Tribunal denies cenvat credit due to contractor's tax scheme, emphasizing direct actions over indirect benefits.

The Tribunal upheld the denial of cenvat credit on inputs and capital goods in a case involving a refinery's contracts for a project. The appellant's claim for credit was rejected as the contractor had paid service tax under the Works Contract Composition Scheme. The Tribunal emphasized that indirect benefits should not be allowed when direct actions are prohibited. The plea of the show cause notice being time-barred was also dismissed due to the appellant's awareness of the contractual terms. The decision was made on 20.06.2018, affirming the denial of cenvat credit based on the contractor's scheme compliance.

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Issues:
Challenging Order-in-Original for the period 2008 to April 2013 and 2008-09 to 2013-14; Admissibility of cenvat credit on inputs and capital goods; Denial of cenvat credit on inputs and capital goods; Applicability of Works Contract Composition Scheme; Time limit for demand under Section 11A.

Analysis:

The appellant, a refinery, awarded contracts for setting up a Crude Oil Refinery project, including a contract for setting up a RO-DM Water Plant. The dispute involved cenvat credit availed by the appellant on inputs and capital goods used in the contracts. The Department contended that such credit was inadmissible as the contractor had paid service tax under the Works Contract Composition Scheme. Show cause notices were issued, denying the cenvat credit and imposing penalties.

The appellant argued that cenvat credit on capital goods should be allowed as per Cenvat Credit Rules, emphasizing ownership's irrelevance. They also contended that inputs and capital goods for contractors should not affect the appellant's credit. However, the Department justified the denial, citing the Works Contract Composition Scheme's provisions.

The Tribunal observed that the appellant availed cenvat credit on goods used by the contractor for the works contract service. As the contractor paid service tax under the Composition Scheme, they were entitled to the credit, not the appellant. The Tribunal held that what cannot be done directly should not be allowed indirectly, citing precedents. The plea of the show cause notice being time-barred was rejected, considering the appellant's awareness of the contractual terms and legal implications.

Ultimately, the Tribunal upheld the impugned order, dismissing the appeals on 20.06.2018. The decision affirmed the denial of cenvat credit on inputs and capital goods, based on the Works Contract Composition Scheme's provisions and the contractor's payment under the scheme. The Tribunal also rejected the plea of time limitation, emphasizing the appellant's knowledge of the contractual terms and legal consequences.

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