2024 (10) TMI 621 - AT - Central Excise

CENVAT credit denied for foundations and civil works but allowed for erection services and structural steel items

CESTAT Bangalore upheld denial of cenvat credit on inputs used for foundations and support structures, as these were specifically excluded under revised ... Cenvat Credit on inputs and input services for the period from August 2010 to March 2015. Denial of credit on Inputs - disallowance on the ground that the same was used either for laying foundations or making support structures for the capital goods which have been specifically excluded based on the revised definition of ‘inputs’ and ‘capital goods’ as per CENVAT Credit Rules, 2004 for the period 01.04.2011 to 30.06.2012 and from 01.07.2012 to 31.03.2015 - HELD THAT:- The only plea taken by the appellant is that the inputs are directly or indirectly used in the manufacture of final products, ignoring the fact that they are specifically excluded from the definition of inputs. In view of the above, the denial of cenvat credit on the inputs during the relevant period is upheld in view of the revised definition of ‘input’ and ‘capital goods’ of CENVAT Credit Rules, 2004. Denial of credit on Earth Excavation Works - HELD THAT:- As seen from the invoices placed by the assessee, the Commissioner in the impugned order has held that the description of work order in the invoices are shown as ‘Earth Work in soft soil, hard rock and soft work and disposal of the soil from the work area’. Thus, the work order being in the nature of civil work and this being excluded from the ‘input service’ with effect from 01.04.2011, the credit has been rightly denied - As seen from the definition of the ‘input services’ during the relevant period, it is very clear that the services of laying a foundation or making of structures a construction or execution of works contract are specifically excluded. Therefore, the Commissioner was right in denying the benefit of cenvat credit on all those invoices where it has been categorically mentioned as Earth Excavation Works. Credit on Erection and Commission and Installation services - HELD THAT:- Since there is no dispute that the goods were used in the office within the factory premises, the cenvat credit is allowed. The Commissioner has denied the benefit on Road Works on the ground that the road work carried out inside the factory is a civil structure and hence, excluded from the purview of the definition of ‘input services’. Since these services are also excluded from the definition of the ‘input services’, rejection of the cenvat credit by the Commissioner is upheld. The amount of credit of Rs.1,26,48,722/- disallowed by the Commissioner has also been reversed by the appellant partly at the time of the adjudication, which has been appropriated in the order; the balance amounts have been reversed on 12.11.2016 along with the interest paid on 07.12.2016 (reversal entry No.2503 with regard to inputs and reversal entry No. 2500,2501 and 2502 with regard to input service). The 25% of the demand which works out to Rs.29,83,667/- has been also paid as penalty amount vide Challan No. 00046 and 00047 dated 07.12.2016. Since, the entire amount has been paid along with the interest and 25% penalty within 30 days of the date of the order, penalty imposed under Section 11AC cannot be sustained. Amounts allowed by the Commissioner as eligible cenvat credit - major amount (Rs.5.20 crores) relates to structural steel items which are used for the manufacture of various capital goods and the Commissioner on verifying the various documents and Chartered Engineer certificate and based on the Jurisdictional Range Officer’s verification has held that the assessee is eligible for the benefit of the cenvat credit - HELD THAT:- The objections raised by the department in their grounds of appeal is that the Jurisdictional Ranger Officer has categorically mentioned that it is not possible to correlate invoice-wise material details with that of the material used and various statements that confirmed the cenvat credit was irregularly availed was ignored by the Commissioner. However, the observations of the Commissioner in the impugned order which are based on facts and the Chartered Engineer’s Certificates cannot be brushed aside. The Range Officers have not disputed the fact that the inputs and input services being used in the factory but only observed that one to one correlation could not be made. It is a settled issue that as per Cenvat Credit Rules one to one correlation is not required but it has to be established that it is used within the factory and satisfies the definition of the ‘input’ and ‘input services’. The Commissioner has clearly established this fact and hence, there are no reason to deny the benefit of cenvat credit as allowed by the Commissioner in the impugned order. Appeal disposed off. Issues Involved:1. Eligibility of Cenvat Credit on inputs and input services for the period from August 2010 to March 2015.2. Denial of Cenvat Credit on specific items and services.3. Invocation of the extended period for penalty under Rule 15(2) of the CENVAT Credit Rules 2004.4. Department's appeal against the amounts allowed as eligible credit.Detailed Analysis:1. Eligibility of Cenvat Credit on Inputs and Input Services:The primary issue revolves around the eligibility of Cenvat Credit on inputs and input services for the specified period. The Commissioner allowed a substantial portion of the alleged irregular cenvat credit on inputs and input services, while disallowing certain amounts as ineligible credit. The disallowed credits were confirmed along with interest, and a penalty was imposed under Section 11AC(1)(c) of the Central Excise Act, 1944, read with Rule 15(2) of the CENVAT Credit Rules 2004. The department appealed against the amounts allowed as eligible credit, while the assessee contested the disallowance.2. Denial of Cenvat Credit on Specific Items and Services:The judgment addressed various specific items and services for which Cenvat Credit was denied:- Earth Excavation Works: Credit was denied as these activities were categorized as civil work, which is excluded from 'input service' post-01.04.2011. The Commissioner upheld this denial based on the definition of 'input service' during the relevant period.- Erection and Commissioning Services: Credit was denied for services related to laying foundations or making support structures for capital goods, which are excluded under the revised definition of 'input services'. The appellant's plea that these services were used in the manufacture of final products was rejected as they are specifically excluded.- Office Furniture and Painting Services: The credit on office furniture was allowed based on the Board's Circular, as it was used within the factory premises. However, credit on painting services was denied as they were used for structural painting, excluded from 'input services'.- Road Works: The denial of credit on road works was upheld as these were considered civil structures, excluded from 'input services'.3. Invocation of Extended Period for Penalty:The appellant argued against the invocation of the extended period for penalty, citing prior intimation to the department about the projects and inputs/input services. The entire ineligible credit amount was paid with interest and a 25% penalty within 30 days of the order, leading to the conclusion that the penalty under Section 11AC was not sustainable.4. Department's Appeal Against Allowed Credits:The department's appeal contested the eligibility of cenvat credit allowed by the Commissioner, particularly on structural steel items used for manufacturing capital goods. The Commissioner, after verifying documents and the Chartered Engineer's certificate, concluded that the credit was rightly allowed. The department's inability to establish a one-to-one correlation between invoices and materials used did not suffice to deny credit, as the Cenvat Credit Rules do not require such correlation. The Commissioner's findings were based on factual verification and were upheld.Conclusion:In conclusion, the appeal by the assessee was partly allowed concerning office furniture, while the department's appeal was dismissed. The judgment emphasized the importance of adhering to definitions in the CENVAT Credit Rules and recognized the validity of credits based on factual usage within the factory premises.