2025 (8) TMI 1659 - AT - Service Tax

Appeal condoned; boiler design, supply and commissioning treated as Consulting Engineer service; CENVAT credit allowed, penalties waived

M/s. Enmas Andritz Pvt. Ltd. Versus Commissioner of GST Central Excise, Chennai

M/s. Enmas Andritz Pvt. Ltd. Versus Commissioner of GST Central Excise, Chennai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the delay in filing appeals before the Commissioner (Appeals) is condoned so that the appeals can be adjudicated on merits under the statutory time limits and proviso to Section 85(3) of the Finance Act, 1994 as it stood during the relevant period. 2. Whether the appellant's activity of designing and supply of recovery boilers (including feasibility study, design engineering, procurement, construction supervision, commissioning supervision and related post-operation services) is appropriately classifiable as 'Consulting Engineer's Service' for service tax purposes, where the department has accepted such classification and service tax has been paid. 3. Whether CENVAT credit under the CENVAT Credit Rules, 2004 (notably Rule 2(l)'s definition of 'input service') is admissible on various input services (banking/financial, business support, courier, chartered accountancy, insurance, manpower recruitment, rent/guest house, telecom, renting of immovable property, rent-a-cab, testing/inspection, canteen) when those services are used in rendering the output service of Consulting Engineering. 4. Whether the input services for which credit was availed were in fact used in relation to a trading activity (an exempt or non-taxable activity) such that credit must be denied. 5. If CENVAT credit is held to be admissible, whether demand of interest and imposition of penalties in respect of the impugned credits remains warranted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeals Legal framework: The proviso to Section 85(3) of the Finance Act, 1994 (as in force for the relevant period) permits the Commissioner (Appeals) to condone delay in filing an appeal up to a further period of three months upon sufficient cause. Precedent treatment: The Tribunal treated the statutory timelines and proviso as permitting condonation where the appeal was filed within the condonable period even if the Commissioner (Appeals) did not explicitly record condonation, particularly when the Commissioner proceeded to decide the appeal on merits. Interpretation and reasoning: The order finds the original communication date and computes the three-month statutory window and the additional three-month condonable period. The appellant's filing date falls within the condonable period. The Commissioner (Appeals) adjudicated the appeal on merits despite no explicit condonation; such adjudication is treated as implicit condonation. Ratio vs. Obiter: Ratio - where an appeal is filed within the condonable period and the Commissioner (Appeals) decides on merits, the delay is treated as condoned permitting adjudication on merits; Obiter - none additional. Conclusion: Delay in filing before the Commissioner (Appeals) is held condoned; the appeals are maintainable and can be decided on merits. Issue 2 - Classification of activity as Consulting Engineer's Service Legal framework: Service tax classification depends on the nature of activities actually undertaken; acceptance by the department of both registration and payment under a tax category is relevant. Precedent treatment: The Tribunal relied on the factual acceptance by the department and aligned with prior decisions that services comprising design, procurement supervision and commissioning supervision fall within consulting engineering services where those activities are integral to providing engineering consultancy. Interpretation and reasoning: The Tribunal analyzed the scope of the appellant's activity (feasibility, pre-design, basic/detailed design, procurement, construction supervision, commissioning, post-operation services, troubleshooting) and concluded these are integral components of consulting engineering. The department had accepted the classification and the payment of service tax and never questioned the classification. Ratio vs. Obiter: Ratio - where the department accepts classification and tax payment for a composite service whose constituent activities are consistent with a taxable service category, that classification is decisive unless successfully challenged; Obiter - none added. Conclusion: The activity is appropriately classifiable as Consulting Engineer's Service and the department's acceptance of service tax payment is operative. Issue 3 - Admissibility of CENVAT credit on input services used in rendering the output service Legal framework: Rule 2(l) CCR, 2004 defines 'input service' broadly to include services used in relation to business; CENVAT credit is admissible on input services used in provision of taxable output services subject to statutory exclusions. Precedent treatment: The Tribunal relied on decisions holding that any service commercially required for carrying on the business and used in relation to provision of output service falls within 'input service'; it also relied on higher court authority that, where the department has accepted payment of tax on the output service, credit pertaining to input services used for such output service cannot be denied. Interpretation and reasoning: The Tribunal examined the nature of each input service and its nexus with the appellant's consulting-engineering contract. It found (i) the services were availed by the appellant during provision of the consulting engineering output service; (ii) job work and procurement activities were part of the consulting contract; and (iii) there was no documentary evidence that the input services were used for a trading activity separate from the consulting service. The Tribunal reconciled conflicting coordinate-bench orders by emphasizing factual matrix and the departmental acceptance of the output service tax. It applied the principle that credits used in providing a taxed output service are not to be denied where the department has accepted tax payment on that output service. Ratio vs. Obiter: Ratio - where input services are shown on record to be used in providing a taxable output service (and the department has accepted the output service taxation), such input services qualify as 'input service' under Rule 2(l) and CENVAT credit cannot be denied merely because identical or similar inputs might in other circumstances relate to trading; Obiter - reliance on specific coordinate-bench orders was contextual rather than normative. Conclusion: CENVAT credit on the listed input services is admissible as they were used in relation to the consulting engineering output service and fall within the definition of 'input service.' Issue 4 - Allegation that input services were used for trading activity, thereby disentitling credit Legal framework: CENVAT credit is not available for services used exclusively for exempted or non-taxable activities; burden lies in showing nexus and exclusive use for such exempt activities. Precedent treatment: Coordinate decisions exist both allowing and disallowing credit in the appellant's own matters depending on whether input service use was found to be connected to trading. The Tribunal noted such divergence and treated them as fact-specific. Interpretation and reasoning: The Tribunal found no documentary or evidentiary basis on record to substantiate that the impugned input services were used in relation to the appellant's trading activity. Instead, the contractual records and the nature of the services demonstrated direct linkage to clients and to the provision of consulting-engineering services. Where evidence to the contrary is absent, the departmental allegation of trading-use cannot sustain disallowance. Ratio vs. Obiter: Ratio - denial of credit on the ground of use for trading requires positive evidence demonstrating such exclusive or predominant use; in absence of such evidence, credit must be allowed; Obiter - discussion of prior conflicting orders is explanatory. Conclusion: Input services were not shown to be used for trading; therefore credit cannot be denied on that ground. Issue 5 - Consequences for interest and penalties where credit is held admissible Legal framework: Interest and penalty provisions attach to irregular availment of credit or to demands; if credit is found properly availed, consequential penalties and interest are not sustainable. Precedent treatment: The Tribunal followed the principle that if impugned CENVAT credit is properly admissible, there is no basis to demand interest or impose penalties arising from denial of that credit. Interpretation and reasoning: Having held the credit admissible on the input services, the Tribunal reasoned that any consequent demand of interest or penalty premised on denial of such credit falls away. Ratio vs. Obiter: Ratio - where CENVAT credit is finally held admissible, demands for interest and penalties based on denial of that credit are not maintainable; Obiter - none substantive. Conclusion: No interest or penalties are leviable in respect of the credit that has been held admissible. Overall Disposition The Tribunal holds that the delay in appellate filing is condoned; the appellant's activity is taxable as Consulting Engineer's Service; the listed input services qualify as 'input service' under Rule 2(l) CCR, 2004 and credit on them is admissible because they were used in relation to the output service accepted by the department; allegations of use for trading were not substantiated; and, consequently, demands for interest and penalty do not survive. The impugned order denying credit is set aside and the appeals are allowed with consequential relief as per law.