Leased Dumpers and Tippers Not Registered in Service Provider’s Name: CESTAT Confirms Cenvat Credit Demand of Rs. 2.17 Cr, Sets Aside Penalty [Read Order]

The principal bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the Cenvat credit demand for Rs. 2.17 crore, ruling that the leased dumpers and tippers were not registered in the name of the service provider. The Tribunal set aside the penalty, recognising the appellant’s bona fide belief in claiming the credit.

M/s Gajraj Mining Private Limited, a provider of site preparation and mining services, held a Service Tax Registration No. AADCG9684LSD001 and was availing Cenvat credit on capital goods and input services under the Cenvat Credit Rules, 2004.

During the audit for the period up to March 2013, it was noted that the appellant had claimed Cenvat credit of Rs. 2,17,62,752 on 41 dumpers/tippers acquired through an operating lease from SREI Equipment Finance Pvt. Ltd. The vehicles, however, were registered in the financing company’s name, not in the appellant’s name.

In response, the department issued a show cause notice dated 17.10.2016, demanding recovery of the Cenvat credit along with interest and imposition of equal penalty, alleging that the appellant had wrongly claimed credit on capital goods not registered in their name. The appellant challenged the demand before the Commissioner, who upheld the recovery and penalty, prompting the present appeal before the CESTAT.

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The appellant contended that under Rule 2(a) of the Cenvat Credit Rules, 2004, capital goods include items used for providing output services, irrespective of ownership. They argued that Notification No. 25/2010, which required registration of dumpers/tippers in the service provider’s name, was intended for clarity, but the essential requirement was that the goods be used for providing output services, which was satisfied.

The appellant further relied on Rule 4(3), which allows Cenvat credit on leased or hire-purchased capital goods. Citing several judicial precedents, including Vikram Cement vs. CCE, Hindustan Copper Ltd., and Pepsi Foods Ltd., they argued that ownership is not a criterion for claiming credit.

Regarding the extended period of limitation, the appellant submitted that no wilful suppression of facts or intent to evade service tax existed. Returns were regularly filed, and audits were conducted, so the extended period under Section 73 of the Finance Act, 1994, could not be invoked. Similarly, the imposition of a penalty was unwarranted since the appellant had acted in good faith.

The Revenue contended that post Notification No. 25/2010, Cenvat credit on dumpers and tippers was admissible only if registered in the service provider’s name. The appellant had deliberately not ensured registration, thereby suppressing facts which justified invoking the extended period of limitation and levy of penalty.

The Revenue also argued that Rule 2(k) disallowed credit on motor vehicles and that prior judicial precedents cited by the appellant were not relevant as they pertained to periods before 22.06.2010.

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The Tribunal examined the submissions and precedents. It noted that before Notification 25/2010, the issue of Cenvat credit on dumpers/tippers was settled in favour of service providers under Rule 4(3) and related decisions. The appellant had a bona fide belief that the credit was admissible, and there was no evidence of intent to evade tax.

However, the Tribunal recognised that the notification clearly stipulated that credit on dumpers/tippers would be available only if registered in the service provider’s name. Since the vehicles were registered with SEFPL, the Cenvat credit claimed for the period in question was not admissible. Therefore, the two-member bench of DR Rachna Gupta (Judicial Member)and Hemambika R. Priya (Technical Member) upheld the demand of Rs. 2.17 crore along with interest.

On the issue of penalty and extended limitation, the Tribunal held that the appellant had acted in good faith, relying on prior provisions and judicial interpretations. Consequently, the penalty under Rule 15(3)/Section 78 was set aside, and the extended period was not applicable.

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