2019 (4) TMI 727 - AT - Central Excise

CENVAT credit - inputs/capital goods - cement, MS angles, channels etc. - Held that - It is not disputed that the items were used for work relating to installation of a new kiln in the factory. The appellant had procured duty paid TMT rods, steel rods, TOR steel, TMT bars, TMT rebar coil, steel structures etc. and supplied the same free of cost to CECL for construction of civil structure as well as supporting structures. An amendment was brought to Explanation (2) with effect from 7.7.2009 whereby a restriction was introduced for use of cement, angles, channels etc. for construction as well as for making support structures of capital goods. From the amendment, it can be safely concluded that prior to the amendment, the eligibility of credit on cement, MS angles, channels etc. used for construction, they are not ineligible. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Disallowance of CENVAT credit on items used for construction of kiln under works contract service; Interpretation of eligibility for credit on materials supplied free of cost; Classification of kiln as immovable property affecting credit availability.

Analysis:
The case involved the appellants, engaged in cement manufacturing, availing CENVAT credit on materials used for constructing a new kiln under a works contract service. The department contended that since the service provider remitted service tax under a composition scheme, the appellants were ineligible for credit on items like cement, MS angles, and channels. Additionally, the department argued that post-construction, the kiln being immovable property rendered the credit on construction materials ineligible. The original authority confirmed the demand and interest, which was upheld by the Commissioner (Appeals), leading the appellants to approach the Tribunal.

The appellant's consultant argued that the Tribunal's earlier decision, based on Vandana Global Ltd., was no longer valid, citing subsequent High Court judgments. He highlighted the definition of 'inputs' during the relevant period, emphasizing that prior to an amendment in 2009, there were no restrictions on using materials like cement for construction, making the credit eligible. The consultant also contended that the service provider's composition scheme did not affect the appellant's credit eligibility, as the materials were used for construction, not by the service provider.

On the other hand, the department's representative supported the original decision, stating that since the appellants supplied materials free of cost for construction and the service provider paid tax under a composition scheme, credit was not available. The representative also argued that post-construction, the kiln being immovable property further supported the disallowance of credit on construction materials.

After hearing both sides, the Tribunal found the disallowance of credit unjustified. Citing the subsequent High Court judgments and the pre-amendment definition of 'inputs,' the Tribunal held that the credit on construction materials like cement, MS angles, and channels used for the kiln construction was eligible. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.

This detailed analysis of the judgment showcases the legal intricacies involved in interpreting CENVAT credit eligibility for construction materials under a works contract service and the classification of constructed assets as immovable property affecting credit availability.