Assessee's CENVAT appeal partly succeeds: Rule 2(l) bars construction credit, GTA outward freight credit restored

CESTAT Chennai partly allowed the assessee's appeal concerning CENVAT credit on input services. For the period January 2010 to December 2011, it upheld denial of CENVAT credit on construction services, holding that after 01.04.2011 Rule 2(l) expressly excludes service portion of works contracts and construction services involving building or civil structures, leaving no scope for contrary interpretation. However, for the period June 2011 to March 2014, it set aside denial of credit on GTA outward transportation services, following its earlier decision in the assessee's own case and the Larger Bench ruling.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether CENVAT credit is admissible on service tax paid on "Construction Services" availed during the period January 2010 to December 2011.

1.2 Whether CENVAT credit is admissible on service tax paid on "Outward Transportation (GTA) Services" availed during the period June 2011 to March 2014.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 CENVAT credit on Construction Services (January 2010 to December 2011)

(a) Legal framework (as discussed)

2.1.1 The Court examined Rule 2(l) of the CENVAT Credit Rules, 2004, as amended with effect from 01.04.2011. Post-amendment, the definition of "input service" contains a specific exclusion for "the service portion in the execution of a works contract and construction services" involving construction of a building or a civil structure or part thereof.

(b) Interpretation and reasoning

2.1.2 The Court referred to the assessee's own Annexure I to the reply to the show cause notice, which set out, in tabular form, the nature of "construction services" on which credit was taken, both prior to and after 01.04.2011. These included construction of compound wall, conveyor pits, main foundry and structural works, roof sheeting works, security watch tower, fettling shop expansion, administrative building, internal roads, sand storage shed, RCC foundations for machinery, new machine shop, and new melting shop, among others.

2.1.3 The Court found that the activities described in Annexure I clearly related to "construction" of buildings, civil structures, or parts thereof. It specifically noted that Rule 2(l), as applicable from 01.04.2011, contains an exclusion for "service portion in the execution of a works contract and construction services" in respect of such construction.

2.1.4 The Court held that it was not open to interpret the provision in a manner that would render the legislative exclusion nugatory. From a plain reading, any construction of a building or civil structure or part thereof is hit by the exclusion clause in Rule 2(l) post 01.04.2011.

2.1.5 On this basis, the Court found no defect or infirmity in the Commissioner's reasoning that credit on such "construction services" was inadmissible.

(c) Conclusions

2.1.6 CENVAT credit on "construction services" involving construction of buildings, civil structures, or parts thereof, as reflected in Annexure I, is not admissible in view of the exclusion in Rule 2(l) of the CENVAT Credit Rules, 2004 (post 01.04.2011).

2.1.7 The denial of CENVAT credit on the impugned construction services by the adjudicating authority is upheld, and the appeal is dismissed to this extent.

2.2 CENVAT credit on Outward Transportation (GTA) Services (June 2011 to March 2014)

(a) Legal framework (as discussed)

2.2.1 The Court proceeded on the basis of Rule 2(l) of the CENVAT Credit Rules, 2004, which permits credit on input services used up to the "place of removal". The assessee had contended that, under FOR destination contracts, the place of removal is the customer's premises, and relied on CBEC Circular No. 1065/4/2018-CX dated 08.06.2018 and the Larger Bench decision in The Ramco Cements v. CCE, Pondicherry.

(b) Interpretation and reasoning

2.2.2 The Court noted that, for an earlier period, the very same Bench, in the assessee's own case, had allowed CENVAT credit on outward GTA services by following the Larger Bench decision in The Ramco Cements v. CCE, Pondicherry.

2.2.3 Relying on the said Larger Bench ruling, and the earlier final order in the assessee's own case, the Court held that the denial of credit on GTA outward transportation, as made in the impugned order, was contrary to the settled legal position.

(c) Conclusions

2.2.4 The disallowance of CENVAT credit on service tax paid on outward GTA services during June 2011 to March 2014 is held to be bad in law and is set aside.

2.2.5 The appeal is allowed to the extent of eligibility of CENVAT credit on outward transportation (GTA) services, with consequential benefits as per law.

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