CENVAT Credit on Cryogenic Storage Tanks and Fabrication Inputs Recognised as Capital Goods: CESTAT [Read Order]

In a recent ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, set aside the demand raised and allowed Cenvat Credit on Cryogenic Storage Tanks and associated inputs used for providing output services such as erection, commissioning, and supply of tangible goods.

The dispute arose from a Show Cause Notice dated 13.09.2012, alleging irregular credit availed on storage tanks and inputs like SS coils, sheets, plates, and electrodes used for fabrication and installation at client sites.

The Adjudicating Authority had denied credit, citing that the tanks were not used in the appellant’s factory and were immovable property, thus not qualifying as “goods” under Cenvat Credit Rules (CCR), 2004. The appellant challenged the Order-in-Original dated 09.01.2013.

The appellant, Ellenbarrie Industrial Gases Ltd, argued that the Cryogenic Tanks were not claimed as capital goods for manufacturing but were used for providing output services, specifically, the supply of tangible goods and erection/commissioning services.

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They pointed out that the tanks remained their property, were dismantled and returned after the contract period, and were essential for storing hazardous gases like liquid nitrogen and oxygen. Also, on the limitation, they submitted that they had regularly filed ST-3 and ER-1 returns, and the demand was based on disclosed data.

On the other hand, the revenue argued that appellant had not clearly established its status as a service provider, which was essential for claiming Cenvat Credit on capital goods used in output services. While acknowledging that credit on capital goods is permissible if used for providing taxable services, the AR emphasized that factual clarity was lacking in this case.

Also submitted that statutory provisions under the Cenvat Credit Rules specifically exclude items like cement and SS coils when used for constructing foundations or support structures—materials that were admittedly used for erecting Cryogenic Tanks.

After hearing the submissions tribunal held that the dispute centered on irregular Cenvat Credit taken on Cryogenic Storage Tanks and inputs used for their fabrication and erection and found that appellant was not only a manufacturer but also a registered service provider, and therefore Cryogenic Tanks, being capital goods used for output services like supply of tangible goods and erection/commissioning, were eligible for credit.

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The tribunal noted that SS coils, sheets, and plates used for the fabrication and installation of tanks were also held eligible, as the tanks were movable and could be dismantled, unlike permanent immovable structures.

The bench of A.K. Jyotishi and Angad Prasad observed that cement and bars used for foundations were specifically excluded under CCR and thus not eligible, and welding electrodes were accepted as eligible inputs. Also held that the penalty was also not imposable and the demand did not survive either on merits or on limitation, except for cement and bars used for foundation, but even that part was beyond the normal period.

Accordingly, the demand was set aside except for cement and bars, which were also time-barred, and the appeal was allowed with consequential reliefs.

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