Company is Entitled to avail ITC on Activities Performed by their Contractors: CESTAT [Read Order]

In recent case the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Chennai held that the maintenance of PDFACS systems by the contractors of the appellants in terms of thermal power station is undoubtedly under round the clock collection and supply of fly ash, so the appellants are entitled to avail the input service credit on the activities performed by the contractors

The fact of the case is M/s. Ramco Cements Ltd. is manufacturers of cement by using fly ash.  On verification of invoices issued by their service providers, it was noticed that they had charged the assessee in the invoices towards service provided by them for operation and maintenance of thermal power station. However, the appellants have taken credit on such invoices claiming that the same are input service to them.  A show-cause notice was issued to the appellants demanding CENVAT credit and seeking to impose the penalty under Rule 15 (2) of CCR 2004.

The appellants submit in the light of the judgment in case Birla Corporation Ltd. 2014 (34) STR 55 (Tri.-Del.) that in terms of the agreement, the agreement provides for collection and transport of fly ash round the clock exclusively for Madras Cements from the PDFACS system installed by the company.  He further submits that fly ash is the main raw material for them and any service rendered in respect of the continuous supply of the same is a service rendered in relation to the procurement of raw material and therefore a service rendered in or in relation to the manufacturer of the fly ash in their factory. He also submits that the Hon’ble Tribunal held in case CCE Nagpur Vs Ultratech Cement Ltd. – 2010 (200 STR 683 (Tri.-Mumbai), that nowhere it is mentioned that the input service credit is not available for the service utilized outside the factory premises; the denial of CENVAT credit on the ground that services were received by the respondent in their factory premises, is not sustainable.

The department submits that the service is rendered in respect of the machinery installed by the appellants in the premises of thermal plant and as such have no nexus with the activity undertaken by the appellants in the factory for the production of cement. It also submits that moreover the service, if any, rendered by the suppliers of fly ash are to be considered to be service rendered to thermal power stations and not to the appellants.  Therefore, the appellants are not entitled to take credit on such services rendered by their suppliers.

The division bench comprising of Ms. Sulekha Beevi C.S., Member (Judicial) Hon’ble Shri P. Anjani Kumar, Member (Technical) held that the maintenance of PDFACS systems by the contractors of the appellants in terms of the thermal power station is undoubtedly under round the clock collection and supply of fly ash. Therefore, it is evident that service rendered by the contractors is certainly in or in relation to the manufacture of cement by the appellant. The court found that Tribunal has been consistently taking the view that the service rendered directly and used in the primary activity of the appellant or eligible to be treated as input service. So the appellants have entitled to avail the input service credit on the activities performed by the contractors who are maintaining the systems to collect the fly ash generated in the thermal power plant.  In the result, the appeal filed by the appellants is allowed.