Cenvat Credit on Cement & TMT bars used in Construction of Warehouses for Storage

PJ/Case Laws/2011-12/1317

Case: CCE, Vishakhapattnam–II v/s Sai Sahmita Storage Tank (P) Ltd.

Citation: 2011 (23) S.T.R. 341 (A. P.)

Issue:- Cenvat credit on cement and TMT bars used in construction of warehouses for providing storage and warehousing service – admissibility of.

Brief Facts:- Respondent-assessee was registered with Service Tax Department for providing Storage and Warehousing Services. While scrutinizing their ST-3 returns for the period from April, 2005 to September, 2005 the Assessing Authority came to the conclusion that the assessee had taken credit on Central Excise duty paid on cement, iron bars, expansion bellows and pipes.

A show cause notice was issued proposing to adjudicate and determine short paid service tax and penalty thereon. The Assessing Authority passed the Order confirming the demand of service tax under Section 73 with interest and imposed penalty under Section 78 of the Finance Act read with Rule 15(1) of the Rules; adjusted the service tax through CENVAT credit taken in ineligible items and imposed penalty of Rs. 100/- per day till the amount of Rs. 1,24,744/- is paid under Section 76 of the Finance Act. But penalty, under Rule 15 of the Rules was not imposed.

Assessee then filed two appeals under one against the demand of service tax and another against imposition of penalty. Department also filed appeal in so far as the Order-in-Original declined to levy penalty under Rule 15(2) of the Rules.

By common order, the Appellate Authority dismissed assessee's appeal and allowed department's appeal accepting the plea that there was suppression regarding usage of ineligible goods and availment of CENVAT credit on such goods attracting Rule 15(2) of Rules read with Section 11AC of the Central Excise Act.

Assessee, therefore, filed appeals before the Tribunal. The Tribunal held that respondent was eligible to claim credit under the CCR, 2001. The Tribunal also set aside the penalty imposed by the Appellate Authority.

Hence, Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue submits that cement used for making foundations, and TMT bars used for reinforcement, cannot be treated as 'capital goods' as defined in Rule 2(a) of the Rules; the assessee wrongly claimed credit though these items cannot come within the definition of 'input' under Rule 2(k); the assessee suppressed these facts and irregularly filed returns adjusting the credit they were not entitled to.

Reasoning of the Judgment:- The High Court held the only allegation against the assessee is that they claimed CENVAT credit irregularly with reference to Cement and TMT bars used in the construction of warehouses through which the storage and warehousing services are provided by the assessee. Section 65(102) of the Finance Act defines "storage and warehousing" as to include storage and warehousing services for goods including liquids and gases but does not include any service provided for storage of agricultural produce or in service provided by cold storage. As per Section 65(105)(zza), read with Section 66 of the Finance Act, there shall be levied tax on i.e. assessee, is that storage and warehousing services at 12% of the value of taxable service. The service tax payable is determined in accordance with Section 67(4) read with the Service Tax Rules, 1994 made in exercise of the powers under Section 94 of the Finance Act. There is no dispute that every provider of taxable service is entitled to claim CENVAT credit in relation to input service. Rule 2(k) and (l) of the Rules are relevant.

A plain reading of definition of input and input services would show that, unless excluded, all goods used in relation to manufacture of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit.

The decision in Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III, (2009) 9 SCC 193 was relied upon.

The High Court held that there is no dispute, in these cases, that the assessee used cement and TMT bar for providing storage facility without which storage and warehousing services could not have been provided. Therefore the finding of the original authority as well as the appellate authority is clearly erroneous, which was correctly rectified by the Tribunal.

With regard to levy of penalty under Rule 15(2) of the Rules, it was held that unless and until there is a finding that there was suppression of fact, and irregular claim of CENVAT credit, the question of levying penalty under Rule 15(2) of the Rules does not arise. It was held that the order levying penalty was rightly set aside by the Tribunal.

Decision:- Appeal dismissed.

Comment: - This is very landmark decision wherein the credit on cement and tor steel is allowed under “input”. The Honourable High Court held that the credit on the same is allowed as the service cannot be allowed without these inputs. But nothing is discussed about exclusion clause. If the argument of this decision is followed then the credit can be on factory building also. The production cannot take place without factory building.

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PJ/Case Laws/2011-12/1317

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