2013 (11) TMI 959 - AT - Service Tax

Tribunal allows appeal on Cenvat Credit for construction services in factory setup dispute

The Tribunal allowed the appeal, setting aside the order denying Cenvat Credit for construction services used in setting up a factory for manufacturing ... Definition of input service under the Cenvat Credit Rules - eligibility of Cenvat credit for construction services used in setting up a factory - scope and applicability of Board's Circular dated 04.01.08 on construction services and immovable propertyDefinition of input service under the Cenvat Credit Rules - eligibility of Cenvat credit for construction services used in setting up a factory - scope and applicability of Board's Circular dated 04.01.08 on construction services and immovable property - Whether Cenvat credit of service tax paid on construction services availed for setting up the factory during 2006-2007 & 2007-2008 was admissible to the appellant. - HELD THAT: - The Tribunal examined the definition of 'input service' in Rule 2(l) of the Cenvat Credit Rules, 2004, which expressly included 'services used in relation to setting up ... of a factory'. The Board's Circular dated 04.01.08 dealt with construction/commercial construction services in relation to immovable property that is rented out, and its clarification concerned whether service tax paid in that context could be credited. That Circular does not address, and therefore is not applicable to, construction services specifically used for setting up a factory for manufacture of excisable goods. Applying the textual scope of Rule 2(l), construction services for setting up the factory fall within the definition of input service and thus qualify for Cenvat credit. The Tribunal noted consistent precedent to the same effect and concluded that the denial of credit on the basis of the Board's Circular was unsustainable. [Paras 5, 6]Cenvat credit of the service tax paid on construction services used for setting up the factory during the specified periods is admissible; the impugned order denying credit is set aside and the appeal is allowed.Final Conclusion: The appeal is allowed: Cenvat credit taken on construction services used for setting up the factory for the periods 2006-2007 and 2007-2008 is upheld and the orders denying such credit are set aside. Issues:1. Denial of Cenvat Credit for construction services availed for setting up the factory.2. Adjudication of Show Cause Notice and imposition of penalty.3. Interpretation of the definition of 'input service' under Cenvat Credit Rules, 2004.4. Applicability of Board's Circular dated 04.01.08 on availing construction services for setting up a factory.Analysis:1. The appellant, engaged in manufacturing, availed construction services for setting up their factory during 2006-2008 and claimed Cenvat Credit of Rs. 8,02,244. The Department issued a Show Cause Notice based on a Board's Circular denying the credit, leading to confirmation of demand, interest, and penalty by the Additional Commissioner. The Commissioner (Appeals) upheld this decision, prompting the appeal.2. The appellant failed to appear for the hearing, resulting in an ex-parte decision as per Rule 2 of the CESTAT Procedural Rules, 1982. The Department defended the denial of Cenvat Credit citing the Board's Circular, emphasizing the correctness of the decision.3. The definition of 'input service' during the disputed period included services related to setting up a factory. The Tribunal noted that services for setting up a factory were explicitly covered under this definition. The Board's Circular, focused on renting immovable property, was deemed inapplicable when construction services were availed for manufacturing excisable goods, as per the Tribunal's previous ruling in a similar case. Consequently, the impugned order denying Cenvat Credit was set aside, and the appeal was allowed.4. The Tribunal's decision highlighted the specific inclusion of services related to setting up a factory under the definition of 'input service,' distinguishing it from the context addressed in the Board's Circular. This nuanced interpretation aligned with previous judicial precedents, emphasizing the eligibility of Cenvat Credit for construction services utilized in manufacturing activities.