2016 (6) TMI 1000 - AT - Service Tax

Cenvat credit - eligible input services - works contract service - whether appellant is eligible for credit on certain works contract service during the period April 2011 to December 2012. - the works carried out in the factory by appellant for which service tax was paid under the category of works contact service. It is submitted that in line with the business requirements, the appellant made certain changes in the production process, factory layout, and made improvements to the existing facilities to increase volume of production and also to improve quality of the product. Civil contractors were engaged to carry out certain works Held that - The inclusive part of the definition includes services related to modernisation, renovation and repair of factory. These works in my opinion would fall within the work of modernisation, renovation and repair works and therefore are eligible for credit. - Credit allowed - decided in favor of assessee. Cenvat Credit on works contract service of fabrication of pipelines, erection of cooling tower and laying foundation - Held that - The works contract service in relation to building, civil structure, laying of foundation etc. has been brought within the ambit of exclusion to exclude not only setting up but something more. - The credit availed on services used for laying foundation of tank/cooling tower is disallowed. Decided partly in favor of assessee.

Issues Involved:
1. Eligibility of CENVAT credit on works contract services for the period April 2011 to December 2012.
2. Interpretation of the definition of "input service" under CENVAT Credit Rules.
3. Applicability of exclusions within the definition of "input service."
4. Imposition of penalties for irregular availment of credit.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT credit on works contract services for the period April 2011 to December 2012:
The appellants, manufacturers of motor vehicles and components, availed CENVAT credit on services like works contract service. The original authority allowed credit for most services but disallowed ?7,246. The Commissioner (Appeals) further disallowed credit of ?1,02,189, leading to the present appeal. The core issue is whether the services availed qualify as input services under the CENVAT Credit Rules.

2. Interpretation of the definition of "input service" under CENVAT Credit Rules:
The definition of "input service" underwent changes during the relevant period. Prior to 01.04.2011, it included services related to "setting up, modernization, renovation, or repairs of a factory." Post 01.04.2011, the term "setting up" was removed, and exclusions were introduced. The appellant argued that the exclusion pertains only to new constructions, while services for modernization, renovation, or repairs of existing structures should be eligible for credit.

3. Applicability of exclusions within the definition of "input service":
The appellant contended that the works undertaken (expansion of ETP, epoxy flooring, and foundation works for cooling tower) were for modernization and repair, not new constructions, thus falling within the inclusive part of the definition. The Commissioner (Appeals) held these services fall under the exclusion part, disallowing the credit. The Tribunal analyzed whether the exclusions apply to new constructions only or also to modernization and repair of existing structures.

4. Imposition of penalties for irregular availment of credit:
The Tribunal examined whether penalties for irregular availment of credit were justified. Given the interpretational nature of the issue, the Tribunal found that no penalty should be imposed.

Tribunal's Findings:
- Expansion of ETP and Epoxy Flooring: The Tribunal held that these works are for modernization and repair, not new constructions, thus eligible for credit. The credit of ?37,389 (ETP) and ?63,873 (flooring) was allowed.
- Foundation Works for Cooling Tower: The Tribunal disallowed credit of ?927 for laying the foundation, as it falls under the exclusion part of the definition of input service.
- Penalties: The Tribunal set aside the penalties imposed, recognizing the interpretational nature of the issue.

Conclusion:
The impugned order was set aside to the extent of disallowing credit for ETP expansion and flooring works. The disallowance of credit for foundation works was sustained. Penalties were set aside, and the appeal was partly allowed with consequential reliefs.

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