2024 (1) TMI 722 - AT - Service Tax

CENVAT Credit - input used for providing the construction service - Cement, MS Angles, Channels, TMT Bars, and TMT Rods etc. - contention of the Revenue is that as per the amended Rule 2 (k), the goods on which credit was taken have been excluded - HELD THAT - On the plain reading of the amended Rule 2 (k) and Explanation 2 there of it is absolutely clear that with regard to the manufacture the input does not include Cement, MS Angles, Channels, TMT Bars, CTD bar and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. This clearly shows that Explanation 2 is exclusively in respect of manufacturer and not for the service provider. Therefore, the entire base of the department s case on Explanation 2 completely fails as the exclusion in respect of the goods in question is not applicable to the service provider but its applicable only to the manufacturer. Therefore, the appellant undisputedly being a service provider of CICS is clearly eligible for the cenvat credit in respect of the goods in question against the output service of construction. This issue has been considered by the Jurisdiction High Court in the case of MUNDRA PORTS AND SPECIAL ECONOMIC ZONE LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE CUSTOMS 2015 (5) TMI 663 - GUJARAT HIGH COURT where it was held that The denial of input credit to the appellant by the respondent is set aside. It is absolutely clear that the cenvat credit on the goods namely Cement, MS Angles, Channels, TMT Bars, TMT Rods etc. for service provider of CICS cannot be denied in terms of Rule 2 (k) of Cenvat Credit Rules, 2004 prevailing at the relevant time. The impugned order set aside - appeal allowed.

Summary

Issues involved:
The issue involves the eligibility of cenvat credit for goods used in providing Commercial or Industrial Construction Service, specifically Cement, MS Angles, Channels, TMT Bars, and TMT Rods, as per Rule 2(k) of Cenvat Credit Rules, 2004 amended by Notification No. 16/2009-CE dated 07.07.2009.

Summary of Judgment:

Issue 1: Interpretation of Rule 2(k) of Cenvat Credit Rules, 2004
The appellant, a service provider, claimed cenvat credit for goods used in construction service. The department disallowed the credit based on the amended Rule 2(k) excluding certain goods. The appellant argued that the exclusion under Explanation 2 of Rule 2(k) applies only to manufacturers, not service providers. Citing precedents, the appellant contended that the exclusion does not extend to service providers. The Tribunal analyzed the amended Rule 2(k) and Explanation 2, concluding that the exclusion of goods like Cement, MS Angles, Channels, TMT Bars, etc., applies exclusively to manufacturers, not service providers. Relying on a High Court judgment, the Tribunal held that the appellant, being a service provider, is eligible for cenvat credit for the goods in question against the output service of construction.

Issue 2: Application of Rule 2(k) to Service Providers
The Tribunal examined the definition of "input" under Rule 2(k) and noted that the exclusion of certain goods under Explanation 2 is not applicable to service providers. It emphasized that the appellant, as a service provider in the construction sector, is entitled to cenvat credit for goods used in providing output services. The Tribunal highlighted that the appellant's case aligns with the interpretation of Rule 2(k) in previous judgments, supporting the appellant's eligibility for input credit.

Separate Judgment by Jurisdictional High Court:
In a separate judgment, the Jurisdictional High Court ruled in favor of the appellant, affirming that the denial of input credit for goods like Cement, MS Angles, Channels, TMT Bars, etc., to a service provider of Commercial or Industrial Construction Service is not justified under Rule 2(k) of Cenvat Credit Rules, 2004. The High Court decision supported the appellant's entitlement to cenvat credit for the goods used in the construction service.

This judgment clarifies that the exclusion of certain goods under Rule 2(k) of Cenvat Credit Rules, 2004 does not apply to service providers in the construction sector, affirming the eligibility of a service provider to claim cenvat credit for goods used in providing output services. The Tribunal's decision aligns with previous precedents and a separate ruling by the Jurisdictional High Court, ensuring that service providers are not unjustly denied input credit based on the interpretation of Rule 2(k).