2019 (5) TMI 140 - AT - Central Excise

CENVAT Credit - input services - portion of factory premises that was rented out to another - case of Department is that a portion of the factory premises that is rented out cannot be said to be used for the manufacture or clearance of final products - HELD THAT - The definition of input service seeks to cover every conceivable service used in the business of manufacture of final products - Similarly leasing out a part of the factory which is not used by the manufacturer and that too to their joint venture partner can help the manufacturer in raising funds or other business benefits. Such activities which are used in relation to the business of manufacture would be covered by the inclusive part of the definition. During the relevant period the services relating to setting up of factory was an eligible input service. By the amendment which was introduced with effect from 01.04.2011 the services of setting up of factory as also activities relating to business of manufacture were deleted. Thus for the period prior to 01.04.2011 the credit availed on construction services for setting up of factory was eligible. The Department does not have a case that the respondents have used the construction services for setting up of a building or civil structure which is not a factory. The allegation is that the factory was set up using the construction services and thereafter part of the factory was leased out to another without being used in the manufacture of final products. When credit is eligible for setting up of factory and the respondents have correctly utilized the construction services for setting up of the factory the same cannot be denied alleging that a part or portion of the factory was leased out to another. Invocation of Rule 3(5) of the CENVAT Credit Rules 2004 - HELD THAT - Rule 3(5) ibid speaks about reversal of credit availed on inputs or capital goods when such goods are cleared as such. There is no allegation in the Show Cause Notice that inputs or capital goods have been cleared as such - demand in the SCN do not sustain. Appeal dismissed - decided agianst Revenue.

Issues Involved:
1. Eligibility of CENVAT Credit on construction services for factory premises.
2. Applicability of Rule 3(5) of the CENVAT Credit Rules, 2004.
3. Invocation of the extended period of limitation.
4. Imposition of penalties.

Issue-Wise Detailed Analysis:

1. Eligibility of CENVAT Credit on Construction Services for Factory Premises:
The primary issue was whether the respondent was eligible for CENVAT Credit on construction services used for setting up their factory premises, a portion of which was later leased out. The Department argued that the credit attributable to the leased-out portion was ineligible since it was not used in the manufacture of final products. However, the Tribunal noted that at the time of availing the credit, the entire premises were used for manufacturing. The definition of "input service" during the relevant period included services used in relation to setting up a factory, which was broad enough to cover the services in question. The Tribunal referenced the decision in M/s. Ultratech Cement Ltd., which emphasized that the definition of "input service" included services used in relation to the business of manufacturing final products. Thus, the Tribunal concluded that leasing out a part of the factory to a joint venture partner could be considered an activity related to the business of manufacturing, making the credit availed on construction services eligible.

2. Applicability of Rule 3(5) of the CENVAT Credit Rules, 2004:
The Show Cause Notice issued by the Department invoked Rule 3(5) of the CENVAT Credit Rules, 2004, which pertains to the reversal of credit on inputs and capital goods when they are removed as such. The respondent argued, and the Tribunal agreed, that this rule was inapplicable since the case did not involve the removal of inputs or capital goods as such. The Tribunal found that the Department's reliance on Rule 3(5) was misplaced, as there was no allegation of removal of inputs or capital goods in the Show Cause Notice.

3. Invocation of the Extended Period of Limitation:
The respondent contended that the extended period of limitation was not invokable as there was no mala fide intention or suppression of facts. The Tribunal noted that the issue involved the interpretation of legal provisions and that the respondent had a bona fide belief in the eligibility of the credit. Consequently, the Tribunal found no grounds for invoking the extended period of limitation and deemed the demand time-barred.

4. Imposition of Penalties:
Given that the Tribunal found the credit availed by the respondent to be eligible and the demand to be time-barred, it also concluded that there were no grounds for imposing penalties. The penalties imposed by the Original Authority under Section 11AC of the Central Excise Act, 1944, were therefore set aside.

Conclusion:
The Tribunal upheld the order of the Commissioner (Appeals) and dismissed the Department's appeal, confirming that the CENVAT Credit availed by the respondent on construction services for setting up the factory premises was eligible. The Tribunal also found that Rule 3(5) of the CENVAT Credit Rules, 2004, was inapplicable, the demand was time-barred, and there were no grounds for imposing penalties.

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