2015 (6) TMI 1013 - AT - Central Excise

Denial of CENVAT credit of service tax paid - denial on the ground that construction of primary school as also ST/SC colony has no nexus with the appellant s activities of manufacture of petroleum products - extended period of limitation invoked - Held that - In the present case the appellant is engaged in the manufacture of petroleum products. The construction of the first floor of a school and the construction of colony for the SC/ST cannot be said to be having any nexus whatsoever with the manufacturing activity of the appellant. Even if the said construction activities which are in the nature of community developments were not taken by the appellants the appellant s activity of manufacture and sale of excisable goods would have continued. Similarly the said construction activity has no connection with the appellant s business of manufacture and sale of their final product. The definition of input services cannot be stretched to such an extent that it is becomes practically illogical. If such an extended meaning is given to the said definition so as to include all the activities of the appellants whether or not relatable to his business the definition would lose its meaning intended to be given by the legislation. Find no justifiable reasons to interfere in the impugned order of the lower authorities holding the said activities as non-cenvatable services. Find favour in the appellant s contention of the first demand being barred by limitation. Admittedly the entire credit was availed by the appellant by reflecting the same in the statutory records as also in the monthly returns filed by them. Otherwise also find that the appellant is a public sector undertaking and there can be no mala fide intent on their part to avail the irregular and non-available credit. There being no positive evidence on the part of the assessee to show that there was any suppression or mis-statement with any mala fide intent hold the first demand to be barred by limitation. For the same reasons the penalty imposed upon the appellant is also set aside along with setting aside the demand raised and confirmed in respect of show-cause notice dated 4.3.2010. As regards the demands relatable to the second show-cause notice dated 29.3.2010 the entire period falls within the limitation. The same is accordingly confirmed. However no penalty is imposable on account of absence of any mala fide.

Summary

Issues:
- Denial of CENVAT credit for service tax paid on works contract services for construction activities
- Nexus of construction activities with the appellant's business of manufacturing petroleum products
- Limitation period for the demand of service tax
- Penalty imposition on the appellant

Analysis:

Issue 1: Denial of CENVAT credit for service tax paid on works contract services for construction activities
The appellant, engaged in refining petroleum crude oil and manufacturing petroleum products, received works contract services for constructing a school building and houses in a SC/ST colony. Two show-cause notices were issued proposing denial of CENVAT credit on the grounds that these construction activities were not connected to the manufacturing business. The lower authorities upheld the denial, leading to the present appeals.

Issue 2: Nexus of construction activities with the appellant's business of manufacturing petroleum products
The advocate for the appellant argued that the construction activities were related to community development services and should be considered as activities relating to business, falling under the definition of 'input services.' However, the tribunal found that the construction of the school and colony had no nexus with the manufacturing activities of the appellant. Even if these construction activities were not undertaken, the manufacturing and sale of petroleum products would have continued unaffected. Extending the definition of 'input services' to include such unrelated activities would render it illogical, and the tribunal upheld the lower authorities' decision to treat these activities as non-cenvatable services.

Issue 3: Limitation period for the demand of service tax
The tribunal found in favor of the appellant regarding the first demand being barred by limitation. The appellant had availed the credit and reflected it in statutory records and returns without any evidence of mala fide intent. As a public sector undertaking, there was no indication of suppression or misstatement, leading to the limitation period being upheld. Consequently, the penalty imposed on the appellant was set aside along with the demand raised in the first show-cause notice.

Issue 4: Penalty imposition on the appellant
For the demands related to the second show-cause notice falling within the limitation period, the tribunal confirmed the same but did not impose any penalty due to the absence of mala fide intent. Both appeals were disposed of accordingly, with the first demand being barred by limitation and the penalty set aside, while the demands from the second notice were confirmed without penalty.