2016 (11) TMI 1128 - AT - Central Excise

CENVAT credit - services received and used in the guest house/farm house, away from the factory during the period from October 2010 to May 2011 - Held that - providing of service at guest house which situated away from the factory premises cannot be considered to be an input service and eligible to CENVAT Credit in view of the judgment of Hon ble Gujarat High Court in the case of CCE Vs Gujarat Heavy Chemicals Ltd 2011 (5) TMI 132 - GUJARAT HIGH COURT . However, imposition of penalty equal to the CENVAT credit availed, under Rule 15(1) of CENVAT Credit Rules 2004 is too harsh. Accordingly, considering the circumstances and in the interest of justice the penalty is reduced to ₹ 50,000/- - appeal allowed - decided partly in favor of assessee.

Summary

Issues:
1. Eligibility of CENVAT Credit on services used in guest house/farm house away from the factory.
2. Imposition of penalty under Rule 15(1) of CENVAT Credit Rules 2004.

Analysis:
1. The appeal challenged the order confirming a demand notice for availing CENVAT Credit on services used in a guest house/farm house away from the factory. The Appellant argued that the services were related to their business activity and satisfied the definition of input service under Rule 2(l) of CENVAT Credit Rules 2004. However, the Revenue contended, citing a judgment by the Hon'ble Gujarat High Court, that services provided in residential quarters of a manufacturer are ineligible for CENVAT Credit. The Tribunal, considering the location of the guest house away from the factory, concluded that such services cannot be deemed as input services eligible for CENVAT Credit based on the Gujarat High Court's decision.

2. The Tribunal found the penalty imposed under Rule 15(1) of CENVAT Credit Rules 2004, equal to the availed credit amount, to be excessively harsh. Despite upholding the ineligibility of the services for credit, the Tribunal exercised discretion in reducing the penalty to a more reasonable amount of ?50,000. This reduction was deemed appropriate in the interest of justice, considering the circumstances of the case. The Tribunal partially allowed the appeal by modifying the impugned order to reflect the reduced penalty, thereby providing relief to the Appellant in this regard.