2009 (1) TMI 129 - AT - Service Tax

Erection and commissioning at buyer's site are incidental to manufacture; manufacturer retains responsibility, Cenvat credit allowed

COMMR. OF C. EX., VAPI Versus ALIDHARA TEXTOOL ENGINEERS PVT. LTD.

CESTAT-Ahd (AT) held that erection and commissioning services performed at the buyer's premises are incidental to manufacture and eligible for Cenvat ... Eligibility of Cenvat credit - service tax - erection and commissioning services - suppression or mis-declaration with intention to avoid duty - imposition of penalty u/s 11AC to the extent of 100% - HELD THAT:- The process of erection and commissioning at the buyer's premises is incidental to the manufacture of the machine and therefore the erection and commissioning services provided also can be said to be in relation to the manufacture, since the process in this case is complete only after the erection and commissioning takes place. As rightly pointed out by the Learned Advocate, Rule-2(l) of Cenvat Credit Rules does not require that service has to be rendered at the factory of the manufacturer for the purpose of eligibility for service tax credit. Therefore the stand of the revenue that since the service was provided at the buyer's premises credit is not admissible cannot be accepted. What has to be examined is whether the service provided is in or in relation to manufacture. Since the responsibility for erection and commissioning is with the appellant and the agency which has done the work has been nominated by them it can be said that they are working as a sub contractor. Therefore it cannot be said that service was provided to the buyer of the machinery and therefore this contention has to be rejected. As per the contract the responsibility for providing erection and commissioning is with the appellant and has already mentioned earlier even if we treat erection and commissioning activity as a separate service activity, the service provider would be the appellant and the receiver would be the buyer. The sub contractor is actually working under the manufacturer and therefore he is a provider of service to the appellants. Appellants are eligible for the Cenvat credit availed by them and accordingly they succeed on merit. Since the appellants succeed on merit, the department's appeal regarding enhancement of penalty also has to be rejected. In the appellate tribunal CESTAT AHMEDABAD citation 2009 (1) TMI 129, the case involved the availing of Cenvat credit of service tax paid on erection and commissioning services from a service provider during a specific period. The primary issue was whether the appellants were eligible for the credit. The Commissioner (Appeals) had ruled in favor of the appellants, stating that the penalty was not applicable due to the interpretation of statutory provisions. However, the revenue contended that a penalty should be imposed under Section 11AC.The appellants argued that the service was provided by the service provider both at the manufacturer's premises and the buyer's premises, and that the cost of erection and commission the machines was included in the value of the machines sold. They provided evidence to support their claim, including sales contracts and invoices. The appellants also argued that the service of erection and commissioning should be considered in relation to the manufacture of the machines, and therefore, they were eligible for the Cenvat credit.After considering the arguments from both sides, the tribunal found in favor of the appellants, stating that they were indeed eligible for the Cenvat credit. The appeals filed by the revenue were rejected, and the appeals filed by the appellants against the demand for Cenvat credit were allowed. The tribunal also rejected the department's appeal for the enhancement of penalties. The decision was pronounced in court, concluding the case.