CENVAT Credit Cannot Be Denied for Plant Maintenance Services Misclassified as Civil Construction: CESTAT Delhi

Jayaswal NECO Industries Limited Vs Principal Commissioner (CESTAT Delhi)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi, considered two appeals arising from an order dated 29.03.2023 passed by the Principal Commissioner. The assessee challenged the disallowance of CENVAT credit amounting to Rs. 53,94,564, while the department challenged the portion of the order dropping a demand of Rs. 67,50,989. The Tribunal ultimately allowed the assessee’s appeal and dismissed the department’s appeal.

The assessee was engaged in the manufacture of dutiable goods including sponge iron, pig iron, and billets. It had availed CENVAT credit on various input services reflected in its statutory returns. Multiple audits were conducted covering different periods, including audits by the Internal Audit Party, the Comptroller and Auditor General (CAG), and a special audit. During the audit proceedings, the assessee reversed CENVAT credit amounting to Rs. 33,44,889 along with interest of Rs. 14,06,799.

Subsequently, a show cause notice dated 23.02.2016 proposed recovery of CENVAT credit amounting to Rs. 2,49,40,473 along with interest and penalty on grounds including availment of credit on allegedly ineligible input services, services not received within the factory premises, and reliance on invalid documents. The Principal Commissioner later allowed credit of Rs. 1,95,45,909 but disallowed Rs. 53,94,564.

The Tribunal examined the portion of the demand amounting to Rs. 20,49,675 that had been confirmed against the assessee in relation to survey services, works contract services, and manpower supply services.

Regarding the credit of Rs. 9,50,177 relating to marine cargo insurance, the Tribunal found that the assessee had submitted a detailed breakup of insurance-related credits during the adjudication proceedings. The Principal Commissioner had already accepted the admissibility of insurance services connected with the business activities of the assessee. However, the Commissioner had incorrectly treated the credit of Rs. 1,20,614 relating to survey services as if it pertained to marine cargo insurance. The Tribunal observed that the finding that the assessee had failed to explain the claim or submit supporting documents was factually incorrect. Consequently, it held that the assessee was entitled to the disputed credit of Rs. 9,50,177.

With respect to works contract services amounting to Rs. 10,72,618, the Tribunal noted that the services had been used for repair and maintenance of existing plant and machinery installed in the factory and not for construction of a building or civil structure. The department had not disputed this factual position, and the invoices supported the assessee’s claim. The Tribunal observed that, after 01.04.2011, the exclusion under Rule 2(l) of the CENVAT Credit Rules, 2004, applied only to works contract services used for construction of buildings, civil structures, or foundations supporting capital goods. Services relating to erection, repair, maintenance, painting, and fabrication of plant and machinery did not fall within the excluded category. Therefore, denial of credit on this ground was held to be unsustainable.

The Tribunal also considered the denial of credit amounting to Rs. 26,880, which had been treated as relating to civil construction services. On examining the invoices, it found that the services actually involved manpower supply for repair and maintenance of plant and machinery during factory shutdown periods. Since these activities were integral to the manufacturing operations of the assessee, they qualified as input services under Rule 2(l) of the CENVAT Credit Rules. Accordingly, the assessee was held entitled to the credit.

Having concluded that the entire disputed amount of Rs. 20,49,675 was admissible, the Tribunal stated that it was unnecessary to examine the issue relating to invocation of the extended period of limitation.

The Tribunal then addressed the department’s appeal concerning CENVAT credit of Rs. 67,50,989 availed on manpower supply services received from Anand Infracon and J.K. Construction. The department argued that the invoices did not adequately describe the services provided and were therefore invalid documents under Rule 9(2) of the CENVAT Credit Rules.

The Tribunal noted that the invoices had been furnished during audit proceedings and that there was no dispute regarding receipt of the services, payment of service tax by the service providers, or the use of those services in manufacturing operations. It further observed that the Principal Commissioner had accepted that the manpower supply services qualified as input services. Since the substantive requirements under the CENVAT Credit Rules had been satisfied, the Tribunal held that credit could not be denied merely due to procedural deficiencies in the documentation.

Accordingly, the Tribunal set aside the portion of the impugned order disallowing CENVAT credit of Rs. 53,94,564 and allowed the assessee’s appeal. The department’s appeal challenging the grant of credit amounting to Rs. 67,50,989 was dismissed. The order was pronounced on 02.06.2026.

FULL TEXT OF THE CESTAT DELHI ORDER

Excise Appeal No. 55196 of 2023 has been filed by Jayaswal NECO Industries Limited¹ to assail that portion of the order dated 29.03.2023 passed by the Principal Commissioner that disallows CENVAT credit of Rs. 53,94,564/- (including credit of Rs. 33,44,889/-reversed by the appellant before issuance of show cause notice) with interest and penalty.

2. Excise Appeal No. 55419 of 2023 has been filed by the department to assail that portion of the order dated 29.03.2023 passed by the Principal Commissioner that drops the demand of recovery of CENVAT credit amounting to Rs. 67,50,989/-.

3. The appellant is engaged in the manufacture of dutiable goods such as sponge iron, pig iron, billets, classifiable under Chapter 72 of the First Schedule to Central Excise Tariff Act, 1985²

4.The appellant availed CENVAT credit on various input services, details of which were reflected in the periodical returns filed by it.

5. An audit was initiated by the officers of the Internal Audit Party, Central Excise Commissionerate, Raipur for the period from March 2012 to January 2014 and certain discrepancies were communicated by the department by a Final Audit Report dated 01.09.2014.

6. An audit was also conducted by CAG for the period April 2011 to March 2013, wherein the CAG also intimated several observations by a letter dated 03.06.2014.

7. Subsequently, special audit of records of the appellant was conducted for the period April 2011 to January 2014, wherein several observations were conveyed to the appellant by a letter dated 22.07.2014.

8. In response to the audit memos, the appellant made detailed submission and explained that CENVAT credit had been validly availed on the input services. Meanwhile, CENVAT credit of Rs. 33,44,889/-availed on various services was reversed by the appellant with interest of Rs. 14,06,799/-.

9. However, a show cause notice dated 23.02.2016 was issued to the appellant proposing to recover a central excise duty amounting to Rs. 2,49,40,473/- with interest and penalty, alleging wrongful availment of CENVAT credit on various issues like credit availed on ineligible input services, credit availed on services which were not received in the factory premises of the appellant and CENVAT credit availed on the basis of invalid documents. A proposal was also made for appropriation of CENVAT credit with interest which was reversed by the appellant.

10. The appellant filed a detailed reply dated 13.03.2003 and contested the proposals made in the show cause notice.

11. The show cause notice was adjudicated by the Principal Commissioner by an order dated 29.03.2023. CENVAT credit to the extent of Rs. 1,95,45,909/- availed by the appellant against various input services was allowed, but CENVAT credit amounting to Rs. 53,94,564/- was disallowed. The details of the demands proposed in the show cause notice which were subsequently dropped/confirmed by the order are as follows:

12. Feeling aggrieved with the aforesaid order to the extent it was against the appellant, the appellant has filed Excise Appeal No. 55196 of 2023.

13. Ms. Sukriti Das, learned counsel for the appellant assisted by Shri Shivam Bansal made the following submissions:

i. The demand of CENVAT credit amounting to Rs. 20,49,675 confirmed by the impugned order is both factually incorrect and legally unsustainable;

ii. In this connection, learned counsel for the appellant placed in detail each of the services against which the CENVAT was denied and also placed certain decisions to which reference shall be made at the appropriate stage;

iii. The extended period of limitation under the proviso to section 11A(1) of the Central Excise Act, 1944³ is not invocable. Penalty not imposable, and interest not recoverable; and

iv. The Principal Commissioner committed no illegality in allowing CENVAT credit of Rs. 67,50,989/- availed by the appellant.

14. Shri Bhagwat Dayal, learned authorised representative appearing for the department, however, submitted that Principal Commissioner did not commit any error in disallowing CENVAT credit of Rs. 53,94,564/-. Learned authorised representative also submitted that the Principal Commissioner committed an error in dropping the demand of CENVAT credit of Rs. 67,50,989/-.

15. The submissions advanced by the learned counsel for the appellant and the learned authorised representative appearing for the department have been considered.

16. The Principal Commissioner has disallowed CENVAT credit of Rs. 20,49,675 to the appellant against the following input services and the details are:

17. The submissions made in respect of each of the three services shall be dealt separately.

Marine cargo insurance services

18. The Principal Commissioner has disallowed CENVAT credit of Rs. 9,50,177 on marine cargo insurance services for the reason that the appellant failed to make any submissions or justify the availment of input service credit on such service.

19. It is seen that the appellant had submitted relevant documents, including the head-wise break up of CENVAT credit availed by the appellant on insurance services received during the period under dispute. This is clear from to the reply submitted by the appellant to the show cause notice dated 23.2.2016. The following bifurcation was provided:

20. The Principal Commissioner has accepted the submissions of the appellant and allowed the CENVAT credit of service tax paid on the above insurance services as admissible, since the said services were directly connected with the business of the appellant and hence, qualified as ^„input services‟ under rule 2(l) of CENVAT Credit Rules, 2004⁴. However, the Principal Commissioner treated the CENVAT credit figure of Rs. 1,20,614/- as pertaining to marine cargo insurance while holding it as admissible, instead of the CENVAT credit amount of Rs. 9,50,177/- that was actually claimed by the appellant on the said services.

21. CENVAT credit of Rs. 1,20,614/- availed by the appellant during the period from 25.1.2012 to 10.11.2014 pertains to survey services as is clear from the aforesaid chart.

22. Thus, the Principal Commissioner considered incorrect CENVAT credit figures in the impugned order. The finding in the Order that the appellant neither offered any explanation nor submitted any documents for admissibility of CENVAT credit amounting to Rs. 9,50,177/- is, therefore, incorrect. The appellant would, therefore, be entitled to avail credit of Rs. 9,50,177/-.

Works Contract

23. The Principal Commissioner has confirmed the demand of CENVAT Credit amounting to Rs.10,72,618/- availed by the appellant during the period from 30.09.2012 to 01.08.2015 on works contract services in respect of plant and machinery for the reason that the same are specifically excluded from the definition of the input services under rule 2(l) of the 2004 Credit Rules. The Principal Commissioner has also held that taxing statues have to be strictly interpreted and thus, the submission of the appellant that works contract services for plant and machinery were distinct from the services of construction of a building or a civil structure, was not acceptable.

24. It is seen that the appellant had availed works contact services for repair/maintenance of the existing plant & machinery installed in its factory premises and not for construction of a new building or a civil structure or a part thereof. This fact is not disputed by the department and the same is also corroborated from the invoices issued by the supplier(/s).

25. From 01.04.2011 onwards, the bar from availing CENVAT credit on works contract services under the exclusion clause of rule 2(l) of the 2004 Credit Rules is restricted only to works contract services when used for construction of building or a civil structure or a part thereof. The relevant portion of the rule 2(l) of the 2004 Credit Rules is reproduced below:

“Rule 2(l). “input service” means any service, –

i. used by a provider of output services for providing an output service; or

ii. used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,

and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes,-

(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred to as specified services) in so far as they are used for –

a. construction or execution of works contract of a building or a civil structure or a part thereof; or

b. laying of foundation or making of structures for support of capital goods,except for the provision of one or more of the specified services;”

26. Works contract services in respect of erection, repair, maintenance, painting and fabrication of plant/machinery cannot be construed as construction of a civil structure. Thus, it will do not fall in the excluded category of rule 2(l) of the 2004 Credit Rules. CENVAT credit cannot, therefore, be denied to the appellant. Thus, the denial of CENVAT credit amounting to Rs. 10,72,618/- confirmed by the order cannot be sustained.

Manpower supply services

27. CENVAT credit amounting to Rs. 26,880/- has been denied to the appellant for the reason that such credit pertains to civil construction services and is excluded from the definition of ^„input services‟ under rule 2 (l) of the 2004 Credit Rules.

28. CENVAT credit of Rs. 26,880/- was availed by the appellant on manpower supply services received from M/s Mahamaya Construction, Siltara, Raipur for repair/maintenance of plant & machinery during the factory shutdown and not on civil construction services. This is clear from the invoices dated 27.04.2011 and 04.05.2011 issued by the supplier.

29. As the said repair/maintenance activities undertaken by the said supplier were integral to the manufacturing activity of the appellant, the same qualifies as ^„input service‟ in terms of rule 2(l) of the 2004 Credit Rules. Thus, the appellant was justified in availing CENVAT credit of Rs. 26,880/-.

30. The appellant was, therefore, clearly entitled to the CENVAT credit of Rs. 20,49,675/- and the demand confirmed by the impugned order cannot be sustained.

31. It would, therefore, not be necessary to examine whether the extended period of limitation contemplated under the proviso to section 11A(1) of the Central Excise Act was correctly invoked.

32. Excise Appeal No. 55419 of 2023 has been filed by the department to assail that part of the order passed by the Principal Commissioner that has allowed CENVAT credit of Rs. 67,50,989/-.

33. The contention that has been raised by the learned authorised representative is that the said credit has been allowed to the appellant on the basis of invoices which do not contain the description of services provided and, therefore, such invoices are not valid documents for availing CENVAT credit, as is contemplated under rule 9(2) of the 2004 Credit Rules.

34. It is seen that CENVAT credit of Rs. 67,50,989/- was availed by the appellant on manpower supply services received from Anand Infracon and J.K. Construction during the period from 25.04.2011 to 31.08.2015. This is corroborated from the copies of the invoices issued by the said service providers for the services provided during the period under dispute. These invoices were submitted by the appellant to the department during the audit proceedings, by a letter dated 05.12.2015.

35. The Principal Commissioner has held that there is no dispute as regards to the receipt of the said services by the appellant for use in its manufacturing operations and so payment of service tax against the said taxable services by the service providers and coverage of the said manpower supply services under the ambit of ^„input services‟, as defined under rule 2(l) of the 2004 Credit Rules is justified.

36. As all the substantive conditions prescribed under rule 4 of the 2004 Credit Rules stood fulfilled, CENVAT credit for procedural lapses cannot be denied to the appellant.

37. This is also what was held by the Tribunal in M/s. Adbur Private Limited CST, Delhi⁵ and the relevant portion of the decision is reproduced below:

“9. Regarding denial of Cenvat credit on the ground that the invoices were addressed to unregistered premises of the appellant, we note that there is no dispute regarding eligibility of input service for availability of credit to the appellant. The denial of credit is only with reference to address in the document. We find in various decisions, this Tribunal held that the credit cannot be denied on this reason. Reference can be made to the decision in Manipal Advertising Services Pvt. Ltd. vs. CCE, Mangalore [2010 (19) S.T.R. 506 (Tri. – Bang.]. We also note that in the appellant‟s own case on the same issue, the Original Authority for the later period held that denial of credit cannot be justified on this ground, vide order dated 21/07/2016.”

38. Thus, for all the reasons stated above, the impugned order dated 29.03.2023 passed by the Principal Commissioner so far as it disallows CENVAT credit of Rs. 53,94,564/- is set aside and Excise Appeal No. 55196 of 2023 filed by the appellant is allowed. Excise Appeal No. 55419 of 2023 filed by the department is, however, dismissed.

(Order Pronounced on 02.06.2026)

Notes:

¹ the appellant

² Tariff Act

³ the Excise Act

⁴ the 2004 Credit Rules

⁵ Service Tax Appeal No. 3630-3632 of 2012 decided on 26.04.2017