2021 (7) TMI 1094 - AT - Service Tax

CENVAT Credit - input services - services used in setting up their plants at the industrial township called Sri City - Rule 2(l) of the Cenvat Credit Rules, 2004 as amended with effect from 1-4-2011 - Department wants to deny them the benefit of the CENVAT credit on the ground that services related to setting up of a factory which were specifically included prior to 1.4.2011 were no longer specifically included post 1.4.2011 - levy of interest and penalty - HELD THAT - The definition of input service prior to 1.4.2011 had two parts- a main part of the definition and an inclusive part of the definition. This inclusive part specifically included the services availed for setting up the factory. After 1.4.2011, it has three parts- a main part, an inclusive part and an exclusive part. The services used for setting up the factory are neither in the inclusive part of the definition nor the exclusive part of the definition. Therefore, such services were neither specifically included nor were specifically excluded. The term manufacture itself is very wide and includes anything incidental or ancillary to manufacture - For a service to qualify as input service under CENVAT Credit Rules, 2004 post 2011, the service in question need not be covered even by the very wide definition of manufacture under section 2(f) of the Central Excise Act. Any service which is used not only in manufacture but also in relation to manufacture will also qualify as input service. The scope of input service is further enlarged with the expression whether directly or indirectly used in the definition of input service. Although setting up the factory is not manufacture in itself, it is an activity directly in relation to manufacture. Without setting up the factory, there cannot be any manufacture. Services used in setting up the factory are, therefore, unambiguously covered as input services under Rule 2 (l) (ii) of the CENVAT Credit Rules, 2004 as they stood during the relevant period (post 1.4.2011). The mere fact that it is again not mentioned in the inclusive part of the definition makes no difference. Once it is covered in the main part of the definition of input service, unless it is specifically excluded under the exclusion part of the definition, the appellant is entitled to CENVAT credit on the input services used. The impugned orders denying CENVAT credit and ordering its recovery along with interest and imposing penalties cannot be sustained - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Eligibility of CENVAT Credit on input services used in setting up plants post-amendment of Rule 2(l) of the Cenvat Credit Rules, 2004 effective from 1-4-2011.
2. Recovery of CENVAT Credit along with interest.
3. Imposition of penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 15(2) of the Cenvat Credit Rules, 2004.
4. Applicability of the extended period of limitation for recovery.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT Credit on Input Services:
The central issue in both appeals was whether the appellants were entitled to CENVAT Credit on input services used for setting up their manufacturing plants post the amendment of the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004, effective from 1-4-2011. The appellants argued that the services in question were essential for setting up their factories and, thus, directly related to the manufacture of final products. They relied on previous judgments, including Kellogs India Pvt. Ltd. vs. Commissioner of Central Tax, Tirupathi, where it was held that services used for setting up a plant are covered under the main part of the definition of 'input service' even after the amendment.

The Tribunal noted that the definition of 'input service' had three parts post-1.4.2011: the main part, an inclusive part, and an exclusive part. The services used for setting up the factory were neither specifically included nor excluded. The main part of the definition includes services used by a manufacturer directly or indirectly in or in relation to the manufacture of final products. The Tribunal concluded that setting up a factory is an activity directly related to manufacture and, therefore, qualifies as 'input service' under the main part of the definition.

2. Recovery of CENVAT Credit along with Interest:
The department sought to recover the CENVAT Credit along with interest, arguing that the services related to setting up a factory were no longer specifically included in the definition post-1.4.2011. The Tribunal, however, found that since the services were covered under the main part of the definition, the appellants were entitled to the CENVAT Credit, and thus, the recovery along with interest was not justified.

3. Imposition of Penalty:
The department also imposed penalties under Section 11AC of the Central Excise Act, 1944, read with Rule 15(2) of the Cenvat Credit Rules, 2004. The appellants contended that no penalty should be imposed as they had not suppressed any information and had filed ER1 returns on time. The Tribunal agreed with the appellants, noting that the issue was interpretational and there was no suppression of facts. Consequently, the imposition of penalties was not warranted.

4. Applicability of Extended Period of Limitation:
The appellants argued that the entire demand was time-barred and no case was made out for invoking the extended period of limitation. The Tribunal found merit in this argument, noting that the appellants had filed their returns on time and had not suppressed any information. Therefore, the extended period of limitation could not be invoked.

Conclusion:
The Tribunal concluded that the appellants were entitled to CENVAT Credit on the input services used for setting up their plants, as these services were directly related to the manufacture of final products. The orders denying CENVAT Credit, ordering its recovery along with interest, and imposing penalties were set aside. The appeals were allowed with consequential reliefs.

Order Pronounced on 26.07.2021.

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