2023 (10) TMI 496 - AT - Service Tax

Wrongful availment of CENVAT Credit - inputs and inputs services used in construction of the reservoir - work order was issued prior to April 01, 2011 - HELD THAT - In the present case, the documents on record clearly establish that not only was the construction of water storage reservoir and the repair work completed prior April 01, 2011, but even the invoices were issued prior to April 01, 2011 and the payments were made prior to April 01, 2011 - The finding recorded by Commissioner (Appeals) that the work was executed and the invoices were raised after April 01, 2011 is perverse as it is not borne out from the records. It is, however, correct that the entry was made in the ledger of the appellant in March, 2012, but this is not the material date. Rule 4(7) of the CENVAT Credit Rules, as it existed prior to April 01, 2011, provides that the CENVAT credit in respect of input service shall be allowed on or after the date which the payment is made of the value of the input service and the service tax is paid. It is not in dispute that the payment was made prior to April 01, 2011 and service tax was also paid prior to April 01, 2011. Such being the position, the impugned order dated August 30, 2017 passed by the Commissioner (Appeals) deserves to be set aside and is set aside - Appeal allowed.

Summary

Issues:
The appeal challenges the disallowance of CENVAT credit by the Commissioner (Appeals) upheld by the Joint Commissioner, regarding the construction of a water reservoir used as a raw material in the manufacturing of paper.

Details:
The appellant, engaged in the manufacture of paper products, required a continuous water source for manufacturing paper, drawn from River Sone. To ensure water availability, the appellant constructed a reservoir at its factory premises through a contract with M/s Chandra Nirman Pvt. Ltd. The total project cost amounted to Rs. 15,75,05,168, out of which Rs. 1,47,08,098 was paid as service tax.

The appellant availed CENVAT credit on the service tax paid for the reservoir construction, considering water as a raw material for paper manufacturing. However, a show cause notice alleged wrongful credit availing, leading to the Joint Commissioner's order confirming the demand.

The Commissioner (Appeals) upheld the demand, citing the amended definition of input services effective from March 1, 2011, excluding certain services like construction of buildings. The Commissioner (Appeals) held that the construction of the reservoir fell under the excluded category, making the credit inadmissible.

The appellant contended that the work order, construction, and payments were completed before April 1, 2011, challenging the Commissioner (Appeals)'s finding that the work was executed post this date. The department's representative supported the order, emphasizing the ledger entry date of March 2012 for credit availing.

Considering Rule 4(7) of the CENVAT Credit Rules 2004 pre-April 1, 2011, which allows credit on payment of input services, the Tribunal found that the construction and payment were indeed completed before this date. The Tribunal deemed the Commissioner (Appeals)'s finding as perverse, setting aside the order and allowing the appeal.