2025 (4) TMI 1336 - AT - Service Tax

Recovery of Cenvat Credit along with applicable interest and penalty - Input service - admissibility of Credit availed on service tax paid for the design and construction of an RCC water storage tank by M/s KMV Projects Ltd. - HELD THAT - The input service on which the impugned credit was availed by M/s GMR Hyderabad International Airport Ltd. for construction and works contract services which are covered in the exclusion clause of the input service definition under Rule 2(l) of the Cenvat Credit Rules 2004. Since both the contracts are composite supplies they fall under exclusion clause of input service definition Rule 2(l) prohibits availment of Cenvat Credit of service tax paid on works contract services when the same are used to construct a building or civil structure or when such services are used to lay down the foundation or making a structure to support capital goods. Service provided by M/s KMV Projects Ltd. is design and publication of storage tank which is recognised as capital goods under Rule 2(a)A of Cenvat Credit Rules 2004 and hence they eligible for the credit. Although storage tank is included in the definition of capital goods but it is not the case that the appellant party is availing capital goods credit on storage tank - The works contract service itself is an input service and is excluded from the definition of input service vide Rule 2(l) of Cenvat Credit Rules 2004. The nature of services provided is not construction of works contract and that M/s Enerpark Energy Pvt Ltd. have charged full rate of service tax and deposited the same under erection Commissioning and Installation Services. As per the description of services mentioned in the said P.O. as Design engineering construction erection commissioning and the description clearly mentions works of foundation of main control room foundation of inverter room foundation of transformer structure foundation completion of internal road completion of rain water drain etc. The above services are in the nature of construction services/services portion in the execution of works contract used for construction of civil structure or laying foundation for capital goods which are specifically covered in the exclusion clause of the input service definition. The Department s case is that the Adjudicating Authority had dropped the demand for recovery of irregular Cenvat Credit of Rs. 4, 71, 885/- on the basis of certificate of Chartered Accountant without proper examination of other documents such as ST-3 returns and Cenvat Credit Ledger. The certificate issued by a Chartered Accountant which only corroborative evidence as held by Hon ble High Court of Karnataka in Aurangabad Vs Toyota Kirloskar Motors 2009 (12) TMI 529 - KARNATAKA HIGH COURT which was upheld by the Apex Court in TOYOTA KIRLOSKAR MOTOR PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE 2011 (3) TMI 1362 - SUPREME COURT . In the light of above decision Commissioner remanded the matter for further examination is just and proper. Conclusion - The works contract service itself is an input service and is excluded from the definition of input service vide Rule 2(l) of Cenvat Credit Rules 2004. The Commissioner (Appeals) passed an order based on law and fact both. Therefore no any interference requires in the impugned order and appeal is liable to be dismissed - appeal dismissed.

The core legal questions considered in this case revolve around the eligibility of Cenvat Credit availed on service tax paid for certain contracts entered into by the appellant. Specifically, the issues are:

1. Whether the Cenvat Credit availed on service tax paid for the design and construction of an RCC water storage tank by M/s KMV Projects Ltd. is admissible under the Cenvat Credit Rules, 2004, particularly in light of the exclusion of works contract services used for construction of civil structures under Rule 2(l).

2. Whether the Cenvat Credit availed on service tax paid for services related to the design, engineering, construction, erection, testing, and commissioning of a 5 MW Solar Power Plant by M/s Enerpark Energy Pvt Ltd. qualifies as input service eligible for credit, or falls within the exclusion of works contract services for construction or laying foundations under Rule 2(l) of the Cenvat Credit Rules, 2004.

3. Whether the adjudicating authority's reliance on a Chartered Accountant's certificate to drop the demand for recovery of certain Cenvat Credit was justified, or whether further examination of records such as ST-3 returns and Cenvat Credit ledger was necessary.

Issue-wise Detailed Analysis:

Issue 1: Eligibility of Cenvat Credit on Service Tax Paid for Design and Construction of RCC Water Storage Tank (M/s KMV Projects Ltd.)

The relevant legal framework is the Cenvat Credit Rules, 2004, particularly Rule 2(l) which defines "input service" and excludes "service portion in the execution of a works contract and construction services" used for construction of buildings or civil structures or laying foundations for capital goods. The appellant argued that the service provided by M/s KMV Projects Ltd. pertained to design and publication of the storage tank, which qualifies as capital goods under Rule 2(a)A, thus eligible for credit. The appellant contended that the credit was not irregular and supported this with a Chartered Accountant's certificate.

The Court noted that although the storage tank itself is recognized as capital goods, the service provided by M/s KMV Projects Ltd. was for design and construction of a civil structure (RCC water storage tank), which falls within the exclusion clause under Rule 2(l). The Court emphasized that the works contract service is an input service excluded from credit when used for construction of civil structures.

Further, the Court differentiated between "capital goods" and "capital asset," highlighting that the term "capital goods" under the Cenvat Credit Rules must be interpreted in the context of those Rules alone. The RCC structure water storage tank is a civil structure and immovable property, thus outside the purview of capital goods for credit purposes. The Court concluded that the appellant was not eligible for input credit on the works contract services supplied by M/s KMV Projects Ltd.

Issue 2: Eligibility of Cenvat Credit on Service Tax Paid for Services Related to Solar Power Plant Installation (M/s Enerpark Energy Pvt Ltd.)

The appellant claimed that two separate agreements existed with M/s Enerpark Energy Pvt Ltd.-one for supply of goods and another for provision of services-and that the services contract did not qualify as a works contract service. The appellant argued that since the contracts were distinct and had separate consideration, the service portion should be eligible for credit.

The Department contended that the services provided by M/s Enerpark Energy Pvt Ltd. were composite supplies involving works contract services, including construction of foundations and civil structures for the solar power plant. These services fall under the exclusion clause of Rule 2(l), which prohibits credit on works contract services used for construction or laying foundations.

The Court examined the nature of services described in the agreement-design, engineering, construction, erection, commissioning-and noted that the works included foundation work for control rooms, inverter rooms, transformer, internal roads, and rainwater drains. These activities were clearly construction services or works contract services related to civil structures or foundations for capital goods, thus excluded from input service definition under Rule 2(l).

Accordingly, the Court held that the credit availed on service tax paid for these services was not eligible under the Cenvat Credit Rules, 2004.

Issue 3: Reliance on Chartered Accountant's Certificate and Need for Further Examination

The Adjudicating Authority had dropped the demand for recovery of irregular Cenvat Credit of Rs. 4,71,885/- on the basis of a Chartered Accountant's certificate submitted by the appellant. The Department challenged this, arguing that the certificate was only corroborative evidence and that proper examination of other documents such as ST-3 returns and Cenvat Credit ledger was necessary.

The Court referred to the precedent set by the Hon'ble High Court of Karnataka and upheld by the Supreme Court, which held that a Chartered Accountant's certificate is only corroborative evidence and cannot substitute for proper documentary examination. In light of this, the Commissioner (Appeals) remanded the matter for further examination, which the Court found to be just and proper.

Conclusions on Issues:

The Court concluded that the Cenvat Credit availed on service tax paid for works contract services related to construction of the RCC water storage tank and the solar power plant installation was not eligible under Rule 2(l) of the Cenvat Credit Rules, 2004, as these services fall within the exclusion clause for works contract services used for construction of civil structures or laying foundations.

Further, the Court upheld the Commissioner (Appeals) order remanding the matter for further examination regarding the portion of credit previously dropped based solely on the Chartered Accountant's certificate.

Significant Holdings:

"The input service on which the impugned credit was availed... are covered in the exclusion clause of the input service definition under Rule 2(l) of the Cenvat Credit Rules, 2004... Rule 2(l) prohibits availment of Cenvat Credit of service tax paid on works contract services when the same are used to construct a building or civil structure or when such services are used to lay down the foundation or making of a structure to support capital goods."

"The works contract service itself is an input service and is excluded from the definition of input service vide Rule 2(l) of Cenvat Credit Rules, 2004."

"The term 'capital goods' defined under Cenvat Credit Rules is different from the 'capital asset'. Definition of a particular item under a particular law needs to be seen from that particular perspective only."

"The services provided by M/s Enerpark Energy Pvt Ltd. involving foundation works and construction of civil structures for the solar power plant fall within the exclusion clause of the input service definition and hence credit is not admissible."

"A Chartered Accountant's certificate is only corroborative evidence and cannot substitute for proper examination of records such as ST-3 returns and Cenvat Credit ledger."

"In view of the above, Commissioner (Appeals) passed an order based on law and fact both. Therefore, no any interference requires in the impugned order and appeal is liable to be dismissed."

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