2018 (11) TMI 68 - AT - Central Excise

CENVAT Credit - input services rendered by the service providers while setting up of their plant - labour charges which were for fixing and erection of equipments, buffing work, fixation and erection of equipment work, insulation work etc. for the activity undertaken by the service providers in the factory premises. Held that - The services which were rendered by the service providers were in respect of capital goods and not for laying of foundation or making structures for support of capital goods. Further, it has to be recorded in the findings of the first appellate authority that these services were not used coextensively for manufacture of final products, also seems to be not correct from the factual position as the appellant herein being the manufacturer of bulk drugs, requires installation of various plant and machinery which would contribute towards manufacture of final products. In the case in hand, it cannot be said that the services rendered by service providers on various activities as enumerated in Annexure-B to the show cause notice were in respect of equipments which are not used for manufacturing of final products. If that be so, the law is now clearly settled as to what would be directly or indirectly or in relation to manufacture as the foundation or making structures for support are in respect of the capital goods. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availability of CENVAT credit for services rendered by service providers during plant setup.

Analysis:
The appeal addressed the issue of availing ineligible CENVAT credit for services provided by service providers during the setup of a plant. The audit party noted the ineligible credit, leading to a show cause notice for recovery. The adjudicating authority dropped proceedings for a portion of the demand but confirmed the rest, imposing penalties. The appellant contested the notice on merit and limitation grounds. The main contention revolved around whether the services provided fell under the exclusion clause of input service Rule 2(l) of the CENVAT credit Rules, 2004.

The appellant's counsel argued that the services were related to machinery installation and not covered by the exclusion clause. They highlighted that the services were not works contract but labor charges. On the other hand, the Deputy Commissioner argued that the services were not coextensively used in manufacturing final products, citing a High Court judgment. The Tribunal analyzed the issue in detail, considering the definition of input service under Rule 2(l) of CENVAT Credit Rules 2004 during the relevant period.

The Tribunal observed that the services provided were for fixing and erection of equipment, insulation work, etc., crucial for the manufacturing process. The Revenue sought to deny credit based on an exclusion clause related to laying foundation or making structures for support of capital goods. However, the Tribunal found that the services were directly or indirectly used in relation to the manufacture of final products, making them eligible for CENVAT credit. The Tribunal also dismissed the Revenue's reliance on a High Court judgment related to input credit on inputs, as it was not applicable to the current case involving input services.

In conclusion, the Tribunal found the impugned order unsustainable and set it aside, allowing the appeal in favor of the appellant. The judgment clarified the eligibility of CENVAT credit for services provided during plant setup, emphasizing their direct or indirect relation to the manufacturing process.