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of <h1>Cement plant eligible for CENVAT credit on input services despite removal of setting up definition</h1> <h3>M/s. NU Vista Limited Versus Commissioner of Service Tax, Kolkata</h3> M/s. NU Vista Limited Versus Commissioner of Service Tax, Kolkata - TMI ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment involve the following:1. Whether the appellant is eligible for the availment of CENVAT Credit of Rs.57,68,603/- on input services used in setting up a cement plant, given the removal of the term 'setting up' from the definition of 'input service' effective 01.04.2011.2. Whether the appellant is entitled to the CENVAT Credit of Rs.32,557/- availed on the basis of Debit Notes for rent (reimbursement of electricity charges) under Rule 4A of the Service Tax Rules, 1994.3. Whether the demand of Service Tax of Rs.85,692/- is sustainable given the appellant's claim of having already paid the amount.4. Whether the demand for interest amounting to Rs.24,88,246/- is justified when the appellant had an excess CENVAT Credit balance.5. Whether the imposition of a penalty of Rs.61,21,372/- under Section 78 of the Finance Act, 1994, is warranted.ISSUE-WISE DETAILED ANALYSIS1. Eligibility for CENVAT Credit on Input Services (Rs.57,68,603/-)The relevant legal framework involves the CENVAT Credit Rules, 2004, particularly Rule 2(l), which defines 'input service.' The appellant argued that the services availed, such as banking, financial services, and legal consultancy, qualify as input services despite the removal of 'setting up' from the definition. The Court referenced prior decisions, including M/s. Bharat Coking Coal Ltd., which supported the appellant's position that services used for setting up a factory remain eligible for credit post-01.04.2011. The Court applied the 'user test' principle, which considers whether services are integral to the manufacturing process. The Court concluded that the appellant is eligible for the CENVAT Credit as the services availed were not for civil works but were essential for plant setup.2. CENVAT Credit on Debit Notes (Rs.32,557/-)The appellant claimed CENVAT Credit based on Debit Notes for rent, asserting compliance with Rule 4A of the Service Tax Rules, 1994. The Court acknowledged the appellant's payment of Rs.2,34,520/- and focused on the remaining Rs.32,557/-. The Court referred to precedents such as Gates Unitta Indian Company Pvt. Ltd., which upheld the validity of Debit Notes for CENVAT Credit claims. The Court found that the Debit Notes contained all necessary details, thereby supporting the appellant's eligibility for the credit.3. Demand of Service Tax (Rs.85,692/-)The appellant contended that the Service Tax had already been paid, evidenced by a GAR Challan. The Court verified this claim and appropriated the amount against the confirmed demand, thereby negating any further penalty.4. Demand for Interest (Rs.24,88,246/-)The appellant argued against the interest demand, citing an excess balance in their CENVAT Credit account. The Court noted that since the principal Service Tax demand was not sustained, the interest demand was also unsustainable. The Court set aside the interest demand, aligning with the principle that interest cannot be levied if the underlying tax demand is invalid.5. Imposition of Penalty (Rs.61,21,372/-)Given the Court's findings that the Service Tax demands were not sustainable, the basis for the penalty under Section 78 of the Finance Act, 1994, was also invalidated. The Court set aside the penalty, emphasizing that penalties cannot be imposed when the primary demands are not justified.SIGNIFICANT HOLDINGSThe Court established several core principles:1. The removal of 'setting up' from the definition of 'input service' does not preclude the availment of CENVAT Credit for services integral to the plant setup, as supported by the 'user test' principle.2. Debit Notes, when compliant with Rule 4A of the Service Tax Rules, 1994, are valid documents for claiming CENVAT Credit.3. Interest demands are unsustainable when the principal tax demand is invalid, and sufficient CENVAT Credit balance exists.4. Penalties under Section 78 are not justified when the underlying tax demands are not upheld.The final determinations on each issue were as follows:- The appellant is eligible for the CENVAT Credit of Rs.57,68,603/-.- The demand of Rs.2,34,520/- is upheld and appropriated, while the credit of Rs.32,557/- on Debit Notes is allowed.- The demand of Rs.85,692/- is appropriated against the liability confirmed.- The demand for interest of Rs.24,88,246/- is set aside.- No penalty is imposed on the appellant.
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