2018 (2) TMI 1232 - AT - Central Excise

CENVAT credit - input services - civil construction services - Alleging that after 1.4.2011 setting up of new installation not eligible to credit SCN was issued on 21.8.2015 for recovery of the credit of 4, 09, 213/- with interest and proposal for penalty - Held that - There is no dispute about the fact that the Appellant has used construction service in setting up windmill which is inadmissible to credit after 1.4.2011. However on being pointed out they had reversed the credit with interest - penalty not justified - appeal allowed in part.

Summary

Issues:
1. Admissibility of Cenvat credit on civil construction services for setting up windmill after 1.4.2011.
2. Interpretation of the definition of 'input service' under Rule 2(l) of Cenvat Credit Rules, 2002.
3. Applicability of penalty under Section 11AC of CEA, 1944 regarding the reversal of Cenvat credit.

Issue 1: Admissibility of Cenvat credit on civil construction services for setting up windmill after 1.4.2011.

The Appellant availed Cenvat credit on civil construction services for setting up a windmill away from the factory. A show cause notice was issued for recovery of the credit post-1.4.2011. The ld. Commissioner (Appeals) observed that services for maintenance and repair of windmills are admissible to credit, but setting up new windmills post-1.4.2011 is not eligible for credit. The Tribunal found that the Appellant's use of construction services for setting up the windmill was inadmissible after 1.4.2011. The Appellant reversed the credit with interest, leading to the penalty issue.

Issue 2: Interpretation of the definition of 'input service' under Rule 2(l) of Cenvat Credit Rules, 2002.

The definition of 'input service' post-1.4.2011 excludes construction services for setting up new installations. The ld. Commissioner (Appeals) noted the omission of the phrase 'setting up' from the definition, making services related to setting up windmills ineligible for Cenvat credit. The Tribunal concurred that the services for setting up wind energy generators at the windmill were not admissible as 'input services' for Cenvat credit post-1.4.2011, leading to the disallowance of credit and subsequent recovery of interest and penalty.

Issue 3: Applicability of penalty under Section 11AC of CEA, 1944 regarding the reversal of Cenvat credit.

The Tribunal found that the Appellant had reversed the Cenvat credit with interest upon being notified of its inadmissibility post-1.4.2011. The Tribunal held that since the Appellant had paid the entire amount of Cenvat credit with interest, the penalty imposed under Section 11AC of CEA, 1944 was not warranted. The order imposing penalty was set aside, and the impugned order was modified accordingly. The Tribunal partly allowed the Appeal in this regard.

This judgment clarifies the inadmissibility of Cenvat credit on construction services for setting up new installations post-1.4.2011, as per the defined 'input service' criteria. It also highlights the considerations for penalty imposition under Section 11AC of CEA, 1944 in cases of credit reversal and compliance.