2026 (2) TMI 1269 - AT - Central Excise

Cenvat Credit eligibility for capital goods used in service supply affirmed; permanent foundations excluded and extended penalties not invokable.

Cenvat credit is admissible on cryogenic storage tanks treated as capital goods and on SS coils, sheets and plates used in fabrication, erection and ... Cenvat credit on capital goods used for providing output service - Eligibility of inputs used in on-site fabrication and erection - Movable nature of site-erected specialised tanks and excisability - Exclusion of construction materials used for foundations from eligible inputs - Extended period of limitation and invocation of penalty in absence of deliberate evasion - Cenvat credit on capital goods used for providing output service - HELD THAT:- We find that the appellants are not only manufacturer of the industrial gas but they are also having Service Tax registration as is evident from the various ST-3 returns being filed and also they were providing certain services including supply of tangible goods, erection and commissioning service etc. There is no denial that Cryogenic Tank, per se, is a capital good and a capital good used for providing taxable service i.e. supply of tangible goods is an eligible capital good unless it is specifically excluded from the purview of the capital goods. We do not find any such exclusion in respect of storage tank. We also find that Department has clearly issued a Show Cause Notice dated 23.05.2014 for non-payment of Service Tax on supply of tangible goods service by the appellant. Thus, to that extent, they will be eligible for taking credit in respect of Cryogenic Tank, which is a capital goods, used for providing output service i.e., supply of tangible goods. Credit on SS Coils, Sheets and Plates used for fabrication and installation - We find that various Co-ordinate Benches have taken into account various case laws to come to the conclusion that items used for fabrication of capital goods and even for repairs and maintenance of such capital goods would be eligible for taking credit. Storage Tank, being a capital good is not in dispute. We also find that in the case of Kisan Co-operative Sugar Factory Ltd. [2023 (12) TMI 1303 - SUPREME COURT], Hon’ble Supreme Court, inter alia, held that various products like MS plates, used for repair and maintenance, fabrication etc., of capital goods would also be eligible for credit or otherwise. In the present appeal, such items were bought by the appellant and were taken to the customer site for fabrication as well as erection of a storage tank. In the present appeal, these are specialised tanks, which are attached to a foundation, but the same can be moved or dismantled at the end of contract period. The materials have been used for fabrication of such storage tanks and also for erection and commissioning of such tanks. Therefore, when they are providing the output services of supply of tangible goods and as also erection/commissioning service, such SS items will also be eligible as inputs used for providing output service. After examining the scope of Rule 2(a)(A) of Rule 2(k) of CCR in relation to eligibility of credit in respect of mobile towers, parts and PFB, it was held that they are goods and will be eligible for credit as “input” used for providing output service. Therefore, in view of discussion above, the demand on this ground will also not sustain. Demand on account of cement and bars used for erection of storage tanks, we do not find any reason to interfere with the findings on merits, as it is especially excluded under the CCR. However, insofar as demand on welding electrodes is concerned, the same stands settled by the Supreme Court in the case of Kisan Co-operative Sugar Factory Ltd., supra, therefore, it is an eligible input. To sum up, they are eligible to take credit in respect of the storage tank and MS items covered in the demand, except for Cenvat Credit on bars and cement used for making foundation and support structure for storage tank, both bought out as well as fabricated at site. The demand only to this extent will sustain. Limitation - We find that even the issue which has been the main ground for invoking demand i.e., the fabrication of storage tank at site and attached to earth being not excisable good is also not relevant anymore in view of subsequent judgments covering identical issues. There is also no specific evidence that it was attached to earth in such a manner that it could not have been removed, if it is so desired. We also note that the Department itself initially stated that they are not provider of output service. But later on they held that they were also providing output service. We also note that the whole issue is based on certain interpretations of Cenvat Credit Rules read with certain prevailing judgments in relation to factual matrix and hence it is an interpretational issue. In view of the same, extended period is not invokable and accordingly penalty is also not imposable. Therefore, the demand would not sustain both on merit as well as on limitation, except for cement and bars used for foundation and support structure, however, since demand on cement and bars is also beyond normal period, it would not sustain on limitation. The impugned order is therefore liable to be set aside. Issues: (i) Whether Cenvat credit is admissible on cryogenic storage tanks (capital goods) acquired and used in relation to supply of tangible goods and erection/commissioning services; (ii) Whether Cenvat credit is admissible on SS coils, sheets, plates and similar items used for fabrication, installation or erection of storage tanks at customer sites; (iii) Whether Cenvat credit is admissible on cement and bars used for foundation and support structures; (iv) Whether extended period of limitation and penalty are invokable for the credit taken.Issue (i): Admissibility of Cenvat credit on cryogenic storage tanks used in relation to supply of tangible goods and erection/commissioning services.Analysis: The appellants held service tax registration and supplied storage tanks as part of supply of tangible goods and provided erection/commissioning services. Capital goods are in principle eligible when used for providing output service unless specifically excluded. The factual matrix shows tanks were used in provision of taxable services and not solely as factory assets for manufacture of excisable goods. Relevant provisions of the Cenvat Credit Rules were considered.Conclusion: Cenvat credit on cryogenic storage tanks is admissible in favour of the assessee.Issue (ii): Admissibility of Cenvat credit on SS coils, sheets, plates and similar items used for fabrication and installation of storage tanks at customer sites.Analysis: The items were used for fabrication, erection and commissioning of specialized storage tanks which function as capital goods for the services provided. Precedent supports creditability of materials used in fabrication or repair of capital goods where they serve as inputs for provision of output service. The tanks in question are removable/dismantlable at contract end in the factual matrix and therefore are not permanently immovable so as to be excluded.Conclusion: Cenvat credit on SS coils, sheets, plates and similar items used for fabrication and installation is admissible in favour of the assessee.Issue (iii): Admissibility of Cenvat credit on cement and bars used for foundation and support structures for storage tanks.Analysis: The Cenvat Credit Rules specifically exclude materials used for certain purposes like permanent foundations and support structures. The record indicates cement and bars were used for foundations/supports which fall within that exclusion.Conclusion: Cenvat credit on cement and bars for foundation and support structures is not admissible; conclusion against the assessee.Issue (iv): Invokability of extended period of limitation and penalty for the credit taken.Analysis: The claims were filed in statutory returns, there is no evidence of deliberate evasion or suppression, and the issue involved unsettled and conflicting precedent at the relevant time. Extended period and penalty require specific proof of deliberate intent; absent such proof and given interpretational nature of the dispute, extended period and penalty are not invokable.Conclusion: Extended period of limitation and penalty are not invokable; conclusion in favour of the assessee.Final Conclusion: The appeal is allowed except insofar as Cenvat credit on cement and bars used for foundations/support structures is concerned; consequential reliefs granted as per law.Ratio Decidendi: Capital goods and materials used in fabrication, erection or commissioning of capital goods are eligible for Cenvat credit when used for providing output services unless the Rules expressly exclude specific items or uses; exclusion for materials used in permanent foundations/support structures precludes credit for cement and bars.