CENVAT credit allowed for dismantling services and RCM transition but excess credit confirmed for Rule 7 non-compliance

CESTAT NEW DELHI allowed the appeal in part. The tribunal held that CENVAT credit of Rs. 6,86,000/- on services for dismantling and repacking exported PET plant was admissible as input services. Credit of Rs. 5,15,579/- for RCM liability paid in July 2017 for June 2017 was allowed, citing transition provisions. However, excess credit of Rs. 2,41,451/- was confirmed as wrongly availed due to non-compliance with Rule 7 distribution requirements between manufacturing units. Credit on Education Cess was held admissible based on Madras HC precedent. Service tax demands on Ocean Freight (Rs. 6,64,172/-) and Government Fees (Rs. 1,07,393/-) were set aside, with the tribunal finding no constitutional levy basis for Ocean Freight and no service provision for government fees.

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Issues Involved:
1. Wrong availment of CENVAT Credit of Rs. 6,86,000/- on services from M/s Satnam Construction Co.
2. Wrong availment of CENVAT Credit of Rs. 5,15,579/- on challan in respect of RCM liability for June-17 paid in July-2017.
3. Excess availment of CENVAT Credit of Rs. 2,41,451/- in excess on services attributable to both the appellant and another unit.
4. Wrong availment of CENVAT Credit of Rs. 1,31,219/- of Education Cess & SHE Cess.
5. Wrong availment of CENVAT Credit of Rs. 82,720/- on M.S. Bar, Channel, H.R. Coil, etc.
6. Non-payment of Service Tax of Rs. 6,64,172/- on Ocean Freight.
7. Non-payment of Service Tax of Rs. 1,07,393/- on Government Fees under RCM.

Summary:

Issue No. 1:
The appellant availed CENVAT Credit of Rs. 6,86,000/- on services from M/s Satnam Construction Co. for dismantling, cleaning, painting, and packing a PET plant for export to Jamaica. The Tribunal held that these services qualify as input services u/s Rule 2(l) of CCR, 2004, as they were used by the provider of output service for providing output service. The order of the Commissioner (Appeals) was set aside.

Issue No. 2:
The appellant availed CENVAT Credit of Rs. 5,15,579/- on challan for RCM liability for June-17 paid in July-2017. The Tribunal noted that with the introduction of GST from 01.07.2017, the appellant had no option but to avail credit in its ST-3 return for June-17. Denying this credit would cause undue hardship. The Tribunal allowed the credit and set aside the findings of the lower authority.

Issue No. 3:
The appellant was alleged to have availed excess CENVAT Credit of Rs. 2,41,451/- in its Phagi Unit instead of Gandhidham Unit. The Tribunal held that post-amendment in Rule 7 of CCR, 2004, it was mandatory to distribute credit proportionally. The appellant's allocation was not as per Rule 7, and the finding of the lower authority was upheld.

Issue No. 4:
The appellant availed CENVAT Credit of Rs. 1,31,219/- of Education Cess & SHE Cess. The Tribunal referred to Notifications No. 12/2015-CE(NT) and 22/2015-CE(NT) and the judgment in Sutherland Global Services Pvt. Ltd., holding that credit accumulated would not lapse unless expressly stated. The Tribunal held the credit was wrongly denied and set aside the findings of the lower authority.

Issue No. 5:
The appellant availed CENVAT Credit of Rs. 82,720/- on M.S. Bar, Channel, H.R. Coil, etc., used for repair and maintenance of capital goods. The Tribunal, citing various judgments, held that items used for repair and maintenance are eligible for credit. The findings of the lower authority were set aside.

Issue No. 6:
The appellant was alleged to have not paid Service Tax of Rs. 6,64,172/- on Ocean Freight. The Tribunal referred to the Supreme Court's judgment in UOI Vs. Mohit Mineral Pvt. Ltd., holding the levy of IGST on Ocean Freight as unconstitutional. The findings of the lower authority were set aside.

Issue No. 7:
The appellant was alleged to have not paid Service Tax of Rs. 1,07,393/- on Government Fees under RCM. The Tribunal held that no service was provided by the DGFT and Transport department, and the fees paid were for procuring licenses and permits, not for services. The demand was held to be wrongly confirmed, and the findings of the lower authority were set aside.

Conclusion:
The Tribunal set aside the order confirming demands on all issues except Issue No. 3 regarding disproportionate distribution of credit to the Phagi unit. The appeal was allowed except for the demand on Issue No. 3.

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