2018 (7) TMI 1673 - AT - Service Tax

Tribunal clarifies eligibility for CENVAT credit, overturns penalties on government entity

The Tribunal upheld the Commissioner's decision on the eligibility of CENVAT credit, emphasizing that only goods directly used for providing output ... CENVAT Credit - Input/Capital Goods - angles, channels, beams, falling under Chapter 72 and 73 of Central Excise Tariff Act and prefabricated buildings/shelters/PUF panels falling under Chapter Heading 9406 - whether the appellant would be entitled for availing CENVAT credit in respect of excise duty paid on purchase of towers and parts thereof, prefabricated buildings? - penalty. Held that:- There is no ambiguity in the use of words in the Rules. There is a clear-cut distinction between the inputs used and eligible for credit for a manufacturer vis-à-vis inputs used and eligible for a specific provider - the issue is squarely covered by the decision in the case of Vodafone Essar South Ltd. vs. Commissioner of Service Tax [2018 (4) TMI 226 - CESTAT BANGALORE], where it was held that various Benches of the Tribunal have held that the appellants are not entitled to take CENVAT credit on tower / tower materials and prefabricated buildings/shelters as capital goods as well as inputs - demand upheld. Penalty - Held that:- The appellants are government undertaking and the issue in the present appeals is in the nature of interpretation of eligibility of CENVAT credit or otherwise - Penalty set aside by invoking section 80. Appeal allowed in part. Issues:1. Eligibility of CENVAT credit on specific goods under Central Excise Tariff Act.2. Interpretation of the definition of 'inputs' for service providers.3. Imposition of penalty for availing erroneous CENVAT credit.Analysis:1. Eligibility of CENVAT credit: The case involved M/s. Bharat Sanchar Nigam Limited availing erroneous CENVAT credit on goods like angles, channels, beams, and prefabricated buildings/shelters/PUF panels. The Commissioner observed that the definition of 'inputs' has two parts, one for goods used in manufacturing finished goods and the other for goods used in providing output services. The Commissioner concluded that only goods directly used for providing output services are considered 'inputs.' The Tribunal upheld this view, citing the legislative intent and the decision in Commissioner of Income Tax vs. Tara Agencies (2007).2. Interpretation of 'inputs' for service providers: The appellant argued that the materials in question were indirectly used for providing output services, contrary to cases where such credit was deemed ineligible for telecom operators. However, the Tribunal emphasized the distinction between inputs eligible for manufacturing and those eligible for taxable output services. The Tribunal aligned with previous judgments, including Vodafone India Ltd. and Bharati Airtel Ltd., confirming that the legal position on this matter is clear and settled.3. Imposition of penalty: The Tribunal acknowledged that the issue was a matter of interpretation of CENVAT credit eligibility, especially for a government undertaking like the appellant. Consequently, the imposition of penalties was deemed unwarranted, following the precedent set by previous cases. The penalties were set aside under Section 80 of the Finance Act, 1994. The Tribunal dismissed the appeals while overturning the penalties, maintaining the legality of the Commissioner's order.In conclusion, the Tribunal upheld the Commissioner's decision regarding the eligibility of CENVAT credit, interpreting the definition of 'inputs' for service providers. The penalties imposed were set aside due to the nature of the issue and the appellant being a government undertaking. The judgment was pronounced on 24/07/2018.