Construction and Works Contract used for Renovation of existing factory is Input Service: CESTAT allows Cenvat Credit [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata allowed Cenvat Credit on the ground that the Construction and works contract used for the renovation of an existing factory is Input Service.

The brief facts of the case are that the assessee, M/s. Jai Balaji Industries Limited was, during the relevant period, duly registered with Central Excise and engaged in the manufacture of Iron and Steel products as well as articles of Iron and Steel classifiable under chapters 72 and 73, respectively, of the Central Excise Tariff. As part of their modernization/renovation project, the appellants decided to set up a Coke Oven Plant in their factory premises for which the Appellants gave contracts to a number of service providers.

The contractors paid service tax on the services provided by them. The Appellants took credit of the service tax so paid, as tax paid on input service. The department took the view that the services provided by the contractors were in the nature of works contract services which, was excluded from the definition of input serviceunder the Cenvat Credit Rules, 2004. Accordingly, the following three show cause notices were issued demanding total ineligible Cenvat credit of Rs. 1,93,93,204/-, along with interest and an equal amount of penalty.

In their replies, all dated 17-02-2016, to the three show cause notices, the Appellants contended that the services received were for modernization, renovation, and repair of the factory which was included in the definition of input service. However, the submissions made by the Appellants were not accepted by the Commissioner and, vide common order confirmed the full demand along with interest and also imposed an equivalent penalty. Hence, the present appeal is before the Tribunal.

The bench consisting of  P K Choudhary, Judicial Member, and P Anjani Kumar, Technical Member relied on the judgment in Ion Exchange (I) Ltd. Vs. Commissioner of C. Ex., Cus. & S.T., Surat-IIand held that “harmonious reading of the inclusive part of the definition and the exclusion clause mentioned at clause (a) relating to construction service of the definition of 'input service', it is clear that the construction service relating to modernization, renovation and repair of the factory continued to be within the meaning of 'input service' and accordingly, the Service Tax paid on such service is eligible to credit.”

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