Tribunal allows appeal on CENVAT credit for water reservoir construction pre-amendment

The Tribunal allowed the appeal, overturning the decision of the Commissioner (Appeals) and Joint Commissioner. It held that the construction of the water reservoir, considered as a raw material for paper manufacturing, qualified for CENVAT credit. The Tribunal found that the construction and payments were completed before the effective date of the amended definition of input services, making the credit admissible under Rule 4(7) of the CENVAT Credit Rules 2004.

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Issues:
The appeal challenges the disallowance of CENVAT credit by the Commissioner (Appeals) upheld by the Joint Commissioner, regarding the construction of a water reservoir used as a raw material in the manufacturing of paper.

Details:
The appellant, engaged in the manufacture of paper products, required a continuous water source for manufacturing paper, drawn from River Sone. To ensure water availability, the appellant constructed a reservoir at its factory premises through a contract with M/s Chandra Nirman Pvt. Ltd. The total project cost amounted to Rs. 15,75,05,168, out of which Rs. 1,47,08,098 was paid as service tax.

The appellant availed CENVAT credit on the service tax paid for the reservoir construction, considering water as a raw material for paper manufacturing. However, a show cause notice alleged wrongful credit availing, leading to the Joint Commissioner's order confirming the demand.

The Commissioner (Appeals) upheld the demand, citing the amended definition of input services effective from March 1, 2011, excluding certain services like construction of buildings. The Commissioner (Appeals) held that the construction of the reservoir fell under the excluded category, making the credit inadmissible.

The appellant contended that the work order, construction, and payments were completed before April 1, 2011, challenging the Commissioner (Appeals)'s finding that the work was executed post this date. The department's representative supported the order, emphasizing the ledger entry date of March 2012 for credit availing.

Considering Rule 4(7) of the CENVAT Credit Rules 2004 pre-April 1, 2011, which allows credit on payment of input services, the Tribunal found that the construction and payment were indeed completed before this date. The Tribunal deemed the Commissioner (Appeals)'s finding as perverse, setting aside the order and allowing the appeal.

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