The Hyderabad bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) quashed the Show Cause Notice ( SCN ) and order demanding service tax on the works contracts.
The issue is that the appellant, M/s Vital Paper Products Pvt Ltd. received a show cause notice dated 25.05.2017, following an audit of their accounts, seeking recovery of Rs. 25,97,840/- in irregularly availed Cenvat Credit, along with interest and a penalty under Section 78 of the Finance Act, 1994. The Department felt that certain credits were inadmissible either due to specific exclusions from the definition of “input services,” or the removal of terms like “setting up” from the definition for not having a nexus with the output service.
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In this case, the total demands have been split into 5 distinctive issues. And of the main issue here is with regard to the service tax availed of Rs. 17,01,848 on infrastructure development service.
In the SCN, it was alleged by the department that under the Infrastructure Development Agreement dated 25.08.2012 between the appellant and M/s Sri City Pvt Ltd., the services provided were outside the factory premises and classified as works contract/construction services, which comes under the excluded category of input service in terms of Rule 2(l)(A)(a) of Cenvat Credit Rules (CCR) and therefore not an eligible Cenvat Credit.
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The adjudicating authority confirmed the demand of Rs. 25,97,840/- and also appropriated Rs. 3,05,547/- reversed by the appellant and also imposed a penalty of Rs. 13,09,000/- and applicable interest.
The counsel on behalf of the appellant conceded that they are only contesting the demand of Rs. 22,92,293/- out of the total confirmed amount. The counsel contended that by virtue of Section 65B(4) of the Finance Act, a works contract means a contract wherein the transfer of property in goods is involved in the execution of such contract, which is leviable to tax as goods, whereas in their case there has not been any such transfer of property from the developer to the appellant in providing the said infrastructure facilities.
The counsel, on behalf of the department, had reiterated the grounds mentioned in the order in original and stated that the appellant was not eligible to avail of the CENVAT credit as there was no nexus between the input services and output services provided by the latter.
The bench observed that the demand for CENVAT credit of Rs. 17,01,848 on infrastructure development services is not sustainable, as in the SCN this demand was proposed on account of the service being in the nature of a work contract, but it could not be established.
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The CESTAT bench, comprising of A.K. JYOTISHI ( MEMBER TECHNICAL ), partly allowed the appeal.
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