2019 (3) TMI 818 - AT - Service Tax

Tribunal Partially Allows Appeal on CENVAT Credit for Construction Materials

GMR Hyderabad International Airport Ltd Versus Commissioner of Central Excise, Hyderabad-II

The Tribunal partially allowed the appeal, overturning the denial of CENVAT credit on steel, cement, and input services for airport and fuel farm ... CENVAT Credit - sub-contract - steel and cement which has been procured by the appellant has been handed over to the contractors for construction of airport - Held that:- There is no dispute as to the fact that appellant was awarded a contract for constructing airport on build, operate, own and transfer basis; he had given various sub-contracts to others to construct airport facility; procure cement and steel on their own and gave it sub-contractors for construction of airport and avail CENVAT credit on such cement and steel, various input services were used during the construction of airport and hence availed CENVAT credit. It is also on record that appellant had been filing regularly returns with the authorities. This factual position of discharging the service tax liability on the airport services is not denied. The issue of availment of CENVAT credit on various items like steel and cement and other input services which are used for construction of airport is covered by the ratio laid down by the Hon’ble High Court of Gujarat in the case of Mundra Ports & Special Economic Zone Ltd [2015 (5) TMI 663 - GUJARAT HIGH COURT]. In view of the foregoing, the adjudicating authority’s order of denying CENVAT credit is incorrect and unsustainable. CENVAT credit of central excise duty paid on inputs capital goods and input services in respect of hotel (Novotel) construction - Held that:- The hotel is not a part of the airport and hence cannot be considered as used for rendering airport services. Further, it has to be noticed that the contractors who constructed the airport discharged service tax liability by availing abatement under Notification No 1/2006-ST. If the hotel would have been commercial in the proper definition of airport they need not have paid any service tax on such construction activity. L&T who were the contractors for airport did not discharge service tax liability on the construction of the airport. Further, the payment of service tax by the contractors who constructed the hotel without availing CENVAT credit is in itself indicated that the said hotel is not a part of the airport. - Credit not allowed. CENVAT Credit - service tax paid on input services by the contractor of fuel farm erection - Held that:- Appellant are eligible to avail CENVAT credit as fuel farm is a part of the airport and used for providing taxable output services i.e. airport services. The operation of fuel farm is done by M/s Reliance Industries Ltd., (RIL) and appellant pays operating charges to RIL on which service tax liability is discharged. The entire dispute in the case is regarding the central excise duty paid on the fuel which is required and maintaining minimum level of stock of fuel in order to fill the fuel in the aircraft - CENVAT credit on the fuel farm cannot be denied to the appellant herein as the same qualifies as an input services in terms of Rule 2(l) of the CENVAT Credit Rules 2004 as it is an activity relating to business. CENVAT Credit - Held that:- The voluminous documents are produced to justify that these services are output services. These documents needs to be considered by the adjudicating authority to come to a conclusion whether appellant s eligible for availment of CENVAT credit or otherwise - this exercise would have to be done by the adjudicating authority. Accordingly without expressing any opinion on the merits of this point, the matter is remanded back to the adjudicating authority to reconsider the issue afresh on this point as well as Point No. 9 after following the principles of natural justice. CENVAT Credit - Volvo chassis - Held that:- In the case in hand appellant is not entitled to avail CENVAT credit of the central excise duty paid on Volvo chassis. Hence the confirmation of demand along with interest is correct and needs to be upheld - Since we have disposed of the major demand of irregular availment of CENVAT credit on merits as well as we find that there is no reason to sustain penalties imposed on the appellant - Appellants are directed to pay/reverse the amount of CENVAT credit with interest. Appeal disposed off. Issues Involved:1. Irregular availment of CENVAT credit on steel and cement used in the construction of the airport.2. Irregular availment of CENVAT credit on input services used in the construction of the airport.3. Irregular availment of inputs, capital goods, and input services in respect of hotel construction.4. Irregular availment of credit on capital goods and inputs used in hotel construction.5. Irregular availment of CENVAT credit on input services for the construction of the fuel farm.6. Ineligible credit on Air Turbine Fuel (ATF).7. Irregular credit on services not connected with the provision of taxable output services.8. Irregular availment of CENVAT credit on Volvo chassis.9. Availment of CENVAT credit on invalid documents.Detailed Analysis:1. Irregular availment of CENVAT credit on steel and cement used in the construction of the airport:The Tribunal found that the appellant was awarded a contract for constructing the airport and was discharging service tax liability under the category of airport services. The issue of availment of CENVAT credit on steel and cement used for construction is covered by the decisions of the High Courts of Gujarat, Andhra Pradesh, and Karnataka. The adjudicating authority’s order of denying CENVAT credit on steel and cement was deemed incorrect and unsustainable.2. Irregular availment of CENVAT credit on input services used in the construction of the airport:The Tribunal held that the input services used for the construction of the airport, such as consultancy services, were necessary for the construction and thus eligible for CENVAT credit. The inclusive definition of input services covers services used for setting up premises of a service provider and in relation to business.3 & 4. Irregular availment of inputs, capital goods, and input services in respect of hotel construction:The Tribunal agreed with the lower authorities that the hotel (Novotel) is not a part of the airport and hence cannot be considered as used for rendering airport services. The contractors who constructed the hotel availed abatement under Notification No. 1/2006-ST, indicating that the hotel is not a part of the airport. Thus, CENVAT credit on inputs, capital goods, and input services for hotel construction was correctly denied.5 & 6. Irregular availment of CENVAT credit on input services for the construction of the fuel farm and ineligible credit on ATF:The Tribunal found that the fuel farm is a part of the airport and used for providing taxable output services. The operation of the fuel farm is essential for airport services as it involves refueling aircraft, and thus, CENVAT credit on input services for the fuel farm and ATF was deemed eligible.7. Irregular credit on services not connected with the provision of taxable output services:The Tribunal noted that voluminous documents were produced to justify the services as output services. The issue needs to be reconsidered by the adjudicating authority to determine the eligibility for CENVAT credit. The matter was remanded back to the adjudicating authority for reconsideration.8. Irregular availment of CENVAT credit on Volvo chassis:The Tribunal upheld the denial of CENVAT credit on Volvo chassis, as the provisions of CENVAT Credit Rules clearly indicate that credit cannot be availed on motor cars. The confirmation of demand along with interest was deemed correct.9. Availment of CENVAT credit on invalid documents:The Tribunal found that this issue also needs to be reconsidered by the lower authorities. The matter was remanded back for fresh consideration.Conclusion:The appeal was disposed of with specific directions. The Tribunal allowed the appeal in part, setting aside the denial of CENVAT credit on steel, cement, and input services used for the construction of the airport and fuel farm. However, it upheld the denial of credit on hotel construction and Volvo chassis. The issues related to services not connected with taxable output services and invalid documents were remanded back for reconsideration. The penalties imposed were set aside.