2016 (12) TMI 1472 - AT - Service Tax

Tribunal allows CENVAT credit for road construction services overturning previous ruling

Kenersys India Pvt. Ltd. Versus Commissioner of Central Excise Pune-III

The Tribunal held that the appellant, M/s Kenersys India Pvt Ltd, was entitled to avail and utilize CENVAT credit for the service tax paid on road ... CENVAT credit - erection, commissioning and installation agency service - construction of roads to contractors to make installation sites ready to carry out project - Held that: - Rule 3 of the CENVAT Credit Rules 2004, as claimed by the learned Authorised Representative, is the foundation for allowing of CENVAT credit on tax which is leviable under Finance Act, 1994. However, Rule 4 of the said Rules limit the taking of CENVAT credit to the amount including the service tax component paid to such service provider. The scheme of CENVAT credit is intended to prevent the cascading effect of tax. A tax, whether rightly or wrongly paid, needs to be set-off if the cascading effect is to be avoided and that is the rationale for the scheme of CENVAT credit to be operated on the invoice received from suppliers of goods or service and the invoice raised on recipient of the output service. There is no dispute on the authenticity of the invoice. The taking of CENVAT credit, therefore, cannot be faulted. The appellant held to be eligible to avail and utilize CENVAT credit of tax charged on the consideration paid for construction of roads to contractors of the appellant - appeal allowed - decided in favor of appellant-assessee. Issues Involved:1. Availment of CENVAT credit on services used for construction of roads.2. Eligibility of CENVAT credit under Rule 3 of the CENVAT Credit Rules, 2004.3. Distinction between levy and collection of tax.4. Responsibility of the service recipient regarding the classification and tax liability of the service provider.5. Applicability of judicial precedents on the classification and tax liability issues.Detailed Analysis:1. Availment of CENVAT Credit on Services Used for Construction of Roads:The core issue in the dispute was whether M/s Kenersys India Pvt Ltd could avail CENVAT credit for services used in constructing roads at remote project sites. The appellant argued that they utilized contractors for 'commercial or industrial construction' services, which included a service tax component, thus entitling them to CENVAT credit.2. Eligibility of CENVAT Credit under Rule 3 of the CENVAT Credit Rules, 2004:Rule 3 of the CENVAT Credit Rules, 2004, permits CENVAT credit for service tax leviable under section 66 of the Finance Act. The appellant contended that the payments made to contractors included service tax, which was duly discharged, making them eligible for CENVAT credit. The Revenue, however, argued that no tax was leviable on road construction, making the credit ineligible.3. Distinction Between Levy and Collection of Tax:The Revenue's argument hinged on the distinction between levy and collection, as clarified by the Supreme Court in Assistant Collector of Central Excise, Calcutta v. National Tobacco Co. of India Ltd. The term 'levy' includes both imposition and assessment of tax, but not collection. The Revenue contended that since no tax was leviable on road construction, the collection was invalid.4. Responsibility of the Service Recipient Regarding the Classification and Tax Liability of the Service Provider:The appellant argued that as a service recipient, determining the leviability of tax was not their prerogative. They relied on the Tribunal's decision in Newlight Hotels and Resorts Ltd v. Commissioner of Central Excise and Service Tax, Vadodara, which held that the service recipient could not challenge the classification or tax liability determined by the service provider. The Tribunal supported this view, noting that the service provider, being a registered assessee, would file returns and pay taxes, which the Revenue should scrutinize.5. Applicability of Judicial Precedents on the Classification and Tax Liability Issues:The appellant cited several judicial precedents, including Deloitte Haskins & Sells v. Commissioner of Central Excise, Thane - I and Sarvesh Refractories (P) Ltd v. Commissioner of Central Excise & Customs, to support their claim. These cases established that the service recipient could not alter the classification or tax liability determined by the service provider. The Tribunal agreed, emphasizing that the CENVAT credit scheme aims to avoid the cascading effect of taxes, and thus, credit should be allowed based on the service provider's invoice.Conclusion:The Tribunal concluded that the appellant was eligible to avail and utilize CENVAT credit for the service tax paid on road construction services. The impugned order was set aside, and the appellant's eligibility for CENVAT credit was upheld. The Tribunal's decision was pronounced in court on 08/07/2016.