2024 (11) TMI 717 - AT - Central Excise

Disallowance of CENVAT Credit - input/ input service - Manpower Supply Services - Anti-termite/ Pesticide treatment (Pest Control) - Security Services - Project management consultancy - Equipment hiring - contravention of provisions of Rule 2,3,4 9 of the Cenvat Credit Rules, 2004 - Credit denied for the reason that the credit is in respect of inputs and input services received by the appellant prior to the commencement of production - HELD THAT - There are no such allegation in the show cause notice or any such thing in the impugned order. The credit has been sought to be denied for the reason that the inputs and input services received by the appellant do not qualify as input or input services as per the Rule 2 (k) and 2 (l) of the CENVAT Credit Rules, 2004. Appellant has placed reliance on series of decisions on this account only to mislead the bench. These decisions are not on the subject in dispute. Hence the decisions relied on this aspect do not merit any consideration. In the impugned order after considering the inputs and input services against which the appellant have claimed the credit in light of the definitions of inputs and input services as per Rule 2 (k) and 2(l) respectively Commissioner have recorded the finding to effect that these inputs and input services fall within the exclusion clause of the said definition, and hence have denied the said credit. In certain decisions relied upon by the appellant it has been held that though these goods and services are covered by the exclusion clause, but the credit should be allowed as it gets covered by the definition clause. In case of SOLAR INDUSTRIES INDIA LTD. VERSUS COMMISSIONER OF CE CUSTOMS NAGPUR 2018 (7) TMI 768 - CESTAT MUMBAI , Mumbai Bench while explaining the scope of exclusion clause observed ' Something which may be covered has got to be excluded by way of exclusion. In view of the exclusion clause the arguments with regard to the coverage, the services under the definition clause first part would not be correct.' This decision of Mumbai bench was affirmed by Hon ble Bombay High Court as reported at SOLAR INDUSTRIES INDIA LIMITED. VERSUS THE COMMISSIONER, CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, NAGPUR 2021 (12) TMI 1047 - BOMBAY HIGH COURT observing ' It was found by the Tribunal that by virtue of the amendment dated 1-4-2011 rent-a-cab service had been excluded from the definition of the term input service . The same was in three limbs and the material basis for denying such Cenvat credit was in view of Clause (B) to Rule 2(l) of the said Rules. We find that the Tribunal was justified in disallowing Cenvat credit for the reasons mentioned in the impugned order.' Affirming this decision Hon ble Supreme Court in SOLAR INDUSTRIES INDIA LIMITED VERSUS COMMISSIONER, CENTRAL EXCISE CUSTOMS AND SERVICE TAX, NAGPUR-II 2022 (9) TMI 1155 - SC ORDER observed ' In that view of the matter, it cannot be said that the High Court has committed any error in denying the Input Tax Credit and holding that such a service is excluded from the input service.' Thus in view of the above decisions the goods or services which have been excluded by way of exclusion clause in the definition, could not have been said to be covered by the definition, by referring to the main clause of the definition. As observed in case of Solar Industries all such decisions which have held so are per incuriam and have no precedent value. From the submission made by the appellant in appeal also it is evident that these chemicals were used proper construction of floor and hence would fall under the excluded category. As per Clause (B) of the exclusion clause to Rule 2 (k), Any goods used for- construction of a building or a civil structure or a part thereof; or laying of foundation or making of structures for support of capital goods have been excluded. Hence there are no anomaly in the impugned order denying this credit. Modernization or renovation or repairs of a factory - HELD THAT - The activities of Modernization or renovation or repairs of a factory will be covered by the inclusion clause of the definition and those in relation to the setting up of the factory will be covered by the exclusion clause. It is settled law that the while interpreting a Fiscal Statute the statute should be interpreted strictly on the basis of the words used in the statute - Despite being given ample opportunities, the appellant failed to provide evidence to the effect that the appellant was undertaking repair, modernization or repair of existing factory. They were asked to provide the evidence in respect of the closure of the factory in 2007 on account of labour unrest, or the returns filed by them during the prior period to show that they factory was existing and producing goods and clearing the same. As it is observed they have produced returns for the period from September 2011 onwards where in the production and clearance was indicated as Nil till February 2012. First time any production and clearance has been show is in Month of March 2012. Thus it cannot be accepted that the contention raised by the appellant to the effect that the works undertaken by them were in relation to repair, modernization or renovation of the existing factory. The only issue that needs to be examined in present case and on the basis of various decisions sited by the appellant is whether these activities were in relation to setting up of the factory or in relation to renovation, repair or modernization of existing unit - In absence of any evidence we are not in position to agree with the claim made by the appellant to effect that these activities were in relation to renovation, modernization or repair of ongoing factory. In case of COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. 2018 (7) TMI 1826 - SUPREME COURT , Hon ble Supreme Court has specifically held that any person claiming any exemption has to establish that he falls within the four corners of exemption notification. The appellant have failed to comply with the test laid down by the Hon ble Supreme Court and establish that all these activities were in relation to repair, modernization or renovation of factory we are not in position to agree the contention raised by the appellant for first time in appeal, contrary to their own admissions and submissions before the investigating and adjudicating authority. Manpower Supply Services - Anti termite/ Pesticide Treatment Services - credit has been sought to be denied for the reason that these services were used by the appellant in relation to the construction activities of setting up of the manufacturing unit - HELD THAT - In absence of any evidence to the contrary being made available, a contrary view cannot be taken. It is found that appellant has availed CENVAT credit in respect of the Manpower Supply Services (April 2012 to December 2012) and Security Services (April 2012 to November 2012). This credit has been availed by the appellant after the commencement of production activities. As these services have been received by the appellant during the period after commencement of production, the denial of credit by attributing the same to setting up of the manufacturing unit cannot be justified. Thus, credit of Rs.2,94,243.66/- taken by the appellant against security services and the credits taken by the appellant towards man power supply services from April 2012 onwards is held admissible. The appellant had even prior to issue of the show cause notice debited the entire amount of inadmissible credit which has been admitted by the adjudicating authority. He has also set aside the demand for interest. In our view this was a fit case where the proceedings should have been closed following the dictum of sub-section (2) of Section 11A of Central Excise Act, 1944. Thus, there are no merit in the penalty imposed on the appellant under Rule 15 (1) of the CENVAT Credit Rules, 2004. Thus, quantum of demand needs to be re-determined by the original authority - Penalty imposed under Rule 15 (1) is set aside - appeal allowed in part.

Summary

Issues Involved:

1. Disallowance of Cenvat Credit on inputs and input services.
2. Recovery of inadmissible credit.
3. Imposition of penalty under Rule 15(1) of the Cenvat Credit Rules, 2004.
4. Applicability of extended period for demand.
5. Admissibility of credit on specific services like Manpower Supply, Security, and others.
6. Interpretation of exclusion clauses in Cenvat Credit Rules.
7. Estoppel and bona fide belief defense.

Issue-wise Detailed Analysis:

1. Disallowance of Cenvat Credit on Inputs and Input Services:

The judgment addressed the disallowance of Cenvat Credit amounting to Rs. 85,98,001.00 on various inputs and input services deemed ineligible under Rule 2(k) and 2(l) of the Cenvat Credit Rules, 2004. The inputs and services were primarily used for construction and setting up of the factory, which were excluded from the definition of eligible inputs and services post-amendment effective from 01.04.2011. The appellant had taken credit on chemicals used for flooring, erection of pre-engineered buildings, architectural services, and other construction-related services, which were not admissible as they fell under the excluded category.

2. Recovery of Inadmissible Credit:

The tribunal upheld the recovery of the inadmissible credit under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 11A(1) of the Central Excise Act, 1944. The appellant had reversed a substantial amount of credit before the issuance of the show cause notice, but the tribunal found that the credit taken was irregular and liable to be recovered.

3. Imposition of Penalty under Rule 15(1):

The tribunal set aside the penalty imposed under Rule 15(1) of the Cenvat Credit Rules, 2004. It was observed that the appellant had reversed the credit prior to the issuance of the show cause notice, and the proceedings should have been closed following the dictum of sub-section (2) of Section 11A of the Central Excise Act, 1944. The tribunal found no merit in the penalty as the appellant had demonstrated a bona fide belief and had taken corrective action.

4. Applicability of Extended Period for Demand:

The tribunal found that the show cause notice was issued within the normal period of limitation, and the extended period was not invoked. The appellant's claim of the demand being time-barred was dismissed, as the credit was first taken in March 2012 and reflected in the returns filed for that month.

5. Admissibility of Credit on Specific Services:

The tribunal examined the admissibility of credit on services like Manpower Supply, Security, and others. It was held that credit on Manpower Supply and Security Services availed after the commencement of production was admissible. The tribunal directed the original authority to re-determine the quantum of demand, considering the admissible credits.

6. Interpretation of Exclusion Clauses in Cenvat Credit Rules:

The tribunal emphasized strict interpretation of exclusion clauses in the Cenvat Credit Rules. Services related to construction activities were excluded from the definition of input services, and the tribunal relied on precedents affirming that goods or services explicitly excluded cannot be claimed under the main definition clause.

7. Estoppel and Bona Fide Belief Defense:

The appellant's defense of estoppel and bona fide belief was considered. The tribunal acknowledged the appellant's argument that the credit was taken under a bona fide belief and reversed upon realization. However, the tribunal found contradictions in the appellant's stance and concluded that the credits were taken intentionally, knowing they were ineligible.

Conclusion:

The appeal was partly allowed, with directions to re-determine the quantum of demand and set aside the penalty. The tribunal's analysis focused on the interpretation of Cenvat Credit Rules, the applicability of exclusion clauses, and the procedural aspects of credit reversal and penalty imposition.