2024 (10) TMI 1339 - AT - Central Excise

CENVAT Credit - construction, consultancy, repair, and maintenance services - nexus with manufacturing activity - for what purpose and in connection with which plant/factory, the Appellant had availed those credits? - HELD THAT - There is no denial of the fact that Appellant had replied back to the show-cause notice almost after a year on dated 10.09.2015 when physical hearing was last scheduled to 22.09.2015. On going through the reply to the show-cause notice but no reference is made in the said reply that the new plant is located away from the present factory of the Appellant, though a distinction between plant and factory was attempted therein. It is apparently for this reason that learned Commissioner, after conclusion of physical hearing had issued a letter to the Appellant on dated 09.10.2015 seeking its response on the location where services were provided and the place where setting of new plant was progressing and the activities to be undertaken in the same plant. The reply though receipt after passing of the order by the Commissioner, going by its content as available in page 25 to 28 of the appeal memo, it can be considered as a cryptic reply for the reason that para 2.3 of its reply letter reveals that the plant was still in proposal stage which can be considered as forward integration. Further, it is also noticed that Appellant has indicated that they were in the process of expanding their existing sponge iron plant capacities in village Salav but there is nothing mentioned about proposed plants in other two villages namely Nidhi and Mithekhar Village. This being fact on record and when annexure 8 i.e. copy of the letter received from the Ministry of Environment Forest issued on dated 27.01.2011 speaks about conditionalities for setting of the plant and the reply letter in response to Commissioner s query issued in November, 2015 indicates that new proposed plant was not completed by that time, which could be treated as forward integration of their existing plant, availment of credits on those inputs by the end of 2012 claimed to have been used in the proposed plant and not in a functional plant without proof of forward integration of the existing plant covering three villages is irregular and not in conformity to the CENVAT Credit Rules, 2004. The order passed by the Principal Commissioner of Central Excise, Customs Service Tax, Raigad is hereby confirmed - Appeal dismissed.

Summary

Issues:
Denial of CENVAT Credit on input services for the period from April 2009 to May 2012; Admissibility of CENVAT Credit on construction, consultancy, repair, and maintenance services; Interpretation of CENVAT Credit Rules, 2004 regarding the nexus with manufacturing activities; Compliance with Board Circulars and judicial decisions; Validity of the order passed by the Commissioner without waiting for the Assessee's response; Proof of forward integration for availing CENVAT Credit.

Analysis:

1. The appeal challenged the denial of CENVAT Credit amounting to Rs. 1,65,49,165 for the period from April 2009 to May 2012 on various input services like construction, consultancy, repair, and maintenance. The Appellant contended that the services were integral to setting up a new plant/project and were wrongly disallowed by the Commissioner.

2. The case involved the original Assessee, engaged in manufacturing Direct Reduction Iron, with the present Appellant as its successor. The Respondent-Department conducted an audit revealing that the Appellant had availed CENVAT Credit on services before setting up a new plant, which was deemed inadmissible. The Appellant argued that the services were essential for the new plant and had prior intimation to the Department.

3. During the appeal hearing, the Appellant's Counsel cited legal provisions and judicial decisions supporting the admissibility of CENVAT Credit on construction, consultancy, and other services. The Appellant claimed that the denial was based on an erroneous application of amended provisions and that the extended period for recovery could not be invoked due to lack of suppression or intent to evade tax.

4. The Respondent-Department argued that the Appellant availed inadmissible CENVAT Credit on construction services and other activities for setting up a new plant. The Commissioner's order was defended, highlighting the Appellant's delay in responding to queries and non-compliance with Board Circulars regarding timely completion of proceedings.

5. The Tribunal analyzed the location and purpose for which the CENVAT Credit was availed by the Appellant. It was noted that the Appellant's response did not clearly establish the new plant's integration with the existing factory. The lack of proof of forward integration and incomplete details regarding the proposed plant's activities led the Tribunal to uphold the Commissioner's order.

6. Ultimately, the Tribunal dismissed the appeal and confirmed the order passed by the Principal Commissioner, emphasizing the irregularities in availing CENVAT Credit without sufficient evidence of forward integration. The cross objection was disposed of accordingly.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's reasoning in upholding the Commissioner's order.