2017 (9) TMI 1059 - AT - Central Excise

CENVAT credit - input services - civil construction of work construction of office buildings godowns draining system residential complex etc - denial on account of nexus - Held that - admissibility of Cenvat Credit of service tax paid on construction of compound wall construction of rest rooms and construction of dormitory for staff are settled issues therefore in respect of said three issues covered by commercial or industrial construction service credit is allowed. Insofar as the credit distributed by ISD is concerned the submissions by learned counsel established that the services for which credit was distributed were eligible as per the definition of input service under Rule 2 (l) of Cenvat Credit Rules 2004 - credit allowed. Penalty is also set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Admissibility of Cenvat Credit on input services related to construction and other activities for manufacturing of final product.

Analysis:
The case involved a dispute regarding the admissibility of Cenvat Credit on input services utilized for various construction activities by an appellant engaged in manufacturing sugar and molasses. The dispute arose from a show cause notice alleging that the appellant availed Cenvat Credit on services unrelated to the manufacture of the final product. The Original Authority disallowed a significant amount of Cenvat Credit, leading to the appeal before the Tribunal.

The appellant contended that certain construction activities, such as the construction of a boundary wall, rest rooms, and a dormitory for staff, were essential for the manufacturing process, citing relevant case laws to support their argument. Additionally, the appellant argued that the services for which credit was distributed by the Input Service Distributor (ISD) were eligible under the definition of input service as per Cenvat Credit Rules, 2004.

On the other hand, the learned AR representing the Revenue argued that the services for which Cenvat Credit was denied were not linked to the manufacturing of the final product, supporting the decision of the Original Authority.

After considering the arguments from both sides and reviewing the case laws cited by the appellant, the Tribunal found merit in the appellant's contentions. The Tribunal held that the construction of the compound wall, rest rooms, and dormitory for staff were essential for the manufacturing process, allowing the appeal in favor of the appellant on these issues. Regarding the Cenvat Credit distributed by the ISD, the Tribunal agreed with the appellant's interpretation of the input service definition under the Cenvat Credit Rules, 2004, and allowed the appeal by setting aside the Original Authority's decision to deny the credit amounting to ?66,32,449.

Consequently, the Tribunal modified the impugned Order-in-Original, setting aside the penalty imposed by the Original Authority and allowing the appeal in favor of the appellant. The appellant was granted consequential relief as per the law.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal and directing that the denied Cenvat Credit be granted, emphasizing the essential nature of certain construction activities for the manufacturing process and the eligibility of services distributed by the ISD under the relevant rules.