2023 (5) TMI 92 - HC - Central Excise

Court upholds Tribunal's decision on 'input service' definition & Cenvat Credit admissibility for Works Contract Services

The Court dismissed the revenue's appeal under Section 35G of the Central Excise Act, 1944 challenging the Tribunal's order in Excise Appeal No.76215 of ... CENVAT Credit - input services - Wrongful interpretation of statute - Rule 2(I) of CCR - Works Contract Services in so far as they are used for laying of foundation or making of structure for support of capital goods - Works Contract Service’ have been straightwy excluded from the ambit of ‘input service’ or not - first submission of appellant is that the Tribunal committed a serious error in holding that it has not been denied by the Department that the Coke Oven Plant of the appellant was towards modernisation and renovation of their existing plant/factor - reading of a decision (to be as a whole) - ratio decidendi - HELD THAT:- The Assessing Officer brushed aside the statutory provision, rather on a wrong understanding of the statutory provision has worded the show cause notice. The observations of the Assessing Officer stating that in terms of provisions of Rule 2(l), services provided under Works Contract Services have been straightaway excluded from the ambit of input service and hence it appears that availment of such credit is not at all admissible. This conclusion, at the very threshold by the Assessing Officer is on a wrong noting of the provision or in other words a wrong understanding of the statutory provision - the initial mistake committed by the Assessing Officer while issuing the show cause notice has perpetrated in the order of adjudication by carrying the mistake along with it. Thus, considering this fact, the Tribunal, rightly held that the revenue has not denied that the Cove Oven Plant of the appellant was towards modernisation and renovation of the existing plant/factory. If such is the case, the claim of the assessee would clearly fall within the definition of ‘input service’ as defined under Section 2(l) which was prevalent from the period from 1.4.2011 to 30.6.2017. Appellant took great pain to distinguish the decisions relied upon by the learned Tribunal. It is opined that the manner in which the decision has to be read is as a whole to enable the Court to carry out as to what is the ratio decidendi. This is the cardinal and basic principle of culling out the legal principle in any decision. In the case of M/s. Reliance Industries vs. CCE & ST, Rajkot [2022 (4) TMI 729 - CESTAT AHMEDABAD], which has been referred to by the Tribunal, it has been held that It is pertinent to note that when the exclusion was brought in the rules, services relating to setting up of the factory was removed from the inclusion clause of the definition of input service in rule 2(l) of Cenvat Credit Rules, 2004 therefore, there is a direct nexus of the service mentioned in the exclusion clause and setting up of the factory. It is important to note that the legislature consciously continued the services of renovation, modernization, repairs appearing in the inclusion clause of definition of input service. This clearly shows that any service relating to modernization, renovation of the existing factory is admissible as input service which is the direct case of the appellant. On a reading of the above paragraph, it will clearly show that the decision can be clearly applied to the facts and circumstances of the case. In the said decision it has been held that even though services of construction of building or civil structure are falling under the exclusion clause but even if similar service is used for renovation and modernisation of existing factory, the credit is admissible. The exclusion applies only in respect of such service as specified therein which are used for initial setting of the factory. Thus, it is nobody’s case much less revenue’s case that project undertaken by the assessee was not one of modernisation and renovation - This is precisely the reason why the show cause notice was worded so by the Assessing Officer though by wrongly interpreting the scope of Rule 2(l). The Tribunal, on re-appreciation of the factual position, has rendered a finding in favour of the assessee which, does not suffer from any perversity to interfere in this second appeal. For the above reason, no substantial question of law arises for consideration in this appeal - Appeal dismissed. Issues involved:The appeal filed by the revenue under Section 35G of the Central Excise Act, 1944 questions the correctness of the final order passed by the Tribunal in Excise Appeal No.76215 of 2016. The substantial questions of law raised are related to the definition of 'input service' under the Cenvat Credit Rules, 2004, and the admissibility of Cenvat Credit on Works Contract Services used for laying foundation or making structure for support of capital goods.Issue (i):The first issue is whether the Tribunal erred in not fully appreciating the definition of 'input service' as defined under Rule 2(l) of Cenvat Credit Rules, 2004. The Court referred to the decision of the Supreme Court in Commissioner of Customs-I vs. Aasu Exim Pvt. Ltd., emphasizing the need for a direct nexus to the determination of the applicable rate of duty or value of goods for the admission of the appeal. The Court analyzed the submissions made by the appellant and respondent regarding the interpretation of the statutory provisions.Issue (ii):The second issue concerns the admissibility of Cenvat Credit on Works Contract Services used for laying foundation or making structure for support of capital goods. The Tribunal's decision was based on the scope of work and the nature of the project undertaken by the assessee. The Court examined the legal principles laid down in the case of M/s. Reliance Industries vs. CCE & ST, Rajkot, which emphasized the admissibility of credit for services related to modernization and renovation of existing factories.Conclusion:After considering the arguments presented by both parties and analyzing the relevant legal principles, the Court found that the Tribunal's decision in favor of the assessee was justified and did not warrant interference. Therefore, the Court held that no substantial question of law arose for consideration in the appeal, which was subsequently dismissed.