2016 (8) TMI 1264 - AT - Service Tax

100% EOU - CENVAT credit - input service - commercial and industrial construction service - whether commercial and industrial construction service utilised for establishment of a plant is an input service ? - Held that - tax laws do not discriminate and cannot within reason allow a discriminatory treatment that permits a tax arbitrage merely because a particular business model is adopted. If we were to compare a situation wherein the hirer of a factory premises were at a disadvantage vis- -vis an owner of factory premises this windfall would become obvious - the superficial conformity with definition of input service is anathema - service is not input service - appeal dismissed - decided against appellant.

Summary

Issues: Disallowance of Cenvat credit on 'commercial and industrial construction service' availed by a 100% export-oriented unit.

In this judgment by the Appellate Tribunal CESTAT MUMBAI, the appellant, a 100% export-oriented unit, challenged the disallowance of Cenvat credit amounting to Rs. 11,11,288 on 'commercial and industrial construction service' availed. The appellant, a manufacturer, argued that such services are eligible under Rule 2(l) of the Cenvat Credit Rules, 2004, as they are used in or in relation to the manufacture of output. The service in question was utilized for establishing an 'active pharmaceutical ingredient (API)' plant, which the appellant contended is used in relation to manufacturing and hence eligible for credit.

The impugned Order-in-Appeal upheld the disallowance, prompting the appeal. The appellant relied on a Bombay High Court decision in Commissioner of Central Excise v. Ultratech Cement Ltd. to counter the reliance placed in the impugned order on another High Court decision. The appellant also argued that the service included essential repairs for the manufacturing process. Various judgments and decisions were cited, with the Authorized Representative reiterating the impugned order's contents.

The central issue for determination was whether the 'commercial and industrial construction service' utilized for establishing a plant qualifies as an 'input service.' An 'input service' is one used in the manufacture of output. While it may seem at first glance that the appellant's claim is valid, tax laws cannot allow discriminatory treatment that permits tax arbitrage based on a particular business model. The Tribunal highlighted that the huge outlays involved in 'commercial and industrial construction service' could lead to unfair advantages, making the argument for considering it as an 'input service' untenable.

Ultimately, the Tribunal found the appeal lacking in merit and dismissed it. The judgment emphasized the need to prevent tax arbitrage and maintain fairness in the treatment of input services.