2015 (11) TMI 709 - AT - Central Excise

Denial of CENVAT credit of service tax - Construction of primary school as also ST/SC colony - Nexus with Manufacture - Imposition of penalty - Held that - 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. I find no justifiable reasons to interfere in the impugned order of the lower authorities holding the said activities as non-cenvatable services. Period of limitation - 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, I hold the first demand to be barred by limitation. For the same reasons, the penalty imposed upon the appellant is also set aside - Decided in favour of assessee.

Summary

Issues: CENVAT credit eligibility for construction services; Nexus with business activities; Limitation period for demand; Penalty imposition.

CENVAT Credit Eligibility for Construction Services:
The appellant, engaged in refining petroleum products, received works contract services for constructing a school and a colony. The service tax paid on these services was claimed as credit. The dispute arose regarding whether these construction services were covered under the definition of "input services." The appellant argued that these activities were related to community development and should be considered business-related. However, the tribunal found that for a service to qualify as an input service, it must have a nexus, however remote, with the appellant's business activities. In this case, the construction of the school and colony did not have any connection with the manufacturing activity of petroleum products. The tribunal emphasized that stretching the definition of input services to include all activities, regardless of their relevance to the business, would render the definition meaningless. Therefore, the tribunal held that the construction services were not cenvatable.

Nexus with Business Activities:
The tribunal referred to a previous decision where canteen services for staff were considered input services. However, in this case, the construction activities were deemed to have no nexus with the appellant's business of manufacturing petroleum products. Even if the construction activities were not undertaken, the manufacturing and sale of goods would have continued unaffected. The tribunal stressed that the definition of input services cannot be extended to illogical extents. It concluded that the construction activities did not relate to the appellant's business and were rightly considered non-cenvatable services.

Limitation Period for Demand; Penalty Imposition:
Regarding the limitation period for the demand, the tribunal found in favor of the appellant for the first demand, holding it as barred by limitation. The appellant had reflected the credit in statutory records and monthly returns, showing no mala fide intent. As a public sector undertaking, there was no evidence of suppression or misstatement with malicious intent. Thus, the tribunal set aside the penalty and demand related to the first show-cause notice. However, for the demands under the second show-cause notice falling within the limitation period, they were confirmed without imposing any penalty due to the absence of mala fide intent. Consequently, both appeals were disposed of accordingly.