2018 (6) TMI 1077 - AT - Central Excise

CENVAT credit - inputs/capital goods used by sub-contractor - sub-contractor was availing composition scheme - The Department was of the view that such cenvat credit on inputs and capital goods was not admissible to the appellant inasmuch as such credits would not have been admissible to the contractor, who has opted to pay the service tax in terms of the Works Contract Composition Scheme - Held that - It is apparent that goods on which the appellant has availed cenvat credit have been used by M/s Driplex Water for providing the works contract service. It was M/s Driplex Water who has issued purchase order and procured the goods from manufacturer/ dealer. Thus, it was M/s Driplex Water only who could avail the cenvat credit of the duty paid on inputs/ capital goods used by them in providing the works contract service to the appellant in view of the definition of works contract service under clause (zzzza) of Section 65(105) of the Finance Act, 1994. The inputs/ capital goods used by M/s Driplex Water in the present case cannot be distinguished to be out of the scope of being the work contract service. When the Cenvat credit is not available to the contractor, the said cenvat credit cannot be passed on to the appellant namely M/s Bharat Oman Refineries Ltd. Time limitation - Held that - The fact of availing the benefit of composition scheme by the contractors was very much in knowledge of the appellants. Again the ignorance to the legal consequences thereof cannot be the excuse rather we opine it to be the positive act on part of the appellants committing suppression of facts thereby entitling the department to invoke the extended period of limitation - extended period invoked. Appeal dismissed - decided against appellant.

Summary

Issues:
Challenging Order-in-Original for the period 2008 to April 2013 and 2008-09 to 2013-14; Admissibility of cenvat credit on inputs and capital goods; Denial of cenvat credit on inputs and capital goods; Applicability of Works Contract Composition Scheme; Time limit for demand under Section 11A.

Analysis:

The appellant, a refinery, awarded contracts for setting up a Crude Oil Refinery project, including a contract for setting up a RO-DM Water Plant. The dispute involved cenvat credit availed by the appellant on inputs and capital goods used in the contracts. The Department contended that such credit was inadmissible as the contractor had paid service tax under the Works Contract Composition Scheme. Show cause notices were issued, denying the cenvat credit and imposing penalties.

The appellant argued that cenvat credit on capital goods should be allowed as per Cenvat Credit Rules, emphasizing ownership's irrelevance. They also contended that inputs and capital goods for contractors should not affect the appellant's credit. However, the Department justified the denial, citing the Works Contract Composition Scheme's provisions.

The Tribunal observed that the appellant availed cenvat credit on goods used by the contractor for the works contract service. As the contractor paid service tax under the Composition Scheme, they were entitled to the credit, not the appellant. The Tribunal held that what cannot be done directly should not be allowed indirectly, citing precedents. The plea of the show cause notice being time-barred was rejected, considering the appellant's awareness of the contractual terms and legal implications.

Ultimately, the Tribunal upheld the impugned order, dismissing the appeals on 20.06.2018. The decision affirmed the denial of cenvat credit on inputs and capital goods, based on the Works Contract Composition Scheme's provisions and the contractor's payment under the scheme. The Tribunal also rejected the plea of time limitation, emphasizing the appellant's knowledge of the contractual terms and legal consequences.