2025 (2) TMI 622 - AT - Central Excise

CENVAT credit - eligible credits or not - credit availed by the appellants on the services availed for demolition of chimneys decommissioned in the year 1990 - credit availed based on Input Service Distributor s (ISD) invoices on services of transportation rendered by clearing and forwarding agents the credit distributed in respect of M/s. Chettinad Logistics Chennai and M/s. Image Public Relations P Ltd New Delhi - Extended period of limitation - penalty. Credit availed by the appellants on the services availed for demolition of chimneys decommissioned in the year 1990 - HELD THAT - Rule 2(t) of Cenvat Credit Rules 2004 provides that words and expressions used in these rules and not defined but defined in the Excise Act or the Finance Act shall have the meanings respectively assigned to them in those Acts. While factory is not defined in the Cenvat Credit Rules 2004 it is seen that Section 2(e) of the Central Excise Act 1944 defines factory means any premises including the precincts thereof wherein or in any part of which excisable goods other than salt are manufactured or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on. Therefore on an evaluation of the aforesaid statutory provisions and the definition of factory which means any premises and includes precincts thereof wherein or in any part of which excisable goods are manufactured or any manufacturing process connected with the production of these goods is being carried on the chimneys even though they were decommissioned in 1990 continue to be on the premises or precincts wherein or in any part of which the appellant s activity of manufacture is being carried out - the adjudicating authority erred in denying the cenvat credit on the demolition services used by the appellant for demolition of the decommissioned chimneys. Credit availed based on Input Service Distributor s (ISD) invoices on services of transportation rendered by clearing and forwarding agents - HELD THAT - The findings of the adjudicating authority namely that the ISD credit distributed in respect of M/s. Image Public Relations P Ltd not agreed upon and it do not have integral connection with the appellant s manufacture of final products. The appellant had contended that the services were used by the appellant for their advertisement during IPL. The definition of input services as reproduced supra includes advertisement or sales promotion and therefore the appellants are entitled to the credit availed on the services rendered by M/s. Image Public Relations P Ltd. Extended period of limitation - penalty - HELD THAT - There are no positive act that would qualify as any of the ingredients required to invoke the extended period of limitation has been evidenced as committed by the appellant. Therefore invocation of extended period of limitation and imposition of penalty on this count is also unsustainable. Conclusion - i) The demolition services were directly related to manufacturing operations and thus eligible for CENVAT credit. ii) The denial of cenvat credit taken by the appellant on Clearing and forwarding agent services based on ISD invoices issued by depots at Chennai and Cochin is not tenable in law. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

a. Whether the CENVAT credit availed by the appellants on services for the demolition of chimneys decommissioned in 1990 qualifies as eligible input service under the CENVAT Credit Rules, 2004.

b. Whether the CENVAT credit availed based on Input Service Distributor's (ISD) invoices for services rendered by clearing and forwarding agents, and services distributed in respect of M/s. Chettinad Logistics, Chennai, and M/s. Image Public Relations P Ltd, New Delhi, were ineligible credits.

c. Whether the adjudicating authority's denial of CENVAT credit and imposition of interest and penalty were justified.

d. Whether the invocation of the extended period of limitation for the recovery of CENVAT credit was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

a. Eligibility of CENVAT credit on demolition services

- Legal Framework and Precedents: The definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, includes services used in relation to modernization, renovation, or repairs of a factory. The Court considered precedents such as Ramala Sahkari Chini Mills Ltd v. Commissioner of C. Ex, Meerut-I and Collector of Central Excise v. Solaris Chemtech Limited, which emphasize a broad interpretation of "in relation to" in the context of input services.

- Court's Interpretation and Reasoning: The Court accepted the appellant's contention that the demolition of chimneys facilitated the movement of heavy vehicles necessary for manufacturing operations, thus qualifying as a service used in relation to the manufacture of cement. The Court found the adjudicating authority's denial of credit to be unsupported by reasoning.

- Key Evidence and Findings: The chimneys' demolition was deemed necessary for operational efficiency, and the adjudicating authority failed to counter the appellant's justification.

- Application of Law to Facts: The Court applied a broad interpretation of the term "input service," aligning with the inclusive nature of the definition to include services facilitating manufacturing operations.

- Conclusions: The Court concluded that the demolition services were eligible for CENVAT credit as they were directly related to manufacturing operations.

b. Eligibility of CENVAT credit based on ISD invoices

- Legal Framework and Precedents: The Court examined Rule 7 of the CENVAT Credit Rules, 2004, concerning the distribution of credit by ISD. The appellant cited the decision in Commr of Service Tax, Ahmedabad v Godfrey Philps India Ltd, which supports the responsibility of the jurisdictional officer to determine the eligibility of service tax credit.

- Court's Interpretation and Reasoning: The Court found that the adjudicating authority did not adequately address the appellant's contentions regarding the nature of services and their eligibility for credit. The Court emphasized that the responsibility for determining credit eligibility lies with the jurisdictional officer of the ISD.

- Key Evidence and Findings: The appellant provided a statement detailing ISD credits, which the adjudicating authority did not dispute.

- Application of Law to Facts: The Court found the denial of credit based on ISD invoices to be unsupported, as the adjudicating authority failed to provide evidence or reasoning against the appellant's claims.

- Conclusions: The Court held that the appellant was entitled to CENVAT credit based on ISD invoices, as the adjudicating authority's denial lacked substantiation.

c. Imposition of interest and penalty

- Legal Framework and Precedents: The imposition of interest and penalty depends on the validity of the underlying credit denial.

- Court's Interpretation and Reasoning: Since the Court found the denial of CENVAT credit to be unjustified, the consequential imposition of interest and penalty was also deemed unsustainable.

- Conclusions: The Court set aside the imposition of interest and penalty.

d. Invocation of extended period of limitation

- Legal Framework and Precedents: The invocation of an extended period of limitation requires evidence of a positive act by the appellant justifying such action.

- Court's Interpretation and Reasoning: The Court found no evidence of any act by the appellant that would warrant the invocation of the extended period of limitation.

- Conclusions: The Court concluded that the invocation of the extended period of limitation was unsustainable.

3. SIGNIFICANT HOLDINGS

- The Court held that the demolition services were directly related to manufacturing operations and thus eligible for CENVAT credit. "The justification stated by the appellant merits acceptance and such demolition services in these circumstances can be counted as services used by the appellant directly or indirectly, in or in relation to the manufacture of final products."

- The Court found that the denial of CENVAT credit based on ISD invoices was unsupported by evidence or reasoning. "The denial of cenvat credit taken by the appellant, on Clearing and forwarding agent services based on ISD invoices issued by depots at Chennai and Cochin, is not tenable in law."

- The imposition of interest and penalty was set aside due to the unjustified denial of CENVAT credit. "The demand of ineligible credit, consequential demand of interest and imposition of penalty cannot sustain and is liable to be set aside."

- The invocation of the extended period of limitation was deemed unsustainable due to the absence of any qualifying act by the appellant. "No positive act that would qualify as any of the ingredients required to invoke the extended period of limitation, has been evidenced as committed by the appellant."

The Court allowed the appeal, setting aside the impugned order and granting consequential relief to the appellant.