2023 (1) TMI 54 - AT - Central Excise

Tribunal remands case for fresh adjudication, emphasizing harmonious interpretation of input service definition.

Basf and Shri Chandrashekar Kate Versus C.C.E. & S.T. -Vadodara-II

The Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority for fresh adjudication. It directed a ... Availment of cenvat credit of the service tax paid by the appellant - input services or not - services in relation to fabrication of plant and machinery in the factory and making plant and machinery operational - credit denied for the period April 2011, when the setting up of the factory started to the period March 2016, when the setting up of the factory was completed and commercial production started. HELD THAT:- The appellants are engaged in manufacture of goods falling under Chapter 39 of the Central Excise Tariff Act, 1985 and availed cenvat credit of service tax during setting up of the factory. Revenue is of opinion that cenvat credit of services used for setting up of ‘factory, premises of provider of output service or the office relating to said factory or premises’ would not be admissible as the word setting put has been deleted from the definition of input service. This very issue has been examined by Tribunal in the case Reliance Industries Limited [2022 (4) TMI 729 - CESTAT AHMEDABAD]. In the said decision similar dispute was examined. The Tribunal in the case of Semco Electricals Private Limited [2009 (12) TMI 143 - CESTAT, MUMBAI] has held that in order to qualify as an input service, the service has to either fall within the means part or inclusive part of the definition of input service. Thus, any service which is covered under the means part of the definition, the credit cannot be denied even if, it does not appear in the inclusive part of the definition - without use of these services, the appellant could not have possibly manufactured the excisable goods. In this background, we do not find any merit in the argument of the Revenue that by deletion of word ‘setting up’ from the definition of input service any significant change has happened. However, w.e.f. 01.04.2012, a specific exclusion clause has been introduced in the definition of input service - the exclusion clause would obviously make such services ineligible for the cenvat credit under the head of ‘Input Service’. It is seen that the appellant has claimed that they have on their own not availed such credits relating to the exclusion clause. Denial of cenvat credit invoking Rule 4(7) of the Cenvat Credit Rules - HELD THAT:- It is apparent that the defence and documents in support of appellant’s claim has not been examined. In view of above, we find that demand on this count cannot be sustained as the order fails to examine the defence given by the appellant. In these circumstances, the demand on this count is set aside and matter is remanded to the original adjudicating authority. Credit of input services availed in respect of alleged ‘setting up of the factory’ as well as the suggestion of the appellant about the credit not availed on account of exclusion clause - HELD THAT:- The matter needs to be examined again by the original adjudicating authority in light of the decision of Tribunal in the case of Reliance Industries Limited [2022 (4) TMI 729 - CESTAT AHMEDABAD] which clearly holds that so long as input services on which the credit is taken by the appellant are covered under the means part of the definition, the credit even if, used for setting up of the plant or factory, cannot be denied. The matter is remanded to the original adjudicating authority for fresh adjudication. Issues Involved:1. Availment of Cenvat credit of service tax paid during the setting up of the factory.2. Denial of Cenvat credit based on the amendment in the definition of 'input service.'3. Applicability of Rule 4(7) of the Cenvat Credit Rules, 2004.4. Limitation period and penalty for availing ineligible credit.Detailed Analysis:1. Availment of Cenvat Credit of Service Tax Paid During the Setting Up of the Factory:The appellant, BASF (India) Limited, availed various input services for setting up their factory from April 2011 to March 2016. The show cause notice sought to deny Cenvat credit for services related to the fabrication and operationalization of plant and machinery, citing changes in the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004. The appellant argued that the services availed are covered under the definition of 'input service' even after the amendment, which removed the words 'setting up' from the definition. They contended that these services are essential for the manufacture of finished goods and are thus admissible for credit.2. Denial of Cenvat Credit Based on the Amendment in the Definition of 'Input Service':The show cause notice relied on the amendment effective from 01.04.2011, which omitted the words 'setting up' from the definition of 'input service.' The appellant argued that despite the omission, the services availed still fall under the main part of the definition and are essential for manufacturing. They cited the Tribunal's decision in Reliance Industries Limited, which allowed credit for services used in the initial setting up of the plant under the main definition. The Tribunal noted that the deletion of the words 'setting up' did not significantly change the admissibility of credit for these services.3. Applicability of Rule 4(7) of the Cenvat Credit Rules, 2004:The show cause notice also invoked Rule 4(7) to deny credit availed after one year from the date of issue of the documents. The appellant contended that the credit was reflected in their ST-3 returns within the prescribed period, although it was belatedly reflected in the ER-1 return due to human error. The Tribunal found that the original adjudicating authority did not consider the appellant's submissions and supporting documents. Therefore, the demand on this count was set aside, and the matter was remanded for re-examination.4. Limitation Period and Penalty for Availing Ineligible Credit:The appellant argued that the entire demand was beyond the normal period of limitation and that there was no willful suppression or misstatement of facts. They contended that all facts were reflected in their returns and that the issue of availing credit on input services for setting up the factory was subject to litigation. The Tribunal noted that the appellant had not availed credit for services related to civil construction, which are specifically excluded from the definition of 'input service.' The Tribunal emphasized that any service covered under the main part of the definition cannot be denied credit, even if used for setting up the plant.Conclusion:The Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority for fresh adjudication. It directed the authority to re-examine the issues in light of the Tribunal's decision in Reliance Industries Limited and the appellant's submissions regarding the exclusion clauses and the period of limitation. The Tribunal also highlighted the need for a harmonious interpretation of the definition of 'input service' and the importance of considering all relevant facts and documents.Pronounced in the open court on 22.12.2022.