2017 (8) TMI 311 - HC - Central Excise

CENVAT credit - removal for use in another place - whether the assessee, which in this case is BSNL, could have claimed CENVAT credit in respect of capital equipment, which was removed for use to another place within the same zone? - Rule 3(5) of Cenvat Credit Rules, 2004 - Held that - the assessee cannot be denied the right to avail the CENVAT credit - Rule 3(1)(i) allows, inter alia, a provider of output service to take CENVAT credit of any duty of excise, which is paid on capital goods received in the premises of the provider of output service, whereas, there is nothing in the said Rule which suggests that CENVAT credit would be available to an output service provider, only if, the capital goods in issue are used in the very same premises. This interpretation accords with what we have stated with regard to Rule 3(5) read with the proviso appended thereto - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether the assessee could claim CENVAT credit for capital equipment removed for use in another place within the same zone.

Analysis:
The case involved an appeal by the revenue against a judgment by the Customs, Exercise and Service Tax Appellate Tribunal regarding the claim of CENVAT credit by the assessee, BSNL, for capital equipment used in different Secondary Switching Areas (SSAs) within the same zone. The Tribunal set aside the initial order and remanded the matter for further examination. The revenue raised objections, leading to a demand for tax, interest, and penalty. The subsequent Order-In-Original confirmed the demand, resulting in a second appeal to the Tribunal.

The Tribunal's judgment highlighted that the issue revolved around procedural aspects rather than misutilization of credit. It emphasized that the premises where the equipment was used belonged to BSNL and were essential for services originating from Salem. The Tribunal concluded that the credit should not be denied due to minor procedural defects, ultimately setting aside the order and allowing the appeal.

The arguments presented by the revenue's counsel focused on the interpretation of Rule 3(1)(i) of the Cenvat Credit Rules, 2004, stating that CENVAT credit could only be availed if the capital goods were used in the SSA where they were received. On the contrary, the respondent's counsel referred to Rule 3(5) and its proviso, asserting that no reversal of credit should occur if capital goods were removed for providing output services, even if outside the premises of the service provider.

Upon review, the Court acknowledged that the capital goods were purchased for one SSA but used by others within the same zone. It upheld the respondent's argument, citing Rule 3(5) and the proviso exempting payment when goods are removed for providing output services. The Court rejected the revenue's interpretation of Rule 3(1)(i), emphasizing that it did not restrict credit availability based on the specific premises of use. Consequently, the Court dismissed the appeal, finding no substantial question of law and no merit in the revenue's case.