2011 (2) TMI 400 - HC - Service Tax

Demand - Storage and Warehousing Services - While scrutinizing the ST-3 returns for the period from April, 2005 to September, 2005 the assessing authority, namely, the Additional Commissioner came to the conclusion that the assessee had taken credit on Central Excise duty paid on cement, iron bars, expansion bellows and pipes - only allegation against the assessee is that they claimed CENVAT credit irregularly with reference to cement and TMT bars used in the construction of warehouses through which the storage and warehousing services are provided by the assessee - A plain reading of both the above definitions would show that, unless excluded, ail goods used in relation to manufacture of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit - assessee used cement and TMT bar for providing storage facility without which storage and warehousing services could not have been provided - Appeal is dismissed

Summary

Issues:
1. Eligibility of claiming credit under CENVAT Credit Rules, 2004
2. Imposition of penalty under Rule 15(2) of the Rules

Issue 1: Eligibility of claiming credit under CENVAT Credit Rules, 2004

The judgment involved two appeals filed by the Revenue under Section 35G of the Central Excise Act, 1944. The first appeal was against the respondent being held eligible to claim credit under the CENVAT Credit Rules, 2004, by the Customs, Central Excise and Service Tax Appellate Tribunal (CESTAT). The second appeal was against the penalty imposed by the Commissioner of Central Excise and Customs (Appeals), Visakhapatnam, which was vacated by the CESTAT. The respondent, a service provider registered under the Finance Act, was accused of irregularly claiming CENVAT credit on items like cement and TMT bars used in construction. The assessing authority issued a show cause notice proposing to determine short paid service tax and penalty. The Order-in-Original confirmed the demand for service tax, interest, and imposed a penalty. The appellate authority dismissed the appeals, leading to the appeals before the CESTAT.

Issue 2: Imposition of penalty under Rule 15(2) of the Rules

The Junior Standing Counsel argued that the items claimed as credit, like cement and TMT bars, did not qualify as 'capital goods' or 'input' under the CENVAT Credit Rules, 2004. It was contended that the assessee wrongly claimed credit and suppressed facts while filing returns. However, upon review, the Court found that the appeals were misconceived. The definitions of 'input' and 'input service' under the Rules were examined, emphasizing that goods used in relation to the manufacture of final products or for providing output services are eligible for CENVAT credit. The Court referred to a Supreme Court decision which highlighted the importance of the functional utility of inputs in the manufacturing process to qualify for credit. In this case, the assessee used cement and TMT bars for providing storage facilities essential for their services, making them eligible for credit. The CESTAT's decision to set aside the penalty under Rule 15(2) of the Rules was upheld, as there was no finding of suppression or irregular claim of credit.

In conclusion, the Court dismissed both appeals, affirming the eligibility of the respondent to claim credit under the CENVAT Credit Rules, 2004, and rejecting the imposition of penalty under Rule 15(2) of the Rules. The judgment emphasized the importance of the functional utility of goods in the manufacturing process for determining eligibility for CENVAT credit and highlighted the necessity of finding suppression of facts for levying penalties under the Rules.