2008 (10) TMI 174 - AT - Service Tax

Denial of CENVAT credit on capital goods on the ground that the Secondary Switching Area (SSA) who took the benefit did not receive the capital goods and utilize the same in the same SSA and on the premise that this credit was illegally utilized for payment of service tax on output service the Department also raised demand of service tax on output service to the extent credit was taken - appellant s argument that it renders telephone service to their subscribers all over the country from any SSA by making use of capital goods installed anywhere in the country has to be examined - case remanded

Summary

Issues:
- Denial of CENVAT credit on capital goods
- Demand of service tax for specific periods
- Challenge against penalties imposed on the appellants

Analysis:

Denial of CENVAT Credit on Capital Goods:
The appeal challenged the denial of CENVAT credit on capital goods worth over Rs. 1.1 crores for the periods 2005-06 and 2006-07. The capital goods were purchased by the Deputy General Manager (Projects) at Salem for M/s. BSNL. These goods were supplied to various Secondary Switching Areas (SSAs) under the DGM's jurisdiction, with Salem SSA taking the CENVAT credit. The dispute arose because the goods were not physically received and utilized by the SSA taking the credit, leading to the Department raising a demand for service tax on output service. The appellants argued that technologically, the capital goods should be considered used by Salem SSA as they contribute to BSNL's nationwide telephone service. The issue of whether Salem SSA could rightfully claim the credit for goods installed in other SSAs within the DGM's jurisdiction was a key point of contention.

Demand of Service Tax for Specific Periods:
In addition to challenging the denial of CENVAT credit, the appeal contested the demand of service tax for the periods 2005-06 and 2006-07. This demand was linked to the alleged improper utilization of the CENVAT credit on capital goods. The learned counsel for the appellants argued that the credit should be admissible to Salem SSA since it was the only SSA that could access the duty-paying documents and claim the credit. On the other hand, the Department contended that the rules stipulate that CENVAT credit on capital goods should be availed only where the goods are received in the factory of production or the premises of the output service provider, which was not the case here.

Challenge Against Penalties Imposed:
Apart from disputing the denial of CENVAT credit and the demand for service tax, the appeal also challenged the penalties imposed on the appellants. The penalties were likely related to the alleged irregularities in claiming the CENVAT credit and the subsequent demand for service tax. The outcome of this challenge was not explicitly mentioned in the summary provided.

In conclusion, the Appellate Tribunal set aside the impugned order and directed the Commissioner to conduct a fresh adjudication considering all aspects, including the technological argument presented by the appellants. The decision to remand the case for further examination was made in the interest of addressing concerns related to the utilization of CENVAT credit and the payment of service tax. The appellants were to be granted a reasonable opportunity to present their case during the re-evaluation process.