2024 (9) TMI 1250 - AT - Service Tax

CENVAT Credit - input services or not - services availed for proposed expansion of port infrastructure and additional berths - deletion of the phrase setting up from the definition of input service with effect from 01.04.2011 - HELD THAT - The case is no longer res integra and relied upon the CESTAT decision in the case of KAKINADA SEAPORTS LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, SERVICE TAX AND CUSTOMS VISAKHAPATNAM-II 2015 (11) TMI 51 - CESTAT BANGALORE . The Tribunal has inter-alia held that 'If 7th berth does not become operational, naturally the issue as to whether Cenvat credit is admissible when the project is dropped would arise.' There are no reason to hold a different view taken in the impugned order - The appeal filed by the Revenue is accordingly dismissed.

Summary

Issues Involved:

1. Whether the services availed for proposed expansion of port infrastructure and additional berths qualify as "input service" under Cenvat Credit Rules, 2004.
2. Whether the deletion of the phrase "setting up" from the definition of "input service" with effect from 01.04.2011 affects the eligibility for Cenvat Credit on services used for expansion and new projects.

Issue-wise Detailed Analysis:

1. Whether the services availed for proposed expansion of port infrastructure and additional berths qualify as "input service" under Cenvat Credit Rules, 2004:

The Revenue argued that the services availed by the respondent for proposed expansion of port infrastructure or for additional berths do not qualify as "input service" as per the definition under Cenvat Credit Rules, 2004. The adjudicating authority had confirmed the recovery of Cenvat Credit of Rs. 1,16,09,939/- along with interest and imposed a penalty of the same amount, stating that the services were not being currently used for providing existing output services and would be used after the creation of new facilities. The adjudicating authority held that the expansion and creation of new facilities are not related to modernization, renovation, and repairs of premises of output services, and therefore, such services are not covered under the definition of "input service."

On the other hand, the respondent argued that the services availed for consultancy in design, tendering, supervision, layout, siltation estimates, ship-manoeuvring simulations, and geotechnical investigations were essential for the modernization, improvisation, and expansion of existing facilities at the port. The respondent provided a table illustrating the nexus between input services and output services, emphasizing that these services were directly related to the provision of port services to customers and were necessary for the expansion and modernization of the port facilities. The respondent relied on the CESTAT decision in the case of Kakinada Seaports Ltd., which allowed Cenvat Credit on similar services, stating that the geotechnical investigation services were related to the provision of port services and should not be denied.

2. Whether the deletion of the phrase "setting up" from the definition of "input service" with effect from 01.04.2011 affects the eligibility for Cenvat Credit on services used for expansion and new projects:

The Revenue contended that the legislative intent was to not allow Cenvat Credit of Service Tax paid on services related to "setting up" of new facilities since the phrase "setting up" was specifically deleted from the inclusive part of the definition of "input service" with effect from 01.04.2011. The Revenue argued that the Appellate Authority erroneously relied on the CESTAT Bangalore decision in Kakinada Seaports Ltd., which allowed Cenvat Credit on services similar to capital goods, stating that such logic could not be applied to services as they are intangible and cannot be reversed like capital goods.

The respondent countered that despite the deletion of the phrase "setting up," the services used either directly or indirectly, in or in relation to the provision of output services should be considered as input services. The respondent cited various case laws, including Shell India Pvt. Ltd. and Pepsico India Holdings Pvt. Ltd., where the tribunals held that services used for setting up new projects or facilities, which are ultimately meant for providing output services, should qualify as input services. The tribunals emphasized that the main part of the definition of "input service" covers services used directly or indirectly in relation to the provision of output services, and the deletion of the phrase "setting up" does not affect the eligibility for Cenvat Credit if the services are used for activities directly related to the provision of output services.

Conclusion:

The Tribunal, after considering the arguments and case laws presented, held that the services availed by the respondent for the proposed expansion of port infrastructure and additional berths qualify as "input service" under the main part of the definition in Cenvat Credit Rules, 2004. The Tribunal found that the services were directly related to the provision of port services and necessary for the modernization and expansion of the port facilities. The deletion of the phrase "setting up" from the inclusive part of the definition does not affect the eligibility for Cenvat Credit if the services are used for activities directly related to the provision of output services. Therefore, the appeal filed by the Revenue was dismissed, and the impugned order allowing the Cenvat Credit was upheld.