2022 (1) TMI 59 - AT - Central Excise

CENVAT Credit - input service - construction services used by the appellant for setting up of Effluent Treatment Plant - HELD THAT - The appellant has already existing factory and in the said factory, Effluent Treatment Plant was installed for which they have availed construction service from the contractor. Any activity of construction in the running existing factory shall be treated as modernization, renovation or repair and maintenance of existing factory - From a plain reading of Rule 2(l), it is clear that even though setting up of factory was removed from the exclusion clause however, the service of modernization, renovation or repair and maintenance is still provided in the inclusion clause. Therefore, any activity which related to modernization, renovation or repair and maintenance of factory, the same is eligible for Cenvat credit. There is no dispute on the fact that Effluent Treatment Plant was set up in the existing running factory. Therefore, it is nothing but modernization of the factory. As regards the argument made by learned Authorised Representative that from 01.04.2011, construction services and works contract services were excluded from the definition of input service, it is found that though construction service was excluded but since modernization, renovation and repair and maintenance is still continue to be existed in the inclusion clause of definition, credit shall be allowed. From the judgment of this Tribunal in M/S ION EXCHANGE I LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, SUARAT-II 2017 (12) TMI 151 - CESTAT AHMEDABAD it can be seen that the amended definition of Input Service from 01.04.2011 was considered and it was viewed that though the construction service/ works contract service were excluded but it was interpreted that the said service related to only new construction or setting up of a new factory. But since modernization, renovation or repair and maintenance, even after exclusion category, continue to remain in inclusion clause of definition, credit cannot be denied - the adjudication order deciding the matter on the basis of exclusion category is beyond the scope of show cause notice. The appellant is entitled for Cenvat credit - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of Cenvat credit for construction services used in setting up an Effluent Treatment Plant.
2. Interpretation of the definition of 'Input Service' under Rule 2(l) of the Cenvat Credit Rules, 2004 post-01.04.2011.

Detailed Analysis:

Issue 1: Eligibility of Cenvat credit for construction services used in setting up an Effluent Treatment Plant

The appellant argued that the construction services used for the installation and erection of the Effluent Treatment Plant should be considered under the modernization of the existing factory. They relied on several judgments to support their claim that such services fall under the inclusion clause of the definition of 'Input Service' provided in Rule 2(l) of the Cenvat Credit Rules, 2004. The appellant emphasized that the Effluent Treatment Plant was installed in an already existing factory, thus qualifying as modernization, renovation, or repair and maintenance of the factory.

Issue 2: Interpretation of the definition of 'Input Service' under Rule 2(l) of the Cenvat Credit Rules, 2004 post-01.04.2011

The Revenue contended that post-01.04.2011, construction services were excluded from the definition of 'Input Service,' making the appellant ineligible for Cenvat credit. They reiterated the findings of the impugned order, emphasizing the exclusion clause.

Upon careful consideration of the submissions and records, the Tribunal found that any construction activity in a running existing factory should be treated as modernization, renovation, or repair and maintenance. The definition of 'Input Service' under Rule 2(l) includes services used in relation to modernization, renovation, or repairs of a factory. Despite the exclusion of 'setting up' from the definition post-01.04.2011, modernization, renovation, and repair and maintenance services remain included.

The Tribunal referenced a similar case, Ion Exchange (I) Limited, where it was held that services related to modernization, renovation, or repair of an existing factory are eligible for Cenvat credit, even after the amendment to the definition of 'Input Service.' The Tribunal clarified that the exclusion of construction services applies to new constructions or the setting up of new factories, not to activities related to modernization, renovation, or repair of existing facilities.

The show cause notice did not charge the appellant under the exclusion category but focused on the main and inclusion clauses of the definition. Therefore, the adjudication order based on the exclusion category was beyond the scope of the show cause notice.

Based on the above analysis and supported by the cited Tribunal judgment, the Tribunal concluded that the appellant is entitled to Cenvat credit. The impugned order was set aside, and the appeal was allowed with consequential relief as per the law.

Conclusion:

The Tribunal ruled in favor of the appellant, allowing Cenvat credit for construction services used in the modernization of the existing factory, including the installation of the Effluent Treatment Plant. The interpretation of the 'Input Service' definition post-01.04.2011 was clarified, emphasizing that modernization, renovation, and repair services remain eligible for credit despite the exclusion of new construction services.