2008 (9) TMI 117 - AT - Service Tax

Decision upholds disallowance of excise credit for cement and steel in jetty; allows CHA, surveyor, car hire, AC duty credits

CESTAT upheld a demand disallowing excise credit for cement and steel used in construction of a jetty and port buildings, finding those goods are not ... Availment of credit of excise duty paid on the inputs - capital goods and the input services - definition of input as contained in Rule 2(k)(ii) - demand relates to the credit availed in respect of steel and cement which stand used for the construction of jetty and port building - meaning and interpretation of the expression 'used for providing a output service' - imposition of penalty - HELD THAT:- The definition of input as contained in clause (i) is too wide a definition and refers to all inputs either used in or in relation to the manufacture of the final product or for any other purposes within the factory of production. On the other hand the definition of inputs as contained in clause (ii) is limited to all goods, used for providing any output service. he legislation in it wisdom has given extended meaning to the definition of input as contained in clause (i) and comparatively a simple and restrictive meaning as contained in clause (ii). Admittedly jetty is required for providing the port service in the same manner as any office building etc. is required for providing any other output service. The cement and steel have undoubtedly been used in the construction of jetty and port building by the contractor, which service is itself liable to service tax, though the same is exempted under the Notification As such, it can be safely concluded that the cement and steel stand used for providing the output service of construction of building and not used in providing the port service, such an interpretation would lead to unwarranted results and the definition cannot be so stretched so as to include the use of cement and steel as used for providing the output service of port services. If such a wide meaning is given to the above expression then the cement and steel used for construction of any building which houses the office etc. would become eligible inputs for the purposes of providing output services. As such, we do not agree with the ld. Advocate that such cement and steel can be held to be eligible inputs used for providing the output port service. Accordingly, confirm the demand on this count. Input credit in respect of service tax paid for Various Services - We find that the services of CHA and surveyors availed by the appellant are used for the purposes of providing output services and are integrally connected with the port services and the other warehousing and storage services. Similarly hiring of cars for use by the port officers and as such availability of the credit of service tax paid on them under rent a cab services can be held to be availed for the purposes of providing output services. The same are covered by the definition of input services as contained in Rule 2(1) of Central Excise Rules inasmuch as the same are used by a provider of taxable service for providing a output service. We accordingly hold that the credit in respect of the same is available to the appellant. Credit of duty paid on the Air-conditioners - We hold that the credit of duty paid on the Air-conditioners would be available to the appellants. Penalty - As such, no malafide is attributable to the appellants so as to invoke penal provisions. As such, we do not find any justification for imposition of penalty upon the appellant. The same is accordingly set aside. Issues Involved:1. Availment of CENVAT credit on inputs (cement and steel) used for construction of port facilities.2. Availment of CENVAT credit on service tax paid for various services (mobile phones, CHA and surveyor charges, rent-a-cab, club house fees, professional charges).3. Availment of CENVAT credit on duty paid for air-conditioners.4. Imposition of penalty equivalent to the duty amount.Issue-wise Detailed Analysis:1. Availment of CENVAT Credit on Inputs (Cement and Steel):The appellants argued that cement and steel used for constructing port facilities such as jetties and storage tanks are essential for providing port services, storage, and warehousing services. They contended that these materials should be considered necessary inputs eligible for CENVAT credit. They cited Supreme Court decisions advocating a liberal interpretation of 'used for providing output services.' The adjudicating authority had disallowed this credit, arguing that cement and steel are not directly used for providing output services and are used in immovable property construction, which does not qualify for CENVAT credit under the definitions provided in Rule 2(a) and Rule 2(k) of the CENVAT Credit Rules.The Tribunal concluded that the definition of 'input' for service tax purposes (Rule 2(k)(ii)) is more restrictive than for excise duty purposes (Rule 2(k)(i)). Cement and steel used for construction by a contractor are not directly used for providing port services but for constructing the facilities, which is a separate service category. Therefore, the Tribunal upheld the disallowance of CENVAT credit on cement and steel.2. Availment of CENVAT Credit on Service Tax Paid for Various Services:The Tribunal examined the eligibility of credit for service tax paid on mobile phones, CHA and surveyor charges, rent-a-cab, club house fees, and professional charges. It referred to previous Tribunal decisions that allowed credit for service tax on mobile phones. It also recognized that CHA and surveyor services, rent-a-cab services for port officers, and professional charges are integrally connected with providing port services and thus eligible for credit. However, it disallowed credit for club house fees, as these are for worker recreation and not related to providing output services.3. Availment of CENVAT Credit on Duty Paid for Air-Conditioners:The appellants argued that air-conditioners fall under Chapter 85 of the Central Excise Tariff Act and should be considered capital goods eligible for credit. The Tribunal agreed, citing decisions that supported the eligibility of air-conditioners as capital goods, and allowed the credit.4. Imposition of Penalty:The Tribunal found that the issue involved a bona fide dispute and interpretation of legal provisions, with no malafide intent by the appellants. The credit was availed in statutory records with due intimation to authorities. Consequently, the Tribunal set aside the penalty imposed on the appellants.Conclusion:The Tribunal upheld the disallowance of CENVAT credit on cement and steel but allowed credit for service tax on mobile phones, CHA and surveyor charges, rent-a-cab services, and professional charges. It disallowed credit for club house fees and allowed credit for duty paid on air-conditioners. The penalty imposed was set aside due to the bona fide nature of the dispute.(Pronounced in court on 30.9.2008.)