2010 (5) TMI 271 - AT - Service Tax

Cenvat Credit Capital goods The authorities noticed that the appellants had availed Cenvat credit on capital goods namely excavators during the half years ending 30-9-2005 and 31-3-2006. Credit was objected on the ground that when the capital goods purchased services provided exempt from the service tax. Held that impugned order holding credit as not admissible when capital goods used solely in providing exempted service sustainable.

Summary

Issues:
- Entitlement to Cenvat credit on capital goods purchased prior to the imposition of service tax.
- Interpretation of Rule 6(4) of the Cenvat Credit Rules, 2004.
- Applicability of judicial precedents and CBEC Circular on the case.
- Imposition of penalty under Rule 15(1) of CCR.

Entitlement to Cenvat credit on capital goods purchased prior to the imposition of service tax:
The case involved M/s. ABC Engineering Works, Vijayawada, providing services to M/s. Singareni Collieries Company Ltd. The dispute arose when the authorities disallowed Cenvat credit on excavators purchased before the imposition of service tax. The appellants argued that they were entitled to the credit as the excavators were purchased after 10-9-2004, and by the time they were put to use, the services provided became taxable. They contended that they had not used the capital goods in providing exempted services, thus correctly availing the credit demanded. The Tribunal analyzed Rule 6(4) of CCR, which prohibits Cenvat credit on capital goods used exclusively in providing exempted services. The appellants' reliance on a previous Tribunal decision was deemed inapplicable due to differing factual circumstances. The Tribunal upheld the Commissioner's decision to deny Cenvat credit on capital goods purchased before the services became taxable.

Interpretation of Rule 6(4) of the Cenvat Credit Rules, 2004:
Under Rule 6(4) of CCR, no Cenvat credit is allowed on capital goods used exclusively in providing exempted services. The Tribunal emphasized that a person engaged in providing exempted services is not entitled to such credit. Judicial precedents, including the Spenta International Ltd. case, were cited to support the interpretation that eligibility for Cenvat credit is determined based on the dutiability of the final product at the time of receiving capital goods. The Tribunal clarified that the appellants' argument regarding the timing of credit availing in relation to excise duty payment did not align with Rule 6(4) provisions. The decision highlighted that the denial of credit was consistent with the statutory framework and previous rulings.

Applicability of judicial precedents and CBEC Circular on the case:
The Tribunal considered various case laws cited by the Jt. CDR, emphasizing that the conditions for availing Cenvat credit must be met at the time of receiving goods in the factory. The ACE Timez decision cited by the appellants was distinguished as not applicable to their situation. Additionally, a CBEC Circular clarified that once services were deemed exempted, no Cenvat credit could be claimed on capital goods used solely for those services. The Tribunal concluded that the Commissioner's decision aligning with judicial authorities and the CBEC Circular was correct in denying Cenvat credit to the appellants.

Imposition of penalty under Rule 15(1) of CCR:
The Commissioner imposed a penalty of Rs. 25 lakhs on the appellants under Rule 15(1) of CCR for wrongly availing Cenvat credit. However, the Tribunal held that the penalty was not justified as the dispute primarily revolved around the interpretation of CCR provisions. Therefore, the Tribunal allowed the appeal to the extent of vacating the penalty, considering the nature of the dispute and the absence of deliberate malpractice.