Works Contract Services for Repair of Plant & Machinery Eligible for CENVAT Credit: CESTAT [Read Order]

The New Delhi Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that works contract services used for repair and maintenance of plant and machinery are eligible for CENVAT credit.

Jayaswal Neco Industries Ltd., the appellant, is engaged in manufacture of sponge iron, pig iron and billets. The dispute arose after departmental audits objected to CENVAT credit availed by the company on various input services.

A show cause notice was issued proposing recovery of CENVAT credit of Rs. 2.49 crore along with interest and penalty. The department alleged that the company had wrongly availed credit on certain services, including works contract services.

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The Principal Commissioner partly allowed the credit but disallowed a portion of it, including credit of Rs. 10.72 lakh taken on works contract services. Aggrieved by the order, the company approached the CESTAT.

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The appellant’s counsel argued that the works contract services were used for repair, maintenance, erection, fabrication and painting of existing plant and machinery installed in the factory. It argued that the services were not used for construction of any building, civil structure or foundation.

The revenue counsel argued that works contract services are excluded from the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004 and, hence, credit was not available.

The bench comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) examined the provisions of Rule 2(l). The tribunal observed that the exclusion relating to works contract services applies only when such services are used for construction of a building, civil structure, foundation or support structure for capital goods.

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The tribunal explained that repair and maintenance of plant and machinery cannot be treated as construction of a civil structure. It observed that the services in the present case were used for maintaining existing machinery and not for construction activities.

The tribunal held that works contract services used for repair and maintenance of plant and machinery qualifies as input service and the credit of Rs. 10.72 lakh could not be denied. Accordingly, the tribunal allowed the assessee’s appeal on this issue and set aside the denial of CENVAT credit. The department’s appeal was also dismissed.

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