The New Delhi bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT)has held that Cenvat Credit is allowable on fabrication and erection service for installation of Steel Melting of Continuous Castings Machine (SMS) plant which falls under ‘modernization, renovation or repair under the Cenvat Credit Rules, 2004 (CCR).
The appellant, Bhagwati Power & Steels Ltd challenged the Order wherein the Cenvat credit of ₹ 2,10,808/– under Rule 14 of the CCR was denied, interest was demanded and penalty equal to the Cenvat credit was imposed on the appellant.
On Audit of the books of accounts of the appellant, it was noticed that they had availed in the credit of service tax on ineligible input services such as construction of civil structures for the new setup of Steel Melting of Continuous Castings Machine (SMS), services of Hydra for erection of chimney, erection and commissioning, enhancement of cash credit limit for new SMS, bank service charges for SMS, membership and subscription fees service for design and engineering for setup of SMS making support for capital goods etc., amounting to Rs. 4,78,528/- during the period 2015–16 and 2016–17.
The Department alleged that the input services were not covered under the definition of input service. The Department alleged that the facts regarding the development of inadmissible Cenvat credit by the appellant came to the notice of the Department only during an audit. The extended period of limitation of five years for recovery of the same is invokable.
The jurisdictional Assistant Commissioner allowed the input service credit of ₹2,67,720/– and disallowed Cenvat credit of ₹2,10,808/– along with interest and imposed equal penalty. On appeal, the Commissioner (Appeals) upheld the Order-in-Original and dismissed the appeal.
The appellant submitted that they had availed credit of Rs.42,780/– on the bill raised by M/s Sai Construction, which is related to the repair of civil construction at the factory premises of the appellant. He submitted that the above service was covered under the inclusive clause of input service as the said service was used in the repair and renovation of the factory.
He further submitted that after the amendment to the definition of input service, a clarification was issued by the Board vide Circular No. 943/4/2011-CX dated 29.04.2011 wherein it was clarified that the credit of service tax paid on construction services as an input service used in modernization, renovation or repair are eligible to credit.
The Counsel for the submitted that the appellant had availed credit of ₹.1,68,08/– on the bill raised by M/s S.N. Services, for the provision of fabrication and erection services for the SMS plant. He submitted that the impugned service is directly connected with the production activity of the appellant and was an input service for the appellant for use in the manufacture of the finished goods.
It was evident that the service utilized for modernization, renovation and repair of the factory will fall within the scope of the meaning of ‘input service’ even though; the construction of a building or civil structure or part thereof has been placed under an exclusion clause of the said definition of ‘input service’.
It was viewed that post the amendment to the definition of the ‘input service’, a clarification issued by the Board vide Circular No. 943/4/2011-CX, dated 29-4-2011 whereunder in response to the issue raised on the eligibility of credit of service tax paid on construction service as an ‘input service’ used in modernization, renovation or repair, the Board has clarified that the said services being provided in the inclusive part of definition of ’input service’ are eligible to credit.
A Single member Ms Hemambika R Priya, Member(Technical) concluded that a harmonious reading of the inclusive part of the definition and the exclusion clause mentioned in clause (a) relating to construction service of the definition of ‘input service’, was apparent that the construction service relating to modernization, renovation and repair of the factory continued to be within the meaning of ‘input service’ and the Service Tax paid on such service is eligible to credit.
The CESTAT viewed that the appellant took credit for the services used in the construction of the civil structure for the new setup of the Steel Melting of Continuous Castings Machine (SMS) and for the provision of fabrication and erection service for the installation of the SMS plant, which is covered under the definition ‘modernization, renovation or repair’.
While allowing the appeal, the CESTAT set aside the impugned order.
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