2012 (8) TMI 851 - AT - Central Excise

Denial of CENVAT Credit - Revenue contends that appellant s unit is not eligible for Cenvat credit in respect of paints, as the same is not an input for manufacture of parts of towers - Held that - appellant s head office is registered as provider of taxable service and they are paying service tax on the charges for erection and installation of towers which also involving painting of the same. Hence, paint received by them can be treated as inputs for providing taxable service, and the appellant would be eligible for Cenvat credit in respect of the same which could be utilized for payment of service tax. Thus, even if cenvat credit in respect of paint is denied to the appellant s manufacturing unit, the same would be available to the head office registered as service provider for payment of service tax as erection and installation service. Prima facie, we also find substance in the plea of the appellant that the duty on parts of tower had been paid on the value which included the value of paints. In view of this, we are of the view that the appellant have a strong prima facie case in their favour and hence requirement of pre-deposit of demand of Cenvat credit demand and interest thereon and penalty is waived for hearing of the appeal and recovery thereof is stayed till disposal of the appeal - Stay granted.

Summary

Issues:
- Eligibility for Cenvat credit on paints used in manufacturing parts of transmission towers
- Applicability of Cenvat credit in relation to service tax paid for erection and installation charges

Analysis:
1. Eligibility for Cenvat credit on paints:
The appellant manufactures parts of transmission towers using structural steel items and received duty paid paints. The parts of towers, along with the paints, are cleared on payment of duty. The department issued a show cause notice denying Cenvat credit on paints, amounting to Rs. 33,01,171/-, availed by the appellant. The Additional Commissioner confirmed the Cenvat credit demand along with interest and penalty. On appeal, the Commissioner (Appeals) upheld the decision. The appellant argued that the paint can be considered as an input for the service of erection and installation provided by them, as their head office is registered for service tax payment. The Tribunal found that the paint received by the appellant could be treated as inputs for providing taxable service, making them eligible for Cenvat credit. Additionally, the Tribunal noted that the duty on parts of towers had been paid on the value, including the value of paints. Consequently, the requirement of pre-deposit of Cenvat credit demand, interest, and penalty was waived, and recovery stayed till the appeal's disposal.

2. Applicability of Cenvat credit for service tax on erection and installation charges:
The appellant's head office is registered as a taxable service provider, paying service tax on charges for erection and installation of towers, which includes painting. The appellant contended that even if Cenvat credit on paint is denied to the manufacturing unit, it would be available to the head office for payment of service tax on erection and installation services. The Tribunal agreed that the paint received could be considered as inputs for providing taxable service, allowing the appellant to utilize Cenvat credit for service tax payment. The Tribunal acknowledged the strong prima facie case in favor of the appellant and waived the pre-deposit requirement for Cenvat credit demand, interest, and penalty, pending the appeal's resolution.

In conclusion, the Tribunal ruled in favor of the appellant, granting them relief from the denial of Cenvat credit on paints and allowing them to utilize the credit for service tax payment related to erection and installation services. The appeal was scheduled for further proceedings.