2018 (2) TMI 1109 - AT - Service Tax

CENVAT credit - certain equipments procured for providing taxable output service - FACT-10 Meter RF Shielded EME chamber - Heater with blower & panel with accessories - Clean air management system and prefabricated clean room enclosure - Infiniti Pro P-IV 3.2 Ghz personal computer - whether on the items in question appellant is entitled to avail Cenvat credit on not? - Held that - the appellant has taken Cenvat credit as capital goods on the goods in question. Although they do not qualify as capital goods as per Rule 2(a) of Cenvat Credit Rules, 2004, but in alternate it is the claim of the appellant that these goods be treated as inputs in terms of rule 2(k)(ii) of Cenvat Credit Rules, 2004. The input is required to be used for providing output service. Admittedly these inputs have been used by the appellant for providing output service - similar issue came up before the Tribunal in the case of GTL Infrastructure Ltd. 2014 (9) TMI 647 - CESTAT MUMBAI wherein this Tribunal has held that As per Rule 2 (k) (ii) of the Cenvat Credit Rules, 2004 all goods are entitled for Cenvat Credit which are used for providing any output service. Appellant has correctly availed the Cenvat Credit on the goods in question and same may be treated as input for providing output service - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Classification of goods for CENVAT credit eligibility
2. Interpretation of CENVAT Credit Rules, 2004
3. Admissibility of CENVAT credit on goods used for providing output services

Analysis:
1. The appellant, a service provider offering various taxable services, established a testing lab in Chennai in 2006-07 for product testing and certification services. The lab conducted compliance testing for various physical parameters. The appellant procured equipment for the lab and claimed CENVAT credit on the duty paid for these items. However, a show cause notice challenged the eligibility of CENVAT credit on the grounds that the items did not qualify as capital goods under Rule 2(a) of the CENVAT Credit Rules, 2004. The Commissioner confirmed the denial of CENVAT credit, leading to the appeal. The key issue was whether the goods in question were eligible for CENVAT credit.

2. The appellant argued that even if the goods did not qualify as capital goods, they should be treated as inputs under Rule 2(k)(ii) of the CENVAT Credit Rules, 2004. The appellant contended that the value of these inputs did not need to be included in the assessable value. The appellant also highlighted a previous Tribunal decision where a similar issue was resolved in favor of allowing CENVAT credit. The appellant further asserted that there was no malafide intent and that the dispute arose due to an audit objection, not invoking the extended period of limitation.

3. The Commissioner argued that the goods should be classified under a specific chapter heading that did not cover them as capital goods, justifying the denial of CENVAT credit. However, the Tribunal analyzed Rule 2(k)(ii) of the CENVAT Credit Rules, which allows for CENVAT credit on goods used for providing output services. The Tribunal found that the goods in question were indeed used for providing output services by the appellant. The Commissioner's argument that the goods were not consumed during the provision of output services was deemed unfounded, as the statute required the inputs to be used for providing output services, which the appellant had done. The Tribunal referred to a previous case to support its decision and concluded that the appellant correctly availed CENVAT credit on the goods, treating them as inputs for providing output services. The impugned order was set aside, and the appeal was allowed with consequential relief. The Tribunal did not delve into the issue of limitation, having decided the matter on its merits.