2022 (2) TMI 9 - AT - Service Tax

Tribunal rules in favor of appellant on CENVAT Credit Rule, 2004 issue

M/s Bharti Infratel Limited Versus Additional Director General, DGCEI, New Delhi.

M/s Bharti Infratel Limited Versus Additional Director General, DGCEI, New Delhi. - [2022] 99 G S.T.R. 114 (CESTAT - Del), 2022 (64) G.S.T.L. 225 (Tri. - ... Issues Involved:1. Applicability of Rule 3(5A) of the CENVAT Credit Rules, 2004 to an output service provider.2. Classification of capital goods as 'used' or 'scrap'.3. Invocation of the extended period of limitation.4. Imposition of interest and penalties.Issue-wise Detailed Analysis:1. Applicability of Rule 3(5A) of the CENVAT Credit Rules, 2004 to an output service provider:The primary issue was whether Rule 3(5A) of the CENVAT Credit Rules, 2004, which mandates payment of an amount equivalent to the CENVAT credit availed on capital goods cleared as scrap, applies to output service providers. The tribunal noted that during the relevant period (27.09.2013 to 31.03.2015), Rule 3(5A) required only manufacturers, not service providers, to pay such an amount. The tribunal confirmed that the appellant, being an output service provider, was not required to pay any amount under this rule for the clearance of capital goods as scrap.2. Classification of capital goods as 'used' or 'scrap':The tribunal examined whether the capital goods cleared by the appellant were 'used' or 'scrap.' The appellant argued that the goods were scrap, following a detailed 'Inventory Management Process' for identifying and classifying scrap. The tribunal referred to dictionary definitions and the Supreme Court's interpretation in Valji Khimji, which clarified that 'scrap' means something that can no longer be used for its original purpose. The tribunal found that the appellant followed a rigorous process to classify goods as scrap, including third-party health checks and approvals at various organizational levels. The tribunal concluded that the goods were indeed scrap and not used capital goods.3. Invocation of the extended period of limitation:The tribunal did not find it necessary to address the issue of the extended period of limitation due to its findings on the primary issues.4. Imposition of interest and penalties:Since the tribunal concluded that the appellant was not required to pay any amount under Rule 3(5A) for the clearance of capital goods as scrap, the imposition of interest and penalties was also deemed unwarranted.Conclusion:The tribunal set aside the impugned order dated 31.08.2016, which had confirmed the demand of Rs. 19,65,03,338/- along with interest and penalties. The appeal was allowed, and the amount earlier paid by the appellant, which had been appropriated, was ordered to be refunded with applicable interest.