2008 (6) TMI 72 - AT - Service Tax

Tribunal grants waiver & stay in Cenvat credit appeals, emphasizes practical considerations

BSNL Versus COMMISSIONER OF C. EX., SALEM

BSNL Versus COMMISSIONER OF C. EX., SALEM - 2008 (12) S.T.R. 139 (Tri. - Chennai) Issues:1. Denial of Cenvat credit on capital goods for the period 2004-05 and 2005-06.2. Denial of Cenvat credit on capital goods and demand of service tax for the period 2005-06 and 2006-07.Issue 1 - Denial of Cenvat credit on capital goods for the period 2004-05 and 2005-06:The appeal challenges the denial of Cenvat credit on capital goods for the mentioned period. The appellants, a PSU, obtained clearance from the 'Committee on Disputes' to pursue the appeal. The dispute revolves around the denial of credit on capital goods supplied by the Central Stores Department (CSD) at Madurai to the Secondary Switching Area (SSA) Salem. The lower authorities denied the credit citing the lack of invoices from a registered first stage dealer. The appellants argued that CSD Madurai, which supplied the goods, should not be considered a 'first stage dealer' as it did not sell the goods but transferred them to SSAs for rendering taxable services. The Tribunal found merit in the appellant's argument, noting that the goods were duty-paid and used in rendering output services, satisfying the conditions for Cenvat credit. The Tribunal granted waiver of pre-deposit and stay of recovery for the disputed amount.Issue 2 - Denial of Cenvat credit on capital goods and demand of service tax for the period 2005-06 and 2006-07:This appeal concerns the denial of Cenvat credit on capital goods and the demand of service tax for the mentioned period. The capital goods purchased by the Deputy General Manager (Projects) at Salem were supplied to various SSAs, and Cenvat credit was taken by SSA Salem. The denial was based on the argument that the capital goods were not received and utilized in the same SSA that claimed the credit. The Department also raised a demand for service tax on output services corresponding to the credit taken. The appellant contended that technologically, the capital goods should be considered used in SSA Salem as they are part of the nationwide service provision by the PSU. The Tribunal agreed with the appellant's argument, emphasizing the technological aspect and the need to interpret rules in a manner that aligns with the nature of the services provided. Consequently, the Tribunal granted waiver of pre-deposit and stay of recovery for the disputed amount challenged in this appeal.In conclusion, the Tribunal's judgments in both appeals favored the appellants, granting waiver of pre-deposit and stay of recovery for the disputed Cenvat credit amounts. The decisions highlighted the importance of considering the practical aspects and technological features of the services provided by the PSU in determining the eligibility for Cenvat credit on capital goods.