2018 (8) TMI 104 - AT - Service Tax

CENVAT Credit - office equipments, tables, chairs, split air conditioners, power plant battery, HDPE cables, equipments, miscellaneous window cooled sets, air conditioner EA sets, W/C diesel EA - remaining 50% credit on capital goods - Held that - The Cenvat Credits can be availed on the capital goods as per Rule 2(a)(A) and (B) of Cenvat Credit Rules, 2004 - On perusal of definition of capital goods, it is found that anything which does not fall under any of the Chapter as mentioned in Clause (i) above will not be a capital good unless it is a component spare or accessory for anything in said Clause (i). For all or any of these to be accessory we need to know the relevance of their use, for the provider of Telecom Services, the output service is Telephone & Cellular Network. Thus, any article/ thing /object which is used for transmission & reception of said network can be called as component/ spare/ accessory of the goods in Clause (i) as mentioned above, upon which the Cenvat Credit can be availed. Most of the articles of Annexure A are equipments or appliances to be used in the office of the appellant or any office, hence cannot be categorized as such component/ spare/ accessory of the goods which are rendering output service herein, and hence, are not the goods on which the Credit can be availed - OFC, HDPE, batteries and ACs for server rooms are the inputs used in providing output service. Hence, the appellant are entitled to claim Cenvat Credit on these items only. Appeal dismissed - decided against appellant.

Summary

Issues:
Appeal against denial of Cenvat Credit on office equipments for providing taxable telephone services.

Analysis:
The appellant, engaged in providing taxable "telephone services," was denied Cenvat Credit on various office equipments by the Department. The dispute arose when the Department observed that the appellant had taken credit on duty of excise paid on several items during a specific period and utilized them for discharging Service Tax liability. A Show Cause Notice was issued, leading to a demand for recovery of Cenvat Credit availed by the appellant, except for a specific amount. The appellant contended that the office equipments were essential for providing telecom services and should be considered capital goods. The Department argued that the adjudicating authority had reasonably distinguished which items could be considered proper inputs. The Tribunal analyzed the definition of "capital goods" under Rule 2(a)(A) of Cenvat Credit Rules, 2004, and emphasized the need for items to be components, spares, or accessories of specific goods to qualify as capital goods.

The Tribunal referred to a previous judgment by the Tribunal Mumbai in Bharti Airtel Ltd. vs. Commissioner of Central Excise, Pune, which clarified the definition of "component or part of any goods." Applying this interpretation, the Tribunal concluded that most office equipments listed were not eligible for Cenvat Credit as they were not components or accessories of goods used for providing telecom services. However, specific items like optical fiber cables, HDPE cables, batteries for servers, and air conditioners for server rooms were deemed necessary for providing telecommunication services and hence qualified as inputs for claiming Cenvat Credit. The Tribunal upheld the decision of the original adjudicating authority in permitting credit on these specific items and reducing the recovery amount accordingly.

In summary, the Tribunal dismissed the appeal, stating that the denial of credit on office equipments was justified as they did not qualify as capital goods or their components, spares, or accessories. However, the appellant was allowed to claim Cenvat Credit on specific items directly related to providing telecommunication services. The decision was based on a thorough analysis of the definition of capital goods and the relevance of items to the output services rendered by the appellant.