CESTAT Allows Cenvat Credit on Factory Setup Services Completed Pre-April 2011, Sets Aside Rs. 56 Lakh Demand [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, allowed the Cenvat Credit claim on input services used for setting up a factory. The Tribunal held that credit eligibility is determined by the date of service provision rather than the date of invoicing or payment, allowing credit for services rendered before the amendment effective April 1, 2011.

The appellant, M/s KCP Ltd., established a new cement production unit and awarded civil and mechanical erection contracts to M/s L&T Ltd. Although commercial production commenced in March 2011 and the services were completed before April 1, 2011, the invoices were raised, and the credit was availed subsequently during the period from April 2011 to February 2012.

The Revenue denied the credit amounting to Rs. 56.40 lakhs, arguing that the work contract services could not be deemed completed before the statutory cut-off date and that input services for factory setup were excluded from the definition of "input service" under the new notification.

The appellant’s counsel, Shri Ashwani Pahwa, submitted that the credit was rightfully claimed in accordance with Circular No. 943/04/2011-CX. He argued that the services were completed before March 31, 2011, as evidenced by the commencement of production and the contractor's confirmation. He contended that the eligibility for credit is locked in when the service is rendered, regardless of when the invoice is subsequently raised or paid.

Shri K Sreenivasa Reddy, the Departmental Representative, reiterated the findings of the Adjudicating Authority, which had denied the credit due to the lack of documentary evidence proving completion before the amendment and the subsequent exclusion of such services from the definition of input service.

The Division Bench of A.K. Jyotishi (Member Technical) and Angad Prasad (Member Judicial) relied on the pre-amended definition of "input service" in Rule 2(l) of the Cenvat Credit Rules, which explicitly included "services used in relation to setting up of a factory." The Bench observed that the undisputed facts showed production began in March 2011, and the contractor had confirmed work completion prior to April 1, 2011.

The Tribunal noted that Rule 4(7) of theCenvat Credit Rules statutorily recognises delay in invoicing or payment, allowing credit to be taken on or after the receipt of the invoice. It held that availment of credit after the cut-off date was merely a procedural consequence and did not amount to a substantive denial of a benefit earned under the existing law.

Relying on Supreme Court precedents in Ramade Micro Nutrients and Paper Products Ltd., the Bench stated that the Department is bound by its own circulars, specifically Circular No. 943/04/2011-CX, which clarifies that credit is available if services were provided before April 1, 2011, even if payment is made later.

Citing a uniform line of decisions by various CESTAT Benches in cases such as Pepsico India, BASF, and Saint Gobain Glass, the Tribunal concluded that the issue is no longer res integra. It was held that credit is admissible when services are completed before the amendment, irrespective of the billing or payment date.

The Tribunal concluded that the services were covered under the pre-amended definition and the appellant had complied with Rule 4(7) in availing the credit. Finding the impugned order legally unsustainable, the Tribunal set aside the demand and allowed the appeal with consequential relief.

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