2018 (2) TMI 1175 - AT - Central Excise

CENVAT credit - input services - Service Tax paid on the consulting engineering services received by the appellant in relation to structural design and drawing of cellar foundation of 6 HI Mill Project - Held that - Admittedly the consulting engineer services stand used by the appellant for the purpose of execution of the construction of structural design and drawing of cellar foundation of 6 HI Mill Project. As the exclusion is not only in respect of the actual services mentioned in the exclusion clause, but also refers to the services used for execution of such construction, I am of the view that the lower authorities have rightly denied the credit of the Service Tax paid on the consulting engineer services. Penalty - Held that - inasmuch as the issue is a bona fide dispute of legal interpretation of the newly introduced provisions, and inasmuch as the credit was availed by reflecting the same in the Cenvat accounts, no mala fide can be attributed to the assessee so as to call for imposition of any penalty - penalty set aside. Appeal allowed in part.

Summary

Issues involved:
Interpretation of Rule 2(l) of Cenvat Credit Rules, 2004 regarding availment of Cenvat credit for consulting engineering services related to construction activities.

Detailed Analysis:

Issue 1: Interpretation of Rule 2(l) of Cenvat Credit Rules, 2004
The appellant, engaged in manufacturing excisable goods, sought Cenvat credit for Service Tax paid on consulting engineering services for a construction project. The dispute arose as to whether these services fall under the definition of input services as per Rule 2(l) of Cenvat Credit Rules. The lower authorities denied the credit, citing that services for construction activities are excluded from the definition. The appellant argued that consulting engineering services are distinct from construction services and should not be excluded.

Analysis: The exclusion clause in Rule 2(l) specifically mentions services used for the execution of works contract or construction activities. The Tribunal noted that the exclusion applies to services used for civil construction, not limited to works contract or construction services. Since the consulting engineering services were used for the construction of a structural design, they were deemed to be excluded services. The Tribunal upheld the denial of credit based on the clear language of the exclusion clause.

Issue 2: Penalty Imposition
Regarding the penalty for availing the disputed credit, the Tribunal considered the issue a bona fide legal interpretation dispute of the new provisions. Since the credit was reflected in the Cenvat accounts without any malice, the Tribunal set aside the penalty while upholding the demand along with interest.

Analysis: The Tribunal found no mala fide intent on the part of the appellant in availing the credit, considering it a genuine legal interpretation issue. As the credit was accounted for properly, the penalty was deemed unwarranted. The Tribunal upheld the demand but waived the penalty due to the bona fide nature of the dispute.

In conclusion, the Tribunal ruled in favor of the lower authorities' decision to deny the Cenvat credit for consulting engineering services used in construction activities based on the exclusion clause of Rule 2(l). However, the penalty was set aside due to the genuine legal interpretation dispute. The judgment provides clarity on the scope of excluded services under the Cenvat Credit Rules, emphasizing the importance of proper interpretation and compliance with the statutory provisions.