Case Law Details
Shivani Detergent Pvt. Ltd. Vs Commissioner (CESTAT Delhi)
Introduction: In the recent case of Shivani Detergent Pvt. Ltd. Vs Commissioner (CESTAT Delhi), the tribunal ruled that the CENVAT Credit of Service Tax is permissible for the service of Erection and Commissioning of a Spray Drying Plant. The services were classified under the category of ‘input service’ under rule 2 (l) of CENVAT Credit Rules.
Analysis: Shivani Detergent Pvt. Ltd. was under scrutiny for allegedly wrongfully availing CENVAT credit on maintenance charges and erection and commissioning services. It was alleged that the company had utilized CENVAT credit on structures as capital goods, which was deemed not permissible. The crux of the argument centered on whether the erection and commissioning services should fall under the definition of ‘input service’ as defined under Rule 2(l) of CCR, 2004.
The Tribunal analyzed the definition of ‘input service’ and found that the services rendered for erecting and commissioning did not fall under the exclusion clause. The tribunal also found that the Show Cause Notice issued against the company was done in a “casual manner” and lacked substantiated claims. Relevant precedents were cited, affirming that the services of erection and commissioning were directly related to the manufacturing activity of the appellant and should be considered as ‘input service’.
Conclusion: CESTAT Delhi has set aside the impugned order and allowed the appeal filed by Shivani Detergent Pvt. Ltd. This decision is a significant one as it clearly defines the scope of ‘input service’ under rule 2(l) of CENVAT Credit Rules, specifically for the services of erection and commissioning. This case reaffirms that if a service has a direct relation to the manufacturing activity of a company, it should be recognized as an ‘input service’ and CENVAT credit should be allowed accordingly.
FULL TEXT OF THE CESTAT DELHI ORDER
1. This is an appeal filed by the appellant challenging the Order-in-appeal dated 20.12.2022 passed by the Commissioner (Appeals), Customs & CGST and Central Excise, Indore, M.P.
2. The appellant is engaged in the manufacturing of Sargam detergent cake, Sargam detergent powder, sulphuric acid spent sulphuric acid. The appellant was also holding service tax registration for the purpose of discharging service tax liability under the reverse charge mechanism and were availing the benefit of cenvat credit on inputs, input services and capital goods under Cenvat Credit Rules, 2004, (hereinafter referred to as CCR, 2004).
3. That Show cause notice dated 31.01.2019 was issued to the appellant for having wrongly availed the cenvat credit of 36,598/- on maintenance charges and Rs. 84,000/- in respect of erection and commissioning services during the period 2016 to 2018. Further, they wrongly availed cenvat credit on structures, i.e., plates, angles and section of different sizes as capital goods which was not permissible in terms of rule 2(a) of Cenvat Credit Rules. They had also wrongly availed the cenvat credit of Rs. 1,187.50 towards supply of Baffle Plate and had not paid duty on sale of scrap of packing material. On adjudication only the allegations pertaining to wrong availment of cenvat credit on Erection and Commissioning and supply of Baffle Plate were maintained and other allegations were dropped by the adjudicating authority vide order dated 09.08.2021 and in appeal the Commissioner (Appeals) allowed the cenvat credit towards supply of Baffle Plate. Hence the present appeal has been filed by the appellant challenging the dis- allowing the cenvat credit towards Erection and Commissioning services.
4. Having heard both sides and perused the records of the case, I consider the issue as to whether the appellant is entitle to avail the cenvat credit on the services of Erection and Commissioning of Spray Drying Plant in terms of the definition of ‘input service’ as defined under Rule 2(l) of CCR, 2004.
5. The learned Counsel for the appellant submitted that the input service credit on the invoices of erection of ETP plant and TPH Detergent Spray Drying Plant is squarely covered under the provisions of Clause (ii) of rule 2 (l) of CCR, 2004 since it has direct nexus with the manufacturing of detergent cake and powder. The revenue on the other hand has contended that the services of erection and commissioning of these plants fall under the exclusion clause of the definition of input service.
6. The services provided under invoice No. COMP/845/UI/SER-01 dated 15.06.2016 by M/s Comp Engineering and Exports read as, “Erection of 2 TPH Detergent Spray Drying Plant with Erection of 2 TPH Detergent Spray Drying Plant with structure at your site”. In order to appreciate as to whether the said services would fall under the substantive clause of the definition of ‘input service’ or under the exclusion clause, the definition of input service is set out hereunder:
Rule 2 (l)
“input service” means any service,-
(i) Used by a provider of output service 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 from 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, aud8iting, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
but excludes services –
(A) Service portion in the execution of a work contract and construction services including service listed under clause (b) of Section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
(a) Construction or execution of work 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; or
(B) ………………………………………………………………………………………………………………….
(C) ………………………………………………………………………………………………………………….
The exclusion clause (A) in sub-clause (b) talks about laying of foundation or making of structures and does not specifically cover the services of Erection and Commissioning. It is a settled principal that exclusion clause has to be construed strictly and narrowly and therefore logically exclusion has to be expressed and not implied. It is not the case of the revenue that while rendering the services of erection and commissioning they have to lay the foundation or has to raise structures. Therefore, to my opinion the exclusion clause does not apply to service of erection and commissioning and hence it would fall under the main clause of input service since it is directly related to the manufacturing activity of the appellant. Secondly, the demand in the show cause notice on this account also fails as nothing has been substantiated and as noticed by the adjudicating authority that the show cause notice has been issued in a very casual manner.
7. The appellant has referred to few decisions by the Tribunal to say that exclusion clause (A) in Rule 2(l) of CCR,2004 does not cover the service in the nature of “Erection, Commissioning and Installation Service”, Thermax Ltd., vs. Commissioner of C. Ex. & ST, Vadodra 2020 (35) GSTL 118, Orient Cement Ltd., vs. C.C.,EX & ST, Hyderabad 2017 (51) STR 459. In Hindustan Coca Cola Beverages Pvt. Ltd., vs. CCE, Chennai 2017 (49) STR 419, the view taken was that when erection and commissioning of water treatment plant was essential, there should not be denial of cenvat credit of service tax paid in respect of such service availed for recycling of the water for use in manufacture. The present case is squarely covered by the said observations and therefore the services of Erection of 2 TPH Detergent Spray Drying Plant received by the appellant are covered under the main clause of the definition of input service.
8. Since the issue has been decided on merits in favour of the appellant, the issue of limitation does not survive and hence is not required to be considered any more.
9. I, therefore set aside the impugned order and allow the present appeal.
10. Appeal stands, accordingly allowed.
(Order pronounced on 31st July, 2023).
