Whether services for construction of factory building considered input services used in relation to authorized operation?

PJ/CASE LAW/2015-16/2823

Case:-KSK SURYA PHOTOVOLTAIC VENTURE LTD. VERSUS C.C.E., C. & S.T., HYDERABAD-II

Citation:- 2015 (39) S.T.R. 821 (Tri. - Bang.)

Brief facts:- Appellant was setting up a unit for manufacture of photovoltaic cells in SEZ. They had received input services during the construction work for which they claimed refund of service tax paid on various input services for the period from December 2009 to November 2010. The two claims filed by the appellant were sanctioned and money was paid. However later show cause notice was issued on the ground that refund was sanctioned erroneously and as a result of the proceedings, refund of Rs. 32,15,477/- sanctioned as per Notification No. 9/2009-S.T. has been held to be erroneous and has been demanded. Appellant was seeking waiver of pre-deposit and stay against recovery of this demand.

Reasoning of judgement:- According to the department, Notification No. 9/2009-S.T. grants refund only in respect of services used in authorized operations. In this case the appellants only had started construction of factory building and construction had reached only basement stage by the time refund claims were filed. The authorized operations of the appellant was manufacture of photovoltaic cells and since the building itself has not been completed, the client could not have used any services in the authorized operations.
After considering the submissions of both the sides and considering the Notification No. 9/2009, it was found that according to Notification No. 9/2009, the exemption which is implemented in the form of cash refund of taxes paid is available when services are received and used ‘in relation to’ the authorized operations. The question that arose was whether the factory building can be considered as one constructed in relation to authorized operations. Since what was being constructed was factory building there cannot be any doubt, as regards service tax benefit used in construction of building. First of all in the ‘input service’ definition itself, services used in relation to construction of a factory building are considered as input services and further it could not be said that services used in relation to factory building were not used in relation to authorized operation in view of the observation that building as such had to be considered as used in relation to authorized operations. Prima facie it was found that appellant had a strong case on merits and therefore there shall be waiver of pre-deposit and stay against recovery for a period of 180 days from the date of this order.

Decision:- Stay granted.

Comment:- Services used in relation to construction of factory building are to be considered as input services used in relation to authorized operation as the construction of factory building itself is treated as input service eligible for cenvat credit. Hence stay application was allowed.

Prepared By:- Sharad Bang

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PJ/CASE LAW/2015-16/2823

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