CENVAT Credit on Tippers/Dumpers Used For Site Formation Services Not Admissible Prior to Oct 1, 2010: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that CENVAT credit on tippers and dumpers used for site formation and clearance services is not admissible for the period before 1 October 2010.

Kandla Earth Movers, the appellant, was registered for providing “Site Formation and Clearance, Excavation and Earth Moving Services.” The appellant availed CENVAT credit on tippers, hydraulic cabs, and boomers classified under Chapters 87 and 96 of the Central Excise Tariff. These vehicles and machines were used to provide taxable output services.

The department objected to the credit taken, stating that such goods were not covered under the definition of “capital goods” under the CENVAT Credit Rules, 2004, prior to 1 October 2010.

The appellant’s counsel argued that the vehicles were essential for providing taxable output services and that credit was taken under a bona fide belief that it was admissible. The counsel also argued that the show cause notice issued on 11 October 2011 was time-barred because all returns were filed regularly and the department had not alleged any suppression or misstatement.

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The revenue counsel argued that the definition of “capital goods” in Rule 2(a)(B) of the CENVAT Credit Rules, 2004, did not cover dumpers and tippers used for site formation services before 1 October 2010.

The counsel referred to Notification No. 25/2010-C.E. (N.T.) dated 22 June 2010, which inserted clause (C) in Rule 2(a)(B) to include dumpers and tippers as capital goods when used for site formation and mining services. This notification came into force on 1 October 2010, meaning that credit was not available for earlier periods.

The single-member bench of Somesh Arora (Judicial Member) observed that tippers and similar heavy vehicles were brought under the scope of “capital goods” only through the 2010 amendment effective from 1 October 2010.

The tribunal explained that before this amendment, motor vehicles falling under Chapter 87 were specifically excluded from the definitions of both “inputs” and “capital goods,” except for certain specified taxable services. It found that the appellant’s claim for credit before 1 October 2010 was not legally admissible.

The tribunal referred to decisions such as Ganta Ramanaiah Naidu v. CCE, Guntur (2010) and B. Girijapathi Reddy & Co. v. CCE, Guntur (2019), where it was held that CENVAT credit on tippers and dumpers was not available before 1 October 2010. At the same time, those rulings recognized that assessees could claim the benefit of bona fide belief when credit was taken under a mistaken understanding of the law.

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Applying this reasoning, the tribunal observed that the appellant had acted under a bona fide belief that the credit was admissible since the vehicles were used directly in providing taxable services. It explained that the extended period of limitation was not applicable because there was no suppression or intent to evade duty.

The tribunal remanded the case only to verify any demand that might fall within the normal limitation period and clarified that no penalty could be imposed in light of the appellant’s bona fide conduct.

The tribunal allowed the appeal partly. It upheld the finding that CENVAT credit on tippers and dumpers was not admissible before 1 October 2010 but restricted the recovery to the normal period of limitation and set aside the penalties.

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