2024 (10) TMI 223 - AT - Service Tax

Recovery of irregularly availed Cenvat Credit - input services - deletion of certain words like setting up from the definition of input services or for not having nexus with output service - Infrastructure Development Service - initial setting up of a factory - maintenance and up-keep of roads and landscapes - invoice in the name of their SEZ unit - input services received exclusively for trading - time limitation - penalty. Service Tax availed Rs. 17,01,848/- on Infrastructure Development Service - HELD THAT - It is obvious that while show cause notice proposes to deny this credit solely on the account that the work is in the nature of Works Contract Service, which is not covered within the definition of input service, whereas credit has been denied by Original Authority on the ground that this being in the nature of common service, and therefore not having an integral and essential part for providing the output service etc., renting of immovable property. In this case, as submitted by the appellant, the definition of works contract service is quite clear and the Revenue has not been able to produce any evidence that there is any transfer of property on which VAT was paid and therefore since the allegation itself is not factually correct, the demand cannot be sustained on this ground alone. Therefore, demand confirmed on this ground itself is not tenable and liable to be set aside. Cenvat Credit availed on initial setting up of a factory amounting to Rs. 5,06,401/- - HELD THAT - The Adjudicating Authority has observed that the assessee have not adduced evidence that there was any nexus between input services and output services, whereas, Department had proposed to deny said credit on account of it s being used for initial setting up. Hence the grounds taken for confirming demand is different than the grounds taken in show cause notice and hence this confirmation is also not tenable on this ground itself. Denial of Rs. 13,050/- on account of its having no nexus - HELD THAT - The allegation in the show cause notice is that these services fall under the category of initial setting up of the factory and since word setting up has been omitted, it is not eligible. Therefore, this also traverses beyond the scope of the show cause notice. In so far as amount of Rs. 7,109/- is concerned, the show cause notice has alleged that this also falls within the category of initial setting up of a factory, whereas, the confirmation is on account of services having no nexus with the services provided by the assessee. Hence, this also traverses beyond the scope of the show cause notice and hence not tenable. Cenvat Credit availed on maintenance and up-keep of roads and landscapes amounting to Rs. 8,40,44/- - HELD THAT - Adjudicating Authority has rightly confirmed the demand as there is no clear evidence to suggest nexus between input services being used for providing output service in renting of vacant land. In fact, these services were being provided outside the premises of the manufacturing unit. It is also observed that while Department has alleged that appellant had rented out leased vacant land as such on sub-lease to another person, the appellants have claimed that it was also having building on that. However, appellants have not produced any evidence that the rental recovered by them was for land as well as building thereon and thus it would obvious that they had only leased out vacant land. Thus, this demand is sustainable. Time limitation - HELD THAT - There was responsibility on the appellant to take only the eligible credit, whereas, they have taken credit on services, which apparently they should have known were otherwise not eligible on the plain reading of the statutory provisions itself. The appellant has not adduced any ground for having any bonafide belief for taking said credit. Therefore, while certain demands made by the Department is not sustainable on the grounds that there is a difference between grounds taken for confirming the demand and the grounds invoked in the Show Cause Notice, merely because of that it cannot be said that the appellants were not liable to be subjected to extended period, the Department was right in invoking extended period of limitation. Cenvat Credit availed on the invoice in the name of their SEZ unit amounting to Rs. 6,917/- - HELD THAT - The demand is rightly confirmed as the same being not an eligible credit. Appellant is not contesting this demand. Cenvat Credit availed on input services received exclusively for trading amounting to Rs. 2,98,630/- - HELD THAT - The confirmation of demand is sustainable and rightly upheld by the Commissioner (Appeals). Moreover, the appellant is also not contesting this demand. Imposition of penalty - HELD THAT - Since the demand itself has not been sustained the penalty, is not imposable and therefore liable to be set aside. As regards the demands which have been rightly upheld by the Commissioner (Appeals), penalty as imposed by Original Authority would be applicable. Though, the appellants have argued that in the given facts the penalty should not be imposed on them, for the reasons discussed in foregoing paras regarding the applicability of extended period, the imposition of penalty is justified and therefore there is no need to interfere with the imposition of penalty wherever the demand has been otherwise found sustainable. Amount already paid and appropriated would be adjusted against total demand found sustainable. The Order of the Commissioner (Appeals) is partly modified - Appeal allowed in part.

Summary

Issues Involved:

1. Eligibility of Cenvat Credit on Infrastructure Development Services.
2. Eligibility of Cenvat Credit on initial setting up of a factory.
3. Eligibility of Cenvat Credit on maintenance and upkeep of roads and landscapes.
4. Eligibility of Cenvat Credit on invoices in the name of SEZ unit.
5. Eligibility of Cenvat Credit on input services for trading activities.
6. Applicability of extended period of limitation.
7. Imposition of penalty.

Issue-wise Detailed Analysis:

1. Eligibility of Cenvat Credit on Infrastructure Development Services:

The appellant contested the denial of Cenvat Credit amounting to Rs. 17,01,848/- for Infrastructure Development Services, arguing that these services did not constitute a "works contract" as alleged by the Department. The Department had initially denied the credit on the grounds that these services were in the nature of a works contract, which is excluded from the definition of input services. However, the judgment found that the Department failed to prove the existence of a works contract involving the transfer of property. Consequently, the demand based on this ground was deemed unsustainable and was set aside.

2. Eligibility of Cenvat Credit on Initial Setting Up of a Factory:

The appellant was denied Cenvat Credit of Rs. 5,06,401/- for services related to the initial setting up of a factory. The denial was based on an amendment to Rule 2(l) of the Cenvat Credit Rules, which excluded "setting up" from the definition of input services. The judgment noted that the grounds for denying the credit in the show cause notice differed from those in the Adjudicating Authority's order, which cited a lack of nexus between input and output services. As the confirmation of demand was based on different grounds than those alleged, this demand was also deemed unsustainable and set aside.

3. Eligibility of Cenvat Credit on Maintenance and Upkeep of Roads and Landscapes:

The Department denied Cenvat Credit of Rs. 84,044/- on the basis that the services had no nexus with the appellant's output services. The appellant failed to demonstrate a connection between the input services and their output services. The judgment upheld the denial of credit, as the services were provided outside the manufacturing premises and lacked a clear nexus with the output service, making the demand sustainable.

4. Eligibility of Cenvat Credit on Invoices in the Name of SEZ Unit:

The appellant did not contest the denial of Cenvat Credit of Rs. 6,917/- for services invoiced in the name of their SEZ unit. The judgment confirmed that this credit was not eligible, and the demand was upheld.

5. Eligibility of Cenvat Credit on Input Services for Trading Activities:

The appellant did not contest the denial of Cenvat Credit of Rs. 2,98,630/- for input services related to trading activities. As trading of goods falls under the negative list of services, the credit was not admissible. The judgment confirmed the demand, and the credit was rightly denied.

6. Applicability of Extended Period of Limitation:

The appellant argued against the invocation of the extended period of limitation, claiming regular filing of ST-3 returns. However, the Department contended that the appellant failed to disclose the nature of services on which Cenvat Credit was availed, justifying the extended period. The judgment concluded that the appellant did not meet the burden of proof regarding the admissibility of credit, and the extended period was rightly invoked.

7. Imposition of Penalty:

The judgment found that penalties related to demands that were set aside were not imposable. However, penalties on demands that were upheld were justified. The appellant's failure to correctly avail credit and disclose necessary details warranted the imposition of penalties, which were deemed appropriate for the sustained demands.

Conclusion:

The judgment partially modified the Order of the Commissioner (Appeals), setting aside demands where the grounds for confirmation differed from those in the show cause notice. The demands for which the appellant accepted liability were upheld, and penalties were imposed accordingly. The appeal was partly allowed, granting the appellant consequential benefits as per law.