Custom, Excise & Service Tax Tribunal
Dymos India Automotive Pvt Ltd vs Commissioner Of Central Excise, ... on 4 January, 2018
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH
CHENNAI
Appeal No.E/789/2010
[Arising out of Order-in-Appeal No.13/2010dt.14.09.10 passed by the Commissioner Central Excise Chennai-IV
Dymos India Automotive Pvt Ltd Appellant
Versus
Commissioner of Central Excise, Chennai -IV Respondent
Appearance:
Shri Parthasarathy, Advocate For the Appellant Shri A. Cletus ADC (AR) For the Respondent CORAM :
HonbleMs.SulekhaBeevi C.S. Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of hearing / decision : 04.01.2018 Per Bench FINAL ORDER No. 40112 / 2018
1. The appellants are engaged in manufacture of PU Foam meant for use in automobile seat cushion and are registered with Central Excise department. During verification of records, it was noticed that appellant had availed Cenvat Credit of service tax paid for construction services (Commercial or Industrial Construction Service) during the period 2008-2009. It was found that portion of the premises at Papparambakkam for which the input service credit was availed was leased to another company viz; M/s Hanil Lear India Ltd for storage of their input material. The department was of the view that appellant has not used the input services, on which credit was availed, in or in relation to the manufacture of their finished products. SCN was issued proposing to deny the credit and also for imposing penalties. After due process of law, the original authority confirmed the demand, interest and imposed penalty. Aggrieved, the appellant is before the Tribunal.
2. On behalf of appellant, the Ld. Counsel, Sh. R. Parthasarathy argued the matter explaining the facts. The appellant had constructed the building with area 8322 sq. Mts. They paid service tax for the construction activity under the category of Commercial or Industrial Construction service. Later vide letters dt. 30.07.2008 and 12.08.2008 they informed the department that they do not intend to use the whole carpet area for their manufacturing activity and furnished the changed ground plan deleting 1968.10 sq mts, from their manufacturing premises. It was also intimated in the same letter that they intended to use the said space for the purpose of storing components and raw materials belonging to M/s Hanil Lear India (P) Ltd. They requested to make necessary changes in their registration certificate deleting the area of 1968.10 sq. Mts. The appellant entered into a lease agreement with M/s Hanil Lear whereby this space was rented to them, on monthly licence fee of Rs. 4,25,000 for 11 months. That appellants thus are provider of out put service, viz Renting of Immovable property which is leviable to service tax. The credit availed on input service of CICS is used for providing output service of Renting of Immovable Property Services and that appellants have rightly availed the credit. The allegation of the department that appellant is not eligible to avail credit on service tax paid on construction services of that potion of the building leased to M/s Hanil Lear is based on wrong interpretation of law. He submitted that department denied the credit alleging that the portion leased out to M/s Hanil Lear not being used for manufacture of finished product by appellant is not eligible for input service credit on Construction services. That appellants being both manufacturer and service provider, they are eligible for credit. That in any case, they had immediately reversed the credit and that there was no suppression of facts with intention to evade payment of duty and therefore the penalties may be set aside. The reliance placed by department on Circular No. 98.01.2008 dt 04.01.2008 is incorrect. The Ld.Counsel relied upon the decisions in the following cases.
1) Navaratna S. G Highway Property Pvt Ltd vs CST 2012(28)STR 166 (Tri- Ahmd)
2) Varun Industries vs CCE & ST 2017(49) STR 613 (Tri- Ahmd)
3) CCE vs Ashok Agencies 2016 (41)STR 647 (Tri- Chennai)
4) UOI vs Inter Continental (India) 2008(226) ELT 169(S.C)
5) CCE, Coimbatore vs Lakshmi Technology & Engineering Indus Ltd 2011 (23) STR 265 (Tri- Chennai)
3. The Ld. AR. Sh. A. Cletus supported the findings in the impugned order. He submitted that the appellants availed cenvat credit for the entire area of the factory premises in March 2009. By this time, they had leased out a portion of the premises to M/s Hanil Lear. Therefore appellant was not using that portion for manufacture of finished products. The definition of input service states that manufacturer would be eligible for input service credit only if the services are used directly or indirectly in or in relation to the manufacture of finished products. He adverted to Circular No. 98.01.2008-ST-dt 04.01.2008 and submitted that Board has clarified that credit is not admissible on Construction service used for construction of building which is used for providing, output service of Renting of immovable property services for the reason that the result of the construction services is a building which is an immovable property. Input credit of service tax can be taken only if the output is a service liable to service tax or goods liable to excise duty. Since immovable property is neither Service or goods as referred to above, input credit cannot be taken. That the demand raised is legal and proper.
4. Heard both sides
5. The allegation raised in SCN dt. 31.03.2010 is that appellants are not eligible for the input service credit availed on Commercial or Industrial Construction Service availed during the period 2008-2009. The appellants had leased out part of the building to M/s Hanil Lear for which they received rent and discharged service tax. The definition of input service as it stood during the material time is as under.
Rule 2 (e) defines the input service as under :
input service means any service,-
(i) used by a provider of taxable service for providing an output service, or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider or output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
6. The first limb of the above definition makes it clear that in the case of service provider, the service tax paid would be eligible input service, if the service is used for providing output service. The appellants contend that they are both manufacturer and provider of output service. For the portion of the building used for manufacturing activity, appellants are eligible for credit of service tax paid on construction services. There is no dispute on this credit. The dispute in confined to the quantum of credit availed on construction services on that portion of the building leased out to M/s Hanil Lear. The department relies upon the Board Circular dt. 04.01.2008 which is as under.
Reference Code Issue Clarification (1) (2) (3) 096.01/4-01-08 Whether or not, Commercial or industrial Construction service or works contract service used for construction of an immovable property, could be treated as input service for the output service namely renting of immovable property service under the Cenvat Credit Rules, 2004?
Input credit of service tax can be taken only if the output is a service liable to service tax or a goods liable to excise duty. Since immovable property is neither service or goods as referred to above, input credit cannot be taken.
7. Needless to say, that Board Circular is not binding upon the Court. The input credit whether availed on capital goods, inputs or input services is accounted in a common pool of credit. While utilising credit it is not necessary that there should be one to one correlation. To be more specific, the Cenvat Credit Rules does not prohibit the credit availed on capital goods to be utilized to discharge duty on finished products or for payment of service tax. So also the credit availed on payment of service tax can be utilized for discharge of central excise duty. The discussion made by Trubunal in the case of Lakshmi Technology & Engineering Indu Ltd (Supra) is note worthy in this regard and reproduced as under. The Tribunal in this case has also dealt with the Circular dt. 04.01.2008.
4. Learned SDR, reiterating the grounds of appeal, submits that in respect of renting of immovable property services, they could not use credit on capital goods, inputs and service tax which are not actually utilized in respect of such services of renting of immovable property. He also relies on the Circular of the Board No 98/1/2008-S.T., dated 4-1/2008 which clarified certain queries as follows:-
Query:-
Whether or not, commercial or industrial construction or works contract service used for construction of an immovable property, could be treated as input services for the putput service namely renting of immovable property service under the CENVAT Credit Rules, 2004?
Clarification Input credit of service tax can be taken only if the output is a service liable to service tax or a goods liable to excise duty. Since immovable property is neither service or goods as referred to above, input credit cannot be taken.
5. Learned authorized representative strongly supports the order of the Commissioner (Appeals).
6. I have carefully considered the submissions from both sides and perused the records. Rule 3(1) of the CENVAT Credit Rules permits credit to a manufacturer of final product or a service provider of taxable service. If a person manufactures only excisable goods, he is entitled to take credit of not only excise duties paid on capital goods and inputs but also additional duty of customs paid under the Customs Tariff Act in respect of imported inputs and capital goods and also service tax paid on the input services utilized in or in relation to the manufacture of the excisable goods. In other words, a manufacturer of excisable goods is entitled to use the credit from a common pool to which different categories of specified excise duties, customs duty and service tax are allowed to be taken as credit. Similarly, a provider of taxable service is also entitled to take credit of specified excise duty, additional duty of customs and service tax in respect of input services and utilize the credit from all these sources for the purpose of paying service tax. The objection by the Department is that the respondent who is both a service provider and a manufacturer should maintain two separate accounts one in respect of credit attributable to inputs, capital goods and services meant for excisable goods and credit attributable to capital goods, inputs and services attributable to the service provided by them. Common CENVAT Credit Rules have been framed in terms of powers conferred by Section 37 of the Central Excise Act, 1944 and Section 94 of the Finance Act, 1994. Rule 3(1) enables a manufacturer or a provider of taxable service to take credit of specified duties and utilize them to discharge duty liability under Rule 3(4) of the CENVAT Credit Rules. A credit can be utilized for payment of any duty of excise on any final product or for payment of service tax n any output service. The respondent is undisputedly registered as a service provider for providing the services of renting of immovable property. The respondent is undisputedly registered as a service provider for provider has been used both for paying excise duty and for paying service tax. The rules permit taking of credit under a common pool and permit use of the credit from the common pool for different purposes, and there is no restriction placed to the effect that credit accounts should be maintained for use for manufacture of excisable goods and for use for providing services. Therefore, the view taken by the Commissioner (Appeals) cannot be faulted. The clarification sought to be relied upon by the Department that input credit service taken only it the output is a service liable to service tax has no relevance to the present case. Undisputedly, the respondents have registered themselves as service provider of service of renting of immovable property and paying service tax as provider of output service and therefore the utilization of credit taken by them is valid.
8. The Tribunal in the case of Nvaratna S.G. Highway Prop. Pvt Ltd. (supra) held that without construction of mall / building the renting of immovable property services cannot be provided and therefore construction service is an eligible service for credit for providing output service of Renting of immovable property. The said decision is applicable to the facts of the present case.
9. From the discussions made above, and following the judgements discussed we hold that the disallowance of input service credit is unjustified. The impugned order is set aside. The appeal is allowed with consequential reliefs, if any.
(Operative part of the order pronounced in open court) (Madhu Mohan Damodhar) (SulekhaBeevi C.S) Member (Technical) Member (Judicial) Rkp 7 1