2017 (3) TMI 1084 - AT - Central Excise

CENVAT credit - goods used for fabrication of plant and machinery - denial on the ground that the manufacturer of the capital goods were actually the contractors and not the appellant - Held that - The usage of various iron and steel items in the fabrication of capital goods are to be examined keeping in view the decision of the Hon ble Supreme Court in Rajasthan Spinning & Weaving Mills Ltd. 2010 (7) TMI 12 - SUPREME COURT OF INDIA - As there is no discussion regarding the actual use of the iron and steel items and the allegation in the notice is entirely on different ground, we find that denial of credit of ₹ 5,91,15,893/- as ordered by the Original Authority is not legally sustainable. CENVAT credit - capital goods - denial on the ground that no credit is available prior to the commencement of production - Held that - The capital goods as they were received by the appellant were duty paid and the credit on the same cannot be denied on the ground that they were embedded to earth after installation. The excisability of capital goods is not a point for decision. There is no irregular utilization of credit by the appellant and no such allegation has been made in the show cause notice. Even if the appellant has entered the credit in their books of accounts no utilization is possible without commencement of production. In effect, the credits available on the capital goods will come to be entered as availed and utilized only on production of dutiable final product. We find no justification to deny Cenvat credit on capital goods which, are otherwise legitimately available to the appellant - credit allowed. CENVAT credit - input services - works contract service, GTA, telephone, security service, consulting engineering service, rent a cab operator service etc - denial on the ground that credit on input services can be allowed only if used for provision of a service liable to service tax or manufacture of goods liable to excise duty - Held that - The credits availed by the appellant are with reference to construction of factory. The said activity is covered by the definition of input service during the relevant time. It is also to be noted that the definition of input service is very broad and includes those services which are used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products. It is clear that the said service even if used indirectly by the manufacturer in relation to manufacture of final product, the same should be eligible for credit - credit allowed. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Denial of Cenvat credit on goods used for fabrication of plant and machinery.
2. Denial of Cenvat credit on capital goods prior to the commencement of production.
3. Denial of Cenvat credit on input services for construction of the factory.

Detailed Analysis:

1. Denial of Cenvat Credit on Goods Used for Fabrication of Plant and Machinery:
The show cause notice proposed denial of credit on the grounds that the contractor, not the appellant, was the manufacturer of the capital goods. However, the Original Authority accepted the appellant as the manufacturer but denied credit on the basis that the fabricated plant and machinery were embedded to earth and thus became immovable property. This reasoning was beyond the scope of the show cause notice, rendering the confirmation unsustainable as per the Supreme Court's decision in CC, Mumbai vs. Toyo Engineering India Limited. Moreover, the reliance on the Tribunal's decision in Vandana Global Ltd. was inappropriate, as it was overruled by the Gujarat High Court in Mundra Ports & Special Economic Zone Ltd. The Tribunal also noted the lack of factual details regarding the usage of materials in the fabrication process. Citing various precedents, including the Supreme Court's decision in Rajasthan Spinning & Weaving Mills Ltd., it was concluded that the structural items used in the fabrication of capital goods should be considered eligible for Cenvat credit.

2. Denial of Cenvat Credit on Capital Goods Prior to the Commencement of Production:
The Original Authority denied credit based on a Board Circular dated 26/12/1994, which pertained to erstwhile Rule 57Q, not the Cenvat Credit Rules, 2004. The credit was availed legitimately as per the current rules, and there was no utilization of credit before production commenced. The capital goods were duty-paid and received within the appellant's premises for setting up the plant. The Tribunal found no justification for denying credit on these grounds, emphasizing that the excisability of capital goods post-installation was irrelevant. The appellant's eligibility for credit was thus affirmed.

3. Denial of Cenvat Credit on Input Services for Construction of the Factory:
The Original Authority denied credit on input services like works contract service, GTA, and others, based on a Board circular dated 04/01/2008. However, this circular was specific to 'commercial or industrial construction service' and 'renting of immovable property service,' not relevant to the case at hand. The definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, includes services used in relation to setting up a factory. The Tribunal found that the services availed by the appellant were covered under this definition. The reliance on the Vandana Global Ltd. decision was again deemed inappropriate. The Tribunal cited favorable decisions in ABB Ltd., Exide Industries Ltd., and Steril Gene Life Sciences Pvt. Ltd., confirming that the appellant's availed credits were legitimate.

Conclusion:
The Tribunal concluded that the impugned order was not legally sustainable. The denial of Cenvat credit on all three grounds was set aside, and the appeal was allowed.