2018 (7) TMI 604 - AT - Central Excise

Tribunal Upholds Denial of Cenvat Credit for Capital Goods: Impact of Composition Scheme and Ownership

The tribunal upheld the denial of Cenvat Credit to the appellant for capital goods used in the power plant installation, emphasizing the impact of the ... CENVAT Credit - parts / components required for the said captive power plant - the adjudicating authority took a view that the said parts / components were procured by the contractor, and the power plant being attached to grounds, is not goods as such - Held that:- In the case Bannari Amman Sugars Ltd. vs. CCE, Mysore, [2009 (11) TMI 232 - KARNATAKA HIGH COURT], the High Court of Karnataka has held that even if the capital goods become immovable after installation / commissioning, again will not be the criteria for the purposes of CENVAT Credit. Keeping in view that the benefits which cannot be availed directly, cannot be allowed to be availed indirectly, it is held that the order under challenge has no infirmity - appeal dismissed - decided against appellant. Issues:1. Denial of Cenvat Credit for capital goods used in the installation of a power plant.2. Interpretation of the Work Service Contract and entitlement to Cenvat Credit.3. Application of the Composition Scheme for payment of Service Tax and its impact on Cenvat Credit eligibility.4. Ownership of goods and its relevance in claiming Cenvat Credit.Issue 1: Denial of Cenvat Credit for capital goods used in the installation of a power plant:The appellant, a manufacturer of cotton and spun yarn, availed Cenvat Credit on parts/components for a power plant installation. The adjudicating authority denied the credit, stating the parts were procured by the contractor and not goods as such. The tribunal found that the appellant entered into contracts for supply and installation of materials with the contractor. Until the final product (power plant) was erected, ownership remained with the contractor. The tribunal held that the distinction between inputs and capital goods was not valid in this case. The contractor, under the Composition Scheme, was disentitled to Cenvat Credit, thus denying the appellant's claim.Issue 2: Interpretation of the Work Service Contract and entitlement to Cenvat Credit:The appellant argued that they availed credit only on goods received directly at their factory for installation. The tribunal noted that the contractor provided goods/materials to the appellant after manufacture, and ownership remained with the contractor until project completion. The tribunal emphasized that under the Composition Scheme, the contractor could not claim Cenvat Credit, affecting the appellant's eligibility. The tribunal referenced previous cases where Cenvat Credit was denied when goods were part of the work contract under concessional duty.Issue 3: Application of the Composition Scheme for payment of Service Tax and its impact on Cenvat Credit eligibility:The tribunal highlighted that the contractor opted for the Composition Scheme, disallowing Cenvat Credit on inputs used in the works contract. The tribunal held that once the contractor exercised this option, the appellant could not claim the credit passed on by the contractor. The tribunal emphasized that the contractor's payment of Service Tax at a reduced rate affected the appellant's Cenvat Credit eligibility.Issue 4: Ownership of goods and its relevance in claiming Cenvat Credit:The appellant's argument regarding the classification of capital goods was dismissed by the tribunal. The tribunal held that ownership of goods and their immovability post-installation were not relevant criteria for Cenvat Credit. Citing legal precedents, the tribunal emphasized that benefits not directly available could not be claimed indirectly. Consequently, the tribunal upheld the denial of Cenvat Credit, dismissing the appeal.In conclusion, the tribunal upheld the denial of Cenvat Credit to the appellant for capital goods used in the power plant installation, emphasizing the impact of the Composition Scheme and the ownership of goods in determining eligibility. The judgment highlights the importance of contractual arrangements and the applicability of legal provisions in Cenvat Credit disputes.