2015 (5) TMI 663 - HC - Service Tax

Service providers entitled to CENVAT credit on cement and steel under Rule 2(k) of Cenvat Credit Rules, 2004

The HC held that the appellant, a taxable service provider of port services, was entitled to CENVAT credit on cement and steel used in jetty construction. ... Denial of CENVAT Credit - cement and steel - Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in rejecting the claim of the assessee in light of the provisions of Rule 2(k) of the Cenvat Credit Rules, 2004 - Held that:- jetty was constructed and input credit was claimed on cement and steel. The definition of Rule 2(k) was applicable and Explanation 2 did not provide that cement and steel would not be eligible for input credit. - The appellant is neither having any factory nor he is manufacturer. The appellant is a service provider of port - plain reading of the definition of Rule 2(k) would demonstrate that all the goods used in relation to manufacturer of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit. It is not in dispute that the appellant is a taxable service provider on port under the category of port services. Therefore, the appellant was entitled for input credit and the decision of the Division Bench of the Andhra Pradesh High Court [2011 (2) TMI 400 - ANDHRA PRADESH HIGH COURT] squarely applies to the facts of the case - Decided in favour of assessee. ISSUES: Whether the Tribunal was justified in law in rejecting the claim of input credit on excise duty paid on cement and steel used in the construction of jetties and port buildings under Rule 2(k) of the Cenvat Credit Rules, 2004.Whether a service provider engaged in port services is entitled to avail Cenvat credit on inputs used in construction of capital assets such as jetties within the service premises.Whether the amendment to Explanation 2 of Rule 2(k) of the Cenvat Credit Rules, 2004, effective from 7.7.2009, operates retrospectively or prospectively and whether it applies to service providers.Whether input credit can be denied on the ground that construction of jetty is an exempted service. RULINGS / HOLDINGS: The Tribunal was not justified in law in rejecting the claim of input credit on cement and steel used in construction of jetties and port buildings; such goods qualify as 'inputs' under Rule 2(k) of the Cenvat Credit Rules, 2004.A service provider engaged in port services is entitled to avail Cenvat credit on inputs used for providing output services, including construction of capital assets such as jetties situated within the port area, as per the plain reading of Rule 2(k).The amendment to Explanation 2 of Rule 2(k) made with effect from 7.7.2009 is not a clarificatory amendment and therefore operates only prospectively; it applies primarily to manufacturers and factories and does not exclude service providers from claiming input credit on such goods.The denial of input credit on the ground that construction of jetty is an exempted service is not sustainable where the appellant has provided the materials (cement, steel) used in construction; input credit is available despite the exempted nature of the construction service. RATIONALE: The Court applied the definitions under Rule 2(k) and 2(l) of the Cenvat Credit Rules, 2004, which define 'input' and 'input service' respectively, focusing on the inclusion of goods used 'for providing any output service'.The Court relied on the plain language of Rule 2(k), which includes goods used 'for any other purpose, within the factory of production' and goods used 'for providing any output service', thereby extending eligibility of input credit beyond manufacturers to service providers.The Court distinguished the amendment to Explanation 2 of Rule 2(k) effective from 7.7.2009 as a substantive amendment rather than a clarificatory one, noting the absence of legislative intent to clarify existing provisions and holding that it cannot be applied retrospectively.The Court referred to a precedent from the Division Bench of the Andhra Pradesh High Court holding that goods used by a provider of taxable service for providing an output service are eligible for Cenvat credit under Rule 2(k).The Court rejected the revenue's reliance on the Larger Bench decision and the Apex Court decision in Sangam Spinners Limited, holding that these are not applicable due to differences in legislative intent and amendment timing.The Court reasoned that input credit cannot be denied merely because the construction of the jetty is an exempted service, especially where the appellant supplied the materials, thereby entitling them to input credit under the Cenvat Credit Rules.