Board's Circular No. 943/04/2011-CX in determining availability of credit on services received before 1-4-2011.
3. Whether the construction activity of factory building and installation of plant and machinery is directly or indirectly related to the manufacture of the final product.

Analysis:
1. The appellant, a manufacturer, availed construction services for factory building construction and machinery installation from Feb. 2010 to Dec. 2010. The service provider charged Service Tax, which the appellant paid. However, the CENVAT credit was found inadmissible due to an amendment excluding construction services from credit eligibility w.e.f. 1-4-2011. The Commissioner (Appeals) upheld the denial of credit. The Tribunal noted the appellant's reliance on Board's Circular No. 943/04/2011-CX and found that since services were rendered and billed before 1-4-2011, with payment made before that date, the credit was allowable. Additionally, the construction activity was deemed to support manufacturing directly and indirectly, leading to the allowance of the appeal with any consequential relief.

2. The appellant referred to Circular No. 943/04/2011-CX to argue for credit availability on services received pre-1-4-2011. The Circular clarified that credit on such services completed before 1-4-2011 was permissible. The Tribunal considered this clarification alongside the timeline of service provision, billing, and payment in the case at hand to determine the admissibility of the input Service Tax credit. The appellant's argument, supported by the Circular, played a crucial role in establishing the eligibility of the credit.

3. The core issue revolved around whether the construction activities for the factory building and machinery installation were related to the manufacturing process. The Tribunal found that the construction activity directly and indirectly supported the manufacturing process, contrary to the earlier rejection of credit based on this ground. This determination, combined with the Circular's guidance on credit availability, formed the basis for allowing the appeal and providing any necessary consequential relief.