2023 (7) TMI 303 - AT - Service Tax

CENVAT Credit - input or capital goods - Towers and Parts Accessories of Towers falling under Chapter 73 of the Central Excise Tariff Act, 1985 - credit disallowed on the ground that the Towers were not capital goods as defined under Rule 2(A) of the said Rules and that the parts accessories used in the erection of towers do not satisfy the definition of input as the towers are civil structures attached to earth and not excisable goods - HELD THAT - It is observed that a provider of output service is eligible for availing credit on duty of excise paid on capital goods, input and Service Tax paid on input service used in relation to providing of output service. Towers parts accessories of Towers are an essential ingredient for providing the said output service. Installed Towers are used for receiving and transmitting signals without which clients of the assessee would not be able to receive or transmit signals in their individual sets. Hence, it satisfies the definition of input as defined under Rule-2(k) of the said Rules - Since the department has accepted the payment of duty on Towers by considering them as excisable goods, the credit availed on the inputs used in manufacturing the excisable goods cannot be denied. Thus the Commissioner has rightly dropped the demand in the impugned order and the dropping of the demand is sustainable. ETR ETP transferred credit of Rs.6,68,37,663/- to the assessee through inter office memo called ATD/TED during the period 2005-06 and 2006-07 - HELD THAT - The Appellant has fulfilled the two primary conditions of availing credit, one is that the input/capital goods/ input service is duty paid and the second is that those have been used in rendering of the said output service. Since, the Appellant satisfies the essential conditions for availing the credit, the Cenvat credit cannot be denied on account of procedural lapse, if any. Accordingly, the findings of the adjudicating authority that Cenvat credit availed on the basis of Invoice/bills issued through ATD/TED, by ETR and ETP, the two branches of the Appellant cannot be denied on the ground that they have not been registered as Input Service Distributor for transferring the credit, agreed upon. There is no substance in the allegation of the department that the Appellant has not manufactured any dutiable final products during the relevant period - the adjudicating authority has rightly dropped the demand on this count in the impugned order - Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Eligibility of Cenvat credit on 'Towers and Parts & Accessories of Towers' under Chapter 73 of the Central Excise Tariff Act, 1985.
2. Admissibility of credit transferred by ETR and ETP without registration as 'Input Service Distributor'.

Summary:

Issue 1: Eligibility of Cenvat credit on 'Towers and Parts & Accessories of Towers'

The first issue concerns the eligibility of Cenvat credit amounting to Rs.90,54,251/- availed on 'Towers and Parts & Accessories of Towers' under Chapter 73 of the Central Excise Tariff Act, 1985. The department argued that these items do not qualify as 'capital goods' under Rule 2(A) of the Cenvat Credit Rules and that 'parts & accessories' used in the erection of towers do not satisfy the definition of 'input' as they are civil structures attached to earth and not 'excisable goods'.

The adjudicating authority, however, found that since excise duty was paid on these goods, they are 'excisable goods'. The authority held that even if the towers and parts do not qualify as 'capital goods', they satisfy the definition of 'input' under Rule 2(k) of the said Rules. The installed towers are essential for providing telecommunication services, as they are used for receiving and transmitting signals. Hence, the authority concluded that the credit availed on these items is legitimate and dropped the demand.

Issue 2: Admissibility of credit transferred by ETR and ETP

The second issue involves the transfer of credit amounting to Rs.6,68,37,663/- by ETR and ETP to the assessee through inter-office memos during 2005-06 and 2006-07. The department contended that the credit is inadmissible because ETR and ETP were not registered as 'Input Service Distributor' as required under Rule-7A of the Cenvat Credit Rules, and the documents used for availing the credit were not as prescribed under Rule 9. Additionally, the department argued that the inputs, capital goods, and input services were not used by the assessee but were installed in premises throughout Eastern India.

The adjudicating authority found that ETR and ETP are branches of the assessee and that the credit was transferred through ATD/TED. The authority ruled that the denial of credit based on procedural lapses is not justified when the substantive conditions'duty payment on capital goods, inputs, and input services, and their use in providing output services'are satisfied. The authority relied on the decision of the Hon'ble CESTAT, South Zonal Bench, Chennai, which held that substantive benefits cannot be denied on procedural grounds. Consequently, the authority dropped the demand, and the department's appeal was rejected.

Conclusion:

The appeal filed by the department was dismissed, and the adjudicating authority's decision to drop the demands on both issues was upheld. The judgment emphasized that substantive compliance with the conditions for availing Cenvat credit is more critical than procedural lapses.