2015 (12) TMI 489 - AT - Service Tax

Tribunal allows Cenvat credit on capital goods pre-operations, validates timeline under Rule 4(2) CCR (2)

Commissioner of Central Excise, Goa Versus Kamat Constructions And Resorts Pvt Ltd

Commissioner of Central Excise, Goa Versus Kamat Constructions And Resorts Pvt Ltd - 2016 (42) S.T.R. 450 (Tri. - Mumbai) Issues involved:1. Consideration of availing Cenvat credit on capital goods procured before starting operations.2. Interpretation of Rule 4(2) of CCR, 2004 regarding the timeline for claiming Cenvat credit on capital goods.Analysis:Issue 1:The primary issue in this case is whether the respondent was correct in availing the Cenvat credit of the capital goods procured before the commencement of operations. The appellant contended that the capital goods were essential for providing output services and were used in the hotel premises. The first appellate authority set aside the order denying Cenvat credit, stating that the appellant was registered as a service recipient initially and later modified the registration as a service provider. The authority found the appellant's explanation convincing, noting the long gestation period required for setting up the hotel. The appellant's registration as a service receiver when capital goods were received, even though later amended as a service provider, was considered justifiable. The authority emphasized that the credit should be allowed based on the circumstances and relevant case laws cited. The Tribunal upheld the first appellate authority's decision, emphasizing that the service tax liability arises when the hotel starts functioning, justifying the availing of Cenvat credit on capital goods received before becoming a service provider.Issue 2:The second issue pertains to the interpretation of Rule 4(2) of CCR, 2004 concerning the timeline for claiming Cenvat credit on capital goods. The rule stipulates that Cenvat credit in respect of capital goods received in a given financial year shall be taken for an amount not exceeding fifty percent of the duty paid on such goods in the same financial year. The remaining credit can be claimed in subsequent years if not fully utilized initially. The Tribunal noted that the appellant had taken credit one or two years after receiving the capital goods, which was within the permissible timeline as per Rule 4(2). The Tribunal clarified that if the credit is not taken in the first or second year, the entire credit can be claimed whenever utilized. Therefore, the Tribunal held that the appellant's claim for 100% credit in a subsequent year, two years after receiving the capital goods, was in accordance with the legal provisions. Consequently, the Cenvat credit availed by the appellant was deemed admissible under the law, leading to the rejection of the revenue's appeal.In conclusion, the Tribunal upheld the first appellate authority's decision, allowing the Cenvat credit on capital goods procured before the commencement of operations and interpreting Rule 4(2) of CCR, 2004 to validate the timeline for claiming such credit.