2025 (8) TMI 999 - AT - Service Tax

CENVAT credit denied for construction items in EPC airport expansion; contractor eligible, remanded to reassess non-construction goods

Bangalore International Airport Ltd. Versus The Commissioner of Central Tax, Bengaluru - IV Commissionerate

Bangalore International Airport Ltd. Versus The Commissioner of Central Tax, Bengaluru - IV Commissionerate - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit on duties/taxes paid on goods procured/imported by an EPC contractor for execution of airport terminal construction is eligible to be availed by the employer/service receiver when goods are consigned in the employer's name. 2. Whether the contractor's exemption from payment of service tax (per exemption notifications) precludes transfer/availability of CENVAT credit to the employer in respect of goods used in construction works. 3. Whether specific categories of goods (furniture, lights, fittings, project imports and similar items) procured/consigned in the employer's name but used in the EPC project qualify as inputs or capital goods eligible for CENVAT credit in the hands of the employer. 4. Whether extended period of limitation and invocation of suppression can be sustained where regular returns and audits disclose the credits claimed. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility of CENVAT credit where goods are procured/imported by EPC contractor but consigned in employer's name Legal framework: Rule 2(k), Rule 3 proviso, Rule 4 and Rule 14 of the CENVAT Credit Rules, 2004; Section 73 (recovery) and exclusion clauses dealing with goods used for construction or execution of works contract. Precedent treatment: Tribunal decisions and circulars referenced by parties (e.g., Visteon decision, Circular No. 490/56/99-CX) were relied upon by appellant; adjudicating authority relied on statutory exclusions in CCR 2004. Interpretation and reasoning: The Court examined the EPC contract terms and statutory definitions. CCR 2004 defines 'input' and excludes goods used for construction/execution of works contract of a building or civil structure. An EPC contractor executes design, procurement and construction; goods procured and utilised by the contractor in execution of the works contract become part of the civil structure and are excluded from being inputs available to the employer for CENVAT credit. Mere consignment in the employer's name for convenience or to facilitate import formalities does not convert goods actually used by the contractor into goods used by the employer for provision of output service. Ratio vs. Obiter: Ratio - CENVAT credit cannot be availed by the employer for goods procured and used by the EPC contractor in execution of construction/works contract, notwithstanding consignation to employer's name. Obiter - Contractual arrangements to 'bill-to/ship-to' or to optimize tax do not override statutory exclusions. Conclusions: Demand confirmed to the extent credit related to goods used in construction by the contractor; employer not entitled to CENVAT credit for such goods. Issue 2 - Effect of contractor's exemption from service tax on transfer/availability of CENVAT credit to employer Legal framework: Notification exemptions (Notification No. 42/2010-ST and No. 25/2012-ST) exempting construction services for specified airport works; CCR 2004 provisions on availment and transfer of CENVAT credit; contractual clauses re passing on credit. Precedent treatment: Authority placed emphasis on statutory position over contractual allocation; parties cited contract clauses showing contractor agreed to pass on credit but exemptions were in force. Interpretation and reasoning: Where the contractor's output service is exempt and the contractor does not discharge service tax, the contractor cannot legitimately avail or pass on CENVAT credit in respect of inputs/services forming part of the exempted construction service. Even if contractually agreed, such passing on cannot create eligibility in the hands of the employer for credits that are statutorily excluded. Thus, exemption status of contractor strengthens the conclusion that credits claimed by employer for construction-related goods are not permissible. Ratio vs. Obiter: Ratio - Exemption enjoyed by contractor on construction services precludes contractor's availing of CENVAT for that output service and, consequently, negates contractual transfer to employer for construction-related goods. Obiter - Contractual allocation of tax optimization responsibilities cannot override statutory ineligibility. Conclusions: Credits allegedly passed from the contractor in respect of goods used in exempt construction cannot sustain employer's CENVAT claim; adjudication upholding denial in respect of construction-related goods upheld on this ground. Issue 3 - Entitlement to credit for particular categories (furniture, lights, fittings, project imports, capital goods) consigned to employer Legal framework: CCR 2004 definitions (inputs, capital goods), proviso to Rule 3 for project imports (CTH 98.01), and relevant Board circulars (e.g., Circular No. 943/4/2011-CX and earlier circulars) and Tribunal precedents cited (e.g., ICICI Lombard decision on furniture). Precedent treatment: The appellant relied on Tribunal and circular authority permitting credit where goods are used for provision of output services (furniture, office equipment) and on the proviso that project imports under specified CTHs are eligible for credit irrespective of actual nature. Interpretation and reasoning: The Court distinguished goods genuinely used by the employer in providing taxable output services from goods used in construction activity by the contractor. If goods (e.g., furniture, lighting fixtures, certain capital goods) are not part of the construction/civil structure and are actually consigned to and used by the employer in provision of output service, CCR definitions allow classification as inputs or capital goods and permit credit. Project imports falling within the specified tariff/item categories under the proviso to Rule 3 may qualify despite procurement through contractor, provided the statutory conditions (e.g., Bill of Entry in employer's name) are met. The adjudicating authority's blanket denial was therefore not sustainable for such non-construction items properly evidenced as received and used by the employer. Ratio vs. Obiter: Ratio - CENVAT credit is allowable to the employer for items not forming part of the construction/civil structure (e.g., furniture, lights, qualifying capital goods, and eligible project imports) if statutory conditions and documentary evidence show goods were consigned to and used by the employer for provision of output service. Obiter - The extent of allowable credit must be re-examined by the original authority with opportunity to be heard. Conclusions: Denial of credit in respect of non-construction goods (furniture, lights, qualifying capital goods/project imports consigned to employer) cannot be sustained without further inquiry; matter remanded for fresh examination limited to such items with directions for hearing and disposal within three months. Issue 4 - Extended limitation/suppression and applicability of regular period where returns and audits disclosed credits Legal framework: Limitation provisions under relevant statute and case law on suppression vs. mere misapprehension; reliance on High Court authority (Sanmar Speciality Chemicals) regarding disclosure and audit mitigating suppression findings. Precedent treatment: The appellant relied on regular audits, returns and disclosure; authority cited supports that where credits were disclosed in returns/audit, suppression may not be established. Interpretation and reasoning: The Tribunal accepted that regular returns were filed and audits were conducted; show-cause notice issued after audit does not, per se, indicate suppression. Given disclosure and contemporaneous filings, invoking extended period of limitation for recovery was not justified. Ratio vs. Obiter: Ratio - Extended period of limitation based on suppression cannot be invoked where credits were regularly disclosed in returns and subjected to audit; demand confined to normal period. Obiter - Particular facts of audit and timing to be considered by original authority on remand if necessary. Conclusions: Extended limitation/suppression not sustained; demand must be confirmed (if at all) only for normal period; matter remanded for limited re-examination on non-construction items. Cross-references and overall disposition - Issues 1 and 2 are interlinked: statutory exclusion for construction-related goods and contractor's exemption together foreclose employer's entitlement for such goods (see Issues 1-2 analysis). - Issue 3 is distinct: non-construction items consigned to employer may qualify and require factual re-assessment (see remand directions). - Issue 4 limits temporal reach of any demand. Final disposition: Tribunal affirms denial of CENVAT credit to the employer insofar as credits relate to goods procured and used by the EPC contractor in construction (statutory exclusion and contractor exemption). Tribunal allows remand for fresh adjudication on goods not forming part of construction (furniture, lights, qualifying capital goods/project imports consigned to employer), and restricts demand to the normal limitation period.