Whether credit is admissible on paint which is not used as input for fabrication of parts of towers?

PJ/Case Law/2013-14/1685

Case:-VIJ ENGINEERS & CONSULTANTS PVT. LTD. VERSUS COMMR. OF C. EX., ROHTAK

Citation:- 2013(29)S.T.R. 623(Tri.-Del.)

Brief Facts:-The appellant-manufacture parts of transmission tower from the structural steel items. They also received duty paid paints. The parts of tower are cleared on payment of duty along with paints. Since they have contract for erection and installation of those towers, after clearance of parts of towers, the same are installed at the site and thereafter paints cleared along with parts of towers used for painting the same. The appellant’s head office is also registered as taxable service provider and is paying service tax on the erection and installation charges. The department being of the view that the appellant’s unit is not eligible for Cenvat credit in respect of paints, as the same is not an input for manufacture of parts of towers, issued show cause notice for denying Cenvat credit amounting to Rs. 33,01,171/- availed by them on paints during the period from 1-4-2006 to 31-12-2009. This show cause notice was adjudicated by the additional Commissioner vide order-in-original dated 3-2-2011 by which Cenvat credit demand was confirmed against the appellant alongwith interest and penalty of equal amount was imposed under Rule 15(2) of Cenvat Credit Rules, 2004. On appeal to the Commissioner (Appeals), the order of the Additional Commissioner was upheld vide order-in-appeal dated 30-12-2011 against which this appeal along with stay application has been filed by the appellant.

Appellant contentions:-The appellant has submitted that though the paint is not used as input for fabrication of parts of towers, duty on parts of towers had been paid on value which included the value of paints, which is clear from the invoices regarding the sale of tower parts issued by the appellant, that in any case, the paint can be treated as an input for the service of erection and installation being provided by the appellant and since the appellant’s head office is registered for payment of service tax and they are paying service tax on erection and installation charges, they would be eligible for Cenvat credit in respect of paints which could be utilized for payment of service tax and that in view of this, the impugned order is not correct. He, therefore, pleaded that the appellant have a strong prima facie case in their favour and, hence the requirement of pre-deposit of Cenvat credit demand, interest and penalty may be waived for hearing of the appeal and recovery thereof may be stayed till the disposal of the appeal.

Respondent contentions:- The respondent opposed the stay application and reiterating the findings in the impugned order, emphasized that the paint not being an input for the manufacture of parts of towers, the appellant would not be eligible for cenvat credit in respect of the same and that the fact that the appellant’s head office is registered as service provider is of no relevance, as the service tax registration is of different location than the location of the manufacturing unit. He accordingly pleaded that this is not the case for waiver from the requirement of the pre-deposit.

Reasoning of Judgment:-We have considered the submissions from both sides and perused the records. We find that the appellant’s head office is registered as provider of taxable service and they are paying service tax on the charges for erection and installation of towers which also involving painting of the same. Hence, paint received by them can be treated as inputs for providing taxable service, and the appellant would be eligible for Cenvat credit in respect of the same which could be utilized for payment of service tax. Thus, even if cenvat credit in respect of paint is denied to the appellant’s manufacturing unit, the same would be available to the head office registered as service provider for payment of service tax as erection and installation service. Prima facie, we also find substance in the plea of the appellant that the duty on parts of tower had been paid on the value which included the value of paints. In view of this, we are of the view that the appellant have a strong prima facie case in their favour and hence requirement of pre-deposit of demand of Cenvat credit demand and interest thereon and penalty is waived for hearing of the appeal and recovery thereof is stayed till disposal of the appeal.

Decision:-Stay application is allowed.

Comment:-The essence of this case is that paint is not used as input for fabrication of parts of towers but duty on parts of towers had been paid on value which included the value of paints, which is clear from the invoices regarding the sale of tower parts issued by the appellant. They are also paying service tax on the charges for erection and installation of towers which also involving painting of the same. Hence, paint received by them can be treated as inputs for providing taxable service, and the appellant would be eligible for Cenvat credit in respect of the same which could be utilized for payment of service tax. Therefore, prima facie applicant is eligible for availing credit on paints.

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PJ/Case Law/2013-14/1685

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