2019 (11) TMI 1462 - AT - Service Tax

CENVAT Credit - capital goods - curtailment of credit in proportion to the deployment for rendering of exempted services - procurement of cube testing machines , excavators , generators and EOT cranes which, had been deployed in the erstwhile state of Jammu Kashmir or for rendering services in Gabon and Mauritius - non-discharge of obligation as provider of erection, commissioning and installation service - allowance of depreciation. CENVAT Credit - HELD THAT - There is no finding that the impugned capital goods were intended in the exclusive usage for activities that are beyond the scope of taxation under Finance Act, 1994. Furthermore, we are unable to ascertain from the findings whether deployment of the capital goods in Gabon and Mauritius was not for performance of activities that would have been taxed but for being export of services. The impugned order has also placed reliance on rule 3(5) of CENVAT Credit Rules, 2004 to justify the recovery of credit; we are unable a find reference to this provision in the show cause notice. It is settled law that the noticee cannot be denied an opportunity to rebut the grounds on which proceedings are initiated against them. These aspects need examination before the claim of the appellant on these counts can be accepted. The adjudicating authority appears to have come to the conclusion of taxability under the designated service on the premise that the claim of excisability, without having discharged that obligation, can lead to no conclusion other than that of taxability under Finance Act, 1994 - It is moot whether the contract value in the dispute before us can be vivisected for isolating the tax liability under Finance Act, 1994 and, therefore, needs further examination. Allowance for Depreciation - HELD THAT - The appellant has submitted that a revised return has been filed under Income Tax Act, 1961 to exclude the claim for depreciation. The adjudicating authority has not accepted the claim of consequent eligibility in the absence of evidence. Nevertheless, the claim of the appellant on this aspect also requires consideration. Matter remanded back to the respective original authorities to assess the claims of the appellant - appeal allowed by way of remand.

Summary

Issues Involved:
1. Proportional curtailment of CENVAT credit on capital goods used for exempted services.
2. Non-discharge of tax obligation under 'erection, commissioning, and installation service' as per section 65(105)(zzd) of Finance Act, 1994.
3. Availment of depreciation under the Income Tax Act, 1961, affecting eligibility for CENVAT credit under rule 4(4) of CENVAT Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Proportional Curtailment of CENVAT Credit:
The appellant, M/s Afcons Infrastructure Ltd, contested the restriction on CENVAT credit availed on capital goods such as 'cube testing machines,' 'excavators,' 'generators,' and 'EOT cranes' used in Jammu & Kashmir and abroad. The adjudicating authority held that under rule 6(4) of CENVAT Credit Rules, 2004, credit on capital goods used exclusively for exempt services must be reversed proportionally. The Tribunal, however, emphasized that the scheme of CENVAT credit allows for the adjustment of levies on excisable goods and taxable services, and exclusions should be explicitly mentioned within the legislative framework. The Tribunal concluded that the restriction in rule 6(4) should not be extended to capital goods used for both eligible and non-eligible activities unless exclusively intended for exempt services from the beginning. This interpretation aligns with the Tribunal's decision in Brindavan Beverages Pvt Ltd, confirming that capital goods credit is admissible even if used for exempt services initially but later for taxable services.

2. Non-discharge of Tax Obligation under 'Erection, Commissioning, and Installation Service':
The second issue involved the appellant's failure to discharge tax under section 65(105)(zzd) of Finance Act, 1994, for 'erection, commissioning, and installation service.' The adjudicating authority's stance was based on the premise that the appellant's activities did not fall under taxable services. The Tribunal referred to the decision in Neo Structo Construction Ltd, which clarified that 'erection' involves civil works related to the installation/commissioning of plant or machinery and is taxable. The Tribunal noted that the adjudicating authority's conclusion was based on an incorrect premise and required further examination to determine if the activities would have been taxable if not for being classified as export services.

3. Availment of Depreciation under Income Tax Act, 1961:
The third issue arose from the appellant's availing of depreciation on capital goods under the Income Tax Act, 1961, which, according to the adjudicating authority, disqualified them from claiming CENVAT credit under rule 4(4) of CENVAT Credit Rules, 2004. The appellant argued that they had filed revised returns excluding the depreciation claim. The Tribunal found that the adjudicating authority failed to consider this revised return and the evidence provided. Consequently, this aspect required reassessment to determine the appellant's eligibility for CENVAT credit.

Conclusion and Remand:
The Tribunal set aside the impugned orders and remanded the matter to the original authorities for reassessment, emphasizing the need to evaluate the appellant's claims based on the principles laid out. The Tribunal highlighted the necessity of a detailed examination of the intent and usage of capital goods, the taxability of services under the Finance Act, 1994, and the impact of revised income tax returns on CENVAT credit eligibility. The remand aimed to ensure that the appellant's claims were thoroughly assessed in accordance with the legislative intent and judicial precedents.