Credit of erection, commission, installation service used in relation to renovation of factory allowed: CESTAT

The brief facts of the case are that the appellant are engaged in the manufacture of petroleum product and petrol chemicals which are cleared on the payment of appropriate duty of excise. In the year 2015 the appellant undertook modernization/ expansion of its manufacturing facilities in their Jamnagar refinery by setting of facilities such as Coke Gasification Island, Air Separation Unit (ASU), Co Recovery Unit , Sulphur Recovery Unit (SRU),Refinery Off-Gas Cracker Plant (ROGC),Low Density Polyethylene Plant (LDPE), Linear Low Density Polythylene Plant (LLDPE), the Captive Power Plant etc. This project was nomenclated by the appellant as the J3 project. The erection, commission, installation service and works contract service in dispute were rendered under 81 contracts by 41 contractors/ service providers. The Appellant have not availed any credit in respect of services used for laying of foundation or for making of structures for support of capital goods. The only credit on Fabrication of structures that has been availed by them in respect of pipes supports to the tune of Rs 33,60,790/- as the said pipe supports are themselves regarded as capital goods as per the definition of “ Capital Goods” under rule 2(a) of Cenvat Credit Rules, 2004, being pipes or tubes fittings. Likewise, the appellant has also not availed any credit on Construction service or Works contract service in so far as they are used for construction or execution of works contract of building or a civil structure or of a part thereof. The contracts for laying of foundation or making of structures for support of capital goods were separately placed or were separate line items/ deliverables in the contracts, in respect of which credit to the tune of Rs 275,05,12,910/- has not been availed in respect of the J3 Project. The contracts for installation of machinery as also technological/ industrial structures such as handrails, ladders , staircases, platforms etc entered into by the appellant were pure service / labour work orders/ contracts wherein all the material required was made available by the appellant to the service provider as free issue. The aforesaid services were provided by the service provider under the head of mainly in respect of ECIS and in few case under WCS. On these services the appellant had availed the Cenvat credit. Based on audit conducted by the department the appellant was issued a Show cause notice dated 07.06.2019 alleging that the Cenvat credit availed by the appellant in respect of services of ECIS and WCS (relating to installation and commissioning) received by it, for the four categories of work, enumerated below was inadmissible. According to the Notice, the services availed were construction services or service portion in the execution of WCS which were used for construction of a building or civil structure or a part thereof and/or making structure for support to capital goods, and that these services were covered by the exclusion clause in the definition of “input service”.

The Adjudicating Authority vide their impugned order disallowed the Cenvat credit in respect of ECIS and WCS on the ground that the services fall under the exclusion clause in the definition of input services under Rule 2 (1) of Cenvat Credit Rules, 2004. Being aggrieved by the Order-in-Original dated 24.06.2020 the appellant filed the present appeal with Customs, Excise & Service Tax Appellate Tribunal (CESTAT).

CESTAT Order:

4.12 Without prejudice, We are also of the opinion that the appellant is not a provider of service of construction of a building or a civil structure nor maker of structure for support of capital goods. The appellant is a manufacturer of various excisable goods; the credit taken on ECIS is attributed to the manufacture of excisable goods considering the status of the appellant. In our alternate view the exclusion is applicable to the service provider of construction of a building or a civil structure or maker of structure for support of capital good. In the facts of the present case the appellant being the manufacturer of excisable goods availed the credit on ECIS. In these circumstances the exclusion clause is not applicable to the appellant. For this reason also the denial of credit on ECIS is not sustainable.

4.13 The appellant strongly raised the issue of demand for the extended period is hit by limitation. As per the submission of the appellant the extended period was invoked only on the ground that the appellant did not provide the information sought for during the course of audit. It is also their submission that for invoking the extended period of limitation it has to be established that there was wilful suppression at the time when the credit was availed by an assessee and not on the basis of what information was furnished or not furnished by the assessee at the time of audit. We find that the information sought for during the audit was details of Cenvat credit on the service availed in relation to construction of civil structure and for support of capital goods. As per the submission of the appellant, it is their bona fide belief that no credit whatsoever has been availed by it on any construction services let alone the service which has been used for construction of civil structures or for making the structure for support of capital goods would not have furnished the information called for. Therefore, it cannot be said that the appellant have suppressed the fact wilfully with intent to take wrong cenvat credit. We further find that the issue involved is of interpretation of exclusion clause given in definition of input service under Rule 2(l) and it is also observed that the said exclusion clause invited a plethora of litigation. In these circumstances, it cannot be said that the appellant have wilfully suppressed the facts with intent to avail wrong credit. Therefore, we are of the view that the demand for the extended period is not sustainable on the ground of limitation also.

4.14 As regard the denial of cenvat credit of Rs. 29480/- in respect of WCS, we find that this credit was taken in respect of two invoices bearing No. 15 dated 30.05.2015 and RA-18 dated 31.05.2017. This amount of credit is covered under the extended period of limitation. Therefore, the demand of cenvat credit of Rs 29480/- is not sustainable on the ground of time bar itself. Hence we are not going into the merits of this particular service of WCS.

5. As per our above discussions and findings, we are of the clear view that the appellant have correctly availed the cenvat credit in respect of ECIS therefore, the demand of cenvat credit on ECIS service is not sustainable.

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