Denial of Cenvat Credit on annual maintenance Contract Service is valid as they are not used directly in the manufacturer of Excisable Goods: CESTAT [Read Order]

The Mumbai bench of the Customs, Excise & Service Tax Appellate Tribunal,( CESTAT ) has held that denial of cenvat credit on annual maintenance contract service is valid as they are not used directly in the manufacturer of excisable goods.

The revenue challenged the order of Commissioner of Central Excise and Service Tax (Appeals), Mumbai – II, pertains to disallowance of CENVAT credit of ₹56,05,486 and the order for recovery of the same under rule 14 of CENVAT Credit Rules 2004, along with applicable interest under section 11AB of Central Excise Act, 1944, and imposing of like amount as penalty under rule 15 of CENVAT Credit Rules, 2004 that had been set aside. 

ACC Ltd, the respondent is a manufacturer of ‘cement’ and had availed credit of duty/tax paid on ‘inputs’, ‘capital goods’ and ‘input services’ to the extent of ₹ 56,05,486 during 2002-08 and, holding this to be ineligible, the original authority upheld the proposals in the show cause notice, which, in appeal, was set aside in toto leading to the appeal. 

The Authorised Representative submitted that the demand for ₹ 12,74,383, for the period 29th July 2008 to 19th August 2008, availed as a credit on procurement of items of iron and steel which were used for ‘fabrication’ and ‘erection and installation’ of plant that, according to him, was not excisable, in terms of circular no. 58/12002/CX dated 15th January 2002 of Central Board of Excise and Customs (CBEC).

Counsel for the respondent placed reliance on the decision of the High Court of Bombay in Commissioner of Central Excise, Pune-II v. Rajaram Bapu Sahakari Sakhar Karkhana Ltd and of the Tribunal in Ispat Industries Ltd v. Commissioner of Central Excise, Mumbai which found approval of the High Court Bombay vide disposing of appeal contending that structures used for capital goods are entitled for the benefit of CENVAT credit. 

A two member bench of Mr C J Mathew, Member (Technical) and Mr Ajay Sharma, Member (Judicial) viewed that in the case of Deepak Fertilizers & Petrochemicals Corporation Ltd. v. C.C.Ex. Belapur the Division Bench held that “The definition of the expression ‘input service’ covers any services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words ‘directly or indirectly’ and ‘in or in relation to’ are words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression ‘input service’. Rule 2(l) initially provides that input service means any services of the description falling in subclauses (i) and (ii). Rule 2(l) then provides an inclusive definition by enumerating certain specified services. Among those services are services pertaining to the procurement of inputs and inward transportation of inputs.”

“The Tribunal, proceeded to interpret the inclusive part of the definition and held that the Legislature restricted the benefit of Cenvat credit for input services used in respect of inputs only to these two categories viz. for the procurement of inputs and for the inward transportation of inputs. This interpretation which has been placed by the Tribunal is ex facie contrary to ‘the provisions contained in Rule 2(l). The first part of Rule 2(l) inter alia covers any services used by the manufacturer directly or indirectly, in or in relation to the manufacture of final products. The inclusive part of the definition enumerates certain specified categories of services. However, it would be farfetched to interpret Rule 2(l) to mean that only two categories of services in relation to inputs viz. for the procurement of inputs and for the inward transportation of inputs were intended to be brought within the purview of Rule 2(l). Rule 2(l) must be read in its entirety. The Tribunal has placed an interpretation which runs contrary to the plain and literal meaning of the words used in Rule 2(l). Moreover as we have noted earlier, whereas Rule 3(l) allows a manufacturer of final products to take credit of excise duty and Service Tax among others paid on any input or capital goods received in the factory of manufacturer of the final product, insofar as any input service is concerned, the only stipulation is that it should be received by the manufacturer of the final product. This must be read with the broad and comprehensive meaning of the expression ‘input service’ in Rule 2(l). The input services in the present case were used by the appellant whether directly or indirectly, in or in relation to the manufacture of final products. The appellant, it is undisputed, manufactures dutiable final products and the storage and use of ammonia is an intrinsic part of that process.”

The CESTAT dismissed the appeal of the revenue by following the above said judgement.

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