Tribunal denies Cenvat credit for factory setup services, but rules in favor on limitation issue

The Tribunal held that services used for setting up a factory were not eligible for Cenvat credit post-amendment, as the term "setting up" was deleted from the definition of "input service." However, the appellant succeeded on the issue of limitation, with the Tribunal finding no suppression of facts. The demand notice invoking the extended period of limitation was deemed unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief as per law.

---

---

Issues Involved:
1. Eligibility of Cenvat credit on various input services used during the setting up of a factory.
2. Interpretation of the amended definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2002.
3. Applicability of the extended period of limitation for issuing the demand notice.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Various Input Services:
The appellant availed Cenvat credit amounting to Rs. 15,99,633/- on input services such as Manpower Services, CHA Services, Erection and Commissioning Services, Gardening Services, Housekeeping Services, and IT Services for SAP implementation, prior to the commencement of commercial production. The Department argued that these services were used in setting up the factory and, under the amended definition of input service effective from 01.04.2011, such credit is inadmissible. The appellant contended that they did not claim service tax on construction-related services and that the services in question are eligible for credit both before and after the amendment.

2. Interpretation of the Amended Definition of "Input Service":
The core dispute revolved around the interpretation of the amended Rule 2(l) of the Cenvat Credit Rules, 2002. The appellant argued that only construction-related services used for setting up the factory were excluded from the definition of input services post-amendment. They cited judicial precedents and a TRU clarification to support their claim that services like manpower supply, SAP implementation, and others should still be eligible for credit. Conversely, the Revenue argued that the term "setting up" was consciously deleted from the definition, indicating that all services related to setting up a factory are ineligible for credit.

3. Applicability of the Extended Period of Limitation:
The Tribunal found merit in the appellant's argument regarding the limitation period. The issue was deemed a pure question of law interpretation, and the appellant had disclosed all relevant facts in their books of accounts and during the audit conducted in January 2014. Therefore, invoking the extended period of limitation was deemed unsustainable.

Judgment:
The Tribunal analyzed the definition of "input service" before and after the amendment. Before 01.04.2011, the definition included services used in setting up, modernization, renovation, or repairs of a factory. After the amendment, the terms "setting up" and "activities relating to business" were deleted. The Tribunal referenced the judgment in Coca Cola (India) Pvt. Ltd. Vs CCE Pune, which categorized the definition into five limbs, stating that satisfying any one limb entitles the assessee to avail Cenvat credit. The Tribunal concluded that the appellant's case fell under the third limb, but since "setting up" was deleted from the definition, services used for setting up the factory were not admissible for credit post-amendment.

However, the Tribunal agreed with the appellant on the issue of limitation, noting that there was no suppression of facts or mis-declaration. The demand notice invoking the extended period of limitation was thus deemed unsustainable.

Conclusion:
The impugned order was set aside on the grounds of limitation, and the appeal was allowed with consequential relief as per law. The Tribunal pronounced the judgment in the open court on 04.01.2018.

---