2022 (1) TMI 357 - AT - Central Excise

Reversal of CENVAT Credit - input service - Modernization, Renovation and repair of the factory or not - construction of water tank and pump room - HELD THAT - Interest and penalty will arise only when there is a short payment and non payment of duty or wrong availment of Cenvat Credit. In the present case the appellant had availed the Cenvat Credit in respect of construction of water tank and pump room. Since this construction was done in the existing factory to expand the facility of the existing factory therefore, it will clearly fall under the Modernization and Renovation of the factory. This is not a case where a new factory was set up which excluded from the definition of input service. Since nature of construction done in the factory is of Renovation and Modernization of the existing factory which is clearly covered under inclusion clause of the definition of input service, therefore, the appellant was entitled for the Cenvat Credit of such input service. Since the Cenvat credit itself is admissible the same is not recoverable, consequently, neither any interest can be demanded nor any penalty can be imposed, therefore, the demand of interest and penalties clearly illegal and incorrect. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Admissibility of CENVAT Credit on construction of water tank and pump room.
2. Imposition of interest and penalty on reversal of CENVAT Credit.

Analysis:
1. The case involved a dispute regarding the admissibility of CENVAT Credit on the construction of a water tank and pump room by the appellant. The jurisdictional Range Superintendent observed that the appellant had availed and utilized CENVAT Credit, which the department deemed as not an input service under the relevant provisions. The appellant reversed the CENVAT Credit upon notification by the Superintendent and argued that the construction constituted modernization and renovation of the existing factory, falling under the inclusion clause of input service definition. However, the adjudicating authority ruled that the construction activity fell under the exclusion category, leading to the confirmation of the demand for interest and penalty. The Commissioner (Appeals) upheld this decision, prompting the appellant to file the present appeal.

2. The appellant contended that since no show cause notice was issued specifically for the denial of CENVAT Credit, interest and penalty could not be demanded. Furthermore, the appellant argued that the construction of the water tank and pump room qualified as modernization, renovation, and repair of the factory, making it eligible for CENVAT Credit under the inclusion clause of the relevant rule. On the other hand, the Revenue representative maintained that the construction service was excluded from the definition of input service, justifying the imposition of penalty and interest by the lower authorities.

3. Upon careful consideration of the arguments, the Hon'ble Member (Judicial) found that the construction undertaken by the appellant aimed at expanding the facility of the existing factory, constituting modernization and renovation rather than the establishment of a new factory. As such, the construction fell within the inclusion clause of the input service definition, making the CENVAT Credit admissible. Consequently, the demand for interest and penalties was deemed incorrect and illegal. The impugned order was set aside, and the appeal was allowed with any consequential relief as per the law.

This judgment clarifies the admissibility of CENVAT Credit on specific construction activities within the realm of modernization and renovation, emphasizing the importance of aligning such activities with the definitions and provisions outlined in the relevant rules and regulations.