Appellate Tribunal Upholds Denial of Cenvat Credit on Construction Services

The Appellate Tribunal CESTAT BANGALORE upheld the denial of Cenvat credit on Service Tax paid for construction services used for the expansion of a Cement Plant by the appellant from 1-4-2007 to 31-1-2012. The Tribunal found that the appellant had taken credit for services used in constructing the factory, which was excluded under the definition of input service post an amendment on 1-3-2011. The appellant was directed to deposit Rs. 6,00,000 within six weeks and comply with the order, with recovery stayed during the appeal's pendency.

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Issues:
- Denial of Cenvat credit on Service Tax paid for construction services
- Applicability of amendment to definition of input service
- Sustainability of demand for the period prior to the amendment

Analysis:
The judgment by the Appellate Tribunal CESTAT BANGALORE pertains to the denial of Cenvat credit on Service Tax paid for commercial/industrial construction services used for the expansion of a Cement Plant by the appellant from 1-4-2007 to 31-1-2012. The appellant contested the denial of credit based on an amendment to the definition of input service effective from 1-3-2011, which removed the words "setting up" from the inclusive part of the definition. The appellant argued that this retrospective amendment was clarificatory and not sustainable as a ground for confirming the demand. Additionally, the appellant contended that the demand for the period before 1-3-2011 was also not sustainable.

Upon review, the Tribunal acknowledged the change in the definition of input service on 1-3-2011, rendering the assessee ineligible for Cenvat credit on Service Tax paid for services related to setting up a factory, which was permissible before the amendment. The appellant had undertaken the expansion of their cement plant, claiming it to be modernization of the factory. However, the Tribunal noted that the definition of input service explicitly excluded credit for services used in the construction of a building or civil structure. Consequently, the Tribunal found that the appellant had indeed taken credit for services used in constructing the factory, necessitating the appellant to deposit Rs. 6,00,000 within six weeks and report compliance.

In conclusion, the Tribunal upheld the denial of Cenvat credit for construction services used for the factory expansion, citing the specific exclusion in the definition of input service. The appellant was directed to make a deposit and comply with the order, with recovery stayed during the appeal's pendency. This judgment clarifies the application of the amended definition of input service and its impact on Cenvat credit eligibility for construction-related services.

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