2019 (5) TMI 129 - AT - Central Excise

CENVAT Credit - input - input services - construction of a new project called Line-II Project (cement plant) - time limitation. CENVAT Credit - inputs - HELD THAT - Although it is alleged in the Show Cause Notice that the goods did not fall within the definition of inputs , the reason for which the Credit has been disallowed is that after assembly and installation of such items, they become immovable property and therefore, are not eligible for Credit. From the Show Cause Notice as well as the impugned Order, it is seen that various items were used for setting up of the cement plant. Many of these items are components or small parts which go into assembly, installation or commissioning of machines and equipment. As per Explanation-2 of the definition of inputs, as it stood during the relevant period, input includes the goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Thus, all those items which are brought into the factory and used for the manufacture of capital goods, which are further used for the manufacturing activity, would be eligible for Credit. The Department does not have a case that the items are not used as part of the cement plant. Instead, the Credit has been disallowed observing that these items take the nature of immovable property after being fixed to earth - the disallowance of Credit on the impugned items under the category of inputs is unjustified and requires to be set aside. CENVAT Credit - input services - HELD THAT - The assertion of the Ld. Consultant for the appellant that there is no specific mention in the Show Cause Notice as to what are the categories of services under dispute, is not without merit. In fact, there is nothing in the Show Cause Notice which gives details of the services which are not eligible for Credit - Without availing the services of Erection, Commissioning and Installation, the machineries and equipment cannot be installed and put to commence manufacturing activity. We therefore find that the disallowance of Credit under the category of input service to the tune of ₹ 6,64,95,149/- is without any legal reasons and requires to be set aside. Time limitation - HELD THAT - It is seen that for the period from November 2009 to March 2011, audit and later, investigation was also conducted. In spite of such investigations, the Show Cause Notice was issued only on 27.11.2014. The appellants have disclosed the entire Credit availed by them in their ER-1 returns as well as their statutory records. It is also seen that they have intimated the Department as early as 04.11.2009 with regard to their intention to avail the Credit - the appellants cannot be saddled with the allegation of suppression of facts with intention to evade payment of duty - there are no ingredients for invoking the extended period of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of CENVAT Credit on inputs used in the construction of a cement plant.
2. Eligibility of CENVAT Credit on input services used for erection and commissioning of machinery.
3. Invocation of the extended period of limitation for issuing the Show Cause Notice.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT Credit on Inputs:
The appellants, engaged in manufacturing cement, constructed a new project (Line-II) using various items and components classified under specific Chapter Headings. The Department contended that these items, after assembly and embedding to earth, became immovable property and non-excisable, thus disqualifying them from CENVAT Credit. The Original Authority confirmed the disallowance of ?25,55,70,351/- ineligible CENVAT Credit, along with interest and penalties.

The appellants argued that the items used were capital goods for the cement plant, falling within the definition of 'input' as per the relevant period’s Explanation-2, which includes goods used in manufacturing capital goods further used in the factory. They cited several judgments supporting their claim that such items are eligible for Credit. The Tribunal found that the Department's reliance on the decision in M/s. Vandana Global Ltd. was misplaced, as subsequent judgments (Mundra Ports & Special Economic Zone Ltd. and others) rendered it obsolete. Hence, the disallowance of Credit on inputs was unjustified and set aside.

2. Eligibility of CENVAT Credit on Input Services:
The appellants also availed Credit on input services, particularly Erection, Commissioning, and Installation Services, which the Department disallowed, arguing they were related to non-excisable goods. The Tribunal noted that the Show Cause Notice lacked specifics on which services were ineligible. The Tribunal acknowledged that services for setting up the factory before 01.04.2011 qualified as 'input service' and were essential for commencing manufacturing activities. Thus, the disallowance of ?6,64,95,149/- on input services was without legal basis and set aside.

3. Invocation of Extended Period of Limitation:
The Show Cause Notice was issued on 27.11.2014, despite audits and investigations conducted in 2011. The appellants had disclosed all availed Credits in their ER-1 returns and informed the Department of their intention to avail Credit through a letter dated 04.11.2009. The Tribunal found no suppression of facts with intent to evade duty, rendering the invocation of the extended period of limitation unsustainable. Consequently, the Show Cause Notice was deemed time-barred.

Conclusion:
The Tribunal set aside the impugned Order, allowing the appeal with consequential benefits as per law, concluding that the disallowance of CENVAT Credit on inputs and input services was unjustified and the Show Cause Notice was time-barred.