Case Law Details
Divya Sree R O W Projects Vs Commissioner of Central Tax (CESTAT Bangalore)
After considering the submissions of both the parties and perusal of the material on record, I find that when the passenger lift was imported, it was classified under Chapter 84 and the Classification was accepted by the Department and once the classification is accepted by the Department, it cannot be changed at the receiver’s end by the Department in view of various decisions relied upon by the appellant cited supra. Further, as per the impugned order, two conditions have to be fulfilled for capital goods to claim CENVAT credit as mentioned in Rule 2(a) (A) of CCR, 2004 for eligibility of credit (a) They should fall under the category mentioned in Rule 2(a)(A), (b) They should be used as mentioned in Rule 2(a)(A) whereas as per the Commissioner, only first condition is satisfied and as per the learned Commissioner, the entire works contract is not service, only service portion in works contract is service which is evident by section 66E(h) of the Finance Act, 1994. Further, as per the Commissioner, the lifts fall under material portion of works contract and hence credit is not eligible. Further, I find that both the authorities have resorted to artificial bifurcation of the activity in the material and provision of service ignoring nature of the work. I also find that the imported lifts were used for the construction of building and therefore the appellant has used the capital goods for providing output service and this artificial bifurcation resorted to by the authorities, is beyond the statutory provision and the basis of denying the credit is not proper because the appellant has fulfilled the conditions in terms of Rule 2(p) of CCR which defines output service and as the lift is not used for providing the service specified in the Negative List and whole of the service tax is not paid by the recipient of service thereby the appellant has used the lift for providing the output service. I also find that the lift is essential for providing the output service and therefore, the appellant has fulfilled both the conditions to avail the credit, hence the denial of credit is not sustainable, simply because the lifts are fitted into the building does not have an impact on treatment of lifts as capital goods because even after fitting into the building, lift is a lift and covered under Chapter 84 and cannot be considered as input just to deny the benefit of CENVAT credit. Further, I find that as per the Construction Agreements also, lift is one of the common facility provided in the project and lift is a capital goods being used for providing taxable services on which service tax is being paid by the appellant, therefore denying benefit of credit on capital goods is not proper. Further, I find that the findings in Para 12.1 of the impugned order that the lifts were not used in providing service but used in supply of material hence not eligible for credit, is not sustainable in law because the capital goods used cannot be attributed to service portion and material portion as envisaged in the order. Therefore, the basis to deny the credit is not legally sustainable. Further, the decision relied upon by the learned AR in the case of Jabalpur Hotels (cited supra) is not applicable to the facts and circumstances of the present case because the said decision is under the GST Law and decision of advance ruling only therefore the same is not applicable to the facts of the case.
In view of my discussion above and relying upon the decisions cited supra by the appellant, I am of the view that the appellant is entitled to CENVAT credit on lift which is capital goods and the denial of the same is not sustainable therefore I set aside the impugned order by allowing the appeal of the appellant.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The present appeal is directed against the impugned order dated 08.09.2020 passed by the Commissioner of Central Tax (Appeals) whereby the Commissioner (Appeals) upheld the Order-in-Original and rejected the appeal of the appellant.
2. Briefly the facts of the present case are that the appellant is a Limited Liability Partnership Firm under the provisions of Limited Liability Partnership Act, 2008, and are holding registration under Service Tax and are paying service tax as a provider and as a recipient of taxable services and they are also availing CENVAT credit of the duty/tax paid on input services and capital goods in terms of CENVAT Credit Rules, 2004. The appellant is engaged in the construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority. The Appellant imported passenger lifts vide bill no 5511702/04/06/2016 and availed the credit of CVD paid. During the scrutiny of records by the department audit team, the availment of credit on passenger lifts were raised contending that lifts were capital goods and credit on such capital goods are not allowed. On these allegations, a SCN was issued to them for demand /recovery of an amount of Rs.13,03,887/- being the irregular CENVAT credit availed and utilized, in terms of provision of Rule 14 of CENVAT Credit Rules, 2004 read with proviso to Section 73(1) of Finance Act, 1994. After following the due process, the Original Adjudicating Authority confirmed the demand of Rs.13,03,887/- and also imposed equal penalty under Section 78 of the Finance Act. Aggrieved by the said order, the appellant filed appeal before the Commissioner (Appeals) and the Order-in-Appeal was passed confirming disallowance of credit vide Order dated 08.09.2020. Hence, the present appeal.
3. Heard both the parties and perused the records.
4. Learned Consultant appearing for the appellant submitted that the impugned order denying the CENVAT credit on passenger lifts is not sustainable in law as the same has been passed without properly appreciating the facts, the provisions of law and the binding judicial precedents. He further submitted that the appellant are engaged in construction of a complex, building, civil structure etc. and the said activity is declared as service in terms of Section 66E(b) of the Finance Act. He further submitted that service portion in works contract cannot be seen in isolation and he referred to the decision of the Hon’ble Apex Court in the case of CCE Vs Larsen and Toubro, 2015 (39) STR 913 (SC), wherein it was held that assessee was correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. He also referred to the decision in the case of Emaar MGF Construction Pvt Ltd Vs CCE 2020 (34) GSTL 509 (Tri-del), wherein it was held that judgment of the Supreme Court in Larsen & Toubro that a Composite Works Contract cannot be taxed under Commercial Construction Services under Section 65(105)(zzzh) as the scope is limited to cover contract of service simplicitor only. He also placed reliance in the case of CCE Vs ICl Sugar Ltd 2011 (271) ELT 360 (Kar), wherein it was held that Raw materials used in manufacture of tank viz. plates/bottom of plates/roof plates that Credit on these items could not be denied on ground that storage tank was immovable property embedded to earth. Learned Consultant further submitted that both the authorities have resorted to artificial bifurcation on the activity into material and provision of service ignoring the nature of work and the said interpretation is beyond the statutory provisions. He further submitted that denying credit on passenger lifts on the ground that said credit was falling under material portion of works contract and as such do not qualify to be considered as input either, is not proper. Learned Consultant further submitted that Lifts imported falls under chapter 84, and the same is to be treated as capital goods for availment of credit. The classification should be looked at the supplier’s end and not at the recipient’s end and that classification of goods done at the manufacturer’s end cannot be revised at the receiver’s end by the department. For this submission, he relied upon the following decisions:
a) Commissioner v. MDS Switchgear Ltd. — 2008 (229) E.L.T. 485 (S.C.)
b) Sarvesh Refractories (P) Ltd. v. CCE & Cus. reported in 2007 (218) E.L.T. 488 (S.C.).
c) CCE, Goa v. Nestle India Ltd. reported in 2012 (275) E.L.T. 49 (Bom.)
d) CCE & Cus. v. Purity Flexpack Ltd. reported in 2008 (223) E.L.T. 361 (Guj.)
e) Cummins Diesel Sales & Service India Ltd Vs CCE Pune [2015(315) ELT 63 (Tri-Mum)]
f) Asian Colour Coated Ispat Ltd. Vs CCE Delhi [2015(317) ELT 538 (Tri- Del)
4.1. He further submitted that the capital goods are used for providing output services. He also submitted that imported lifts are mandated for the construction of building and therefore the appellant has used the capital goods for providing output service/ works contract service. In terms of Service Tax Determination of Value Rules, once an Appellant is engaged in providing works contract service, such service provider is entitled to credit on input services and on capital goods but the impugned order has travelled beyond the Rule book to come out with a jurisprudence that “there exists two distinct portion/components viz. material portion and service portion. He further submitted that under the Finance Act, 1994, entire works contract is not considered as service and only service portion in execution of works contract is considered as service. He also submitted that in terms of Rule 2(p) of CENVAT Credit Rules, output services means any service provided by a provider of service located in the taxable territory but shall not include a service, –
a) specified in section 66D of the Finance Act; or
b) where the whole of service tax is liable to be paid by the recipient of service.]
4.2. He also submitted that in the present case the appellant’s output service condition is fulfilled. As the lift is not used for providing the service specified in negative list and the whole of service tax is not paid by the recipient of service, thereby the appellant has used the lift for providing output services. He also submitted that after importing passenger lifts, the same was installed in the building and the mere fact that the lifts are fitted into the building does not have an impact on treatment of lifts as capital goods. Even after fitting the lifts into the building, lift is a lift and covered under chapter 84 and it cannot be considered as input just to deny the benefit of CENVAT credit. Learned Consultant referred to the valuation mechanism provided in terms of Rule 2A of Service Tax Determination of Value Rules, 2006 which specifically prescribes the eligibility of credits on input service and capital goods. He also submitted that lift is one of the common facilities provided in the project and same is clearly mentioned in the construction agreements. He further submitted that the entire value of construction including common facilities are considered for payment of service tax and lifts which are capital goods are being used for providing taxable services on which service tax is being paid by the appellant. Therefore, denying the benefit of CENVAT credit on capital goods is not proper. As far as interest and penalty is concerned, the learned Consultant submitted that once they are eligible for credit, the question of interest and penalty does not arise.
5. On the other hand, learned AR defended the impugned order and he relied upon the decision in the case of Authority for Advance Ruling, Madhya Pradesh, M/s Jabalpur Hotels Private Limited, 2020 (7) TMI 476.
6. After considering the submissions of both the parties and perusal of the material on record, I find that when the passenger lift was imported, it was classified under Chapter 84 and the Classification was accepted by the Department and once the classification is accepted by the Department, it cannot be changed at the receiver’s end by the Department in view of various decisions relied upon by the appellant cited supra. Further, as per the impugned order, two conditions have to be fulfilled for capital goods to claim CENVAT credit as mentioned in Rule 2(a) (A) of CCR, 2004 for eligibility of credit (a) They should fall under the category mentioned in Rule 2(a)(A), (b) They should be used as mentioned in Rule 2(a)(A) whereas as per the Commissioner, only first condition is satisfied and as per the learned Commissioner, the entire works contract is not service, only service portion in works contract is service which is evident by section 66E(h) of the Finance Act, 1994. Further, as per the Commissioner, the lifts fall under material portion of works contract and hence credit is not eligible. Further, I find that both the authorities have resorted to artificial bifurcation of the activity in the material and provision of service ignoring nature of the work. I also find that the imported lifts were used for the construction of building and therefore the appellant has used the capital goods for providing output service and this artificial bifurcation resorted to by the authorities, is beyond the statutory provision and the basis of denying the credit is not proper because the appellant has fulfilled the conditions in terms of Rule 2(p) of CCR which defines output service and as the lift is not used for providing the service specified in the Negative List and whole of the service tax is not paid by the recipient of service thereby the appellant has used the lift for providing the output service. I also find that the lift is essential for providing the output service and therefore, the appellant has fulfilled both the conditions to avail the credit, hence the denial of credit is not sustainable, simply because the lifts are fitted into the building does not have an impact on treatment of lifts as capital goods because even after fitting into the building, lift is a lift and covered under Chapter 84 and cannot be considered as input just to deny the benefit of CENVAT credit. Further, I find that as per the Construction Agreements also, lift is one of the common facility provided in the project and lift is a capital goods being used for providing taxable services on which service tax is being paid by the appellant, therefore denying benefit of credit on capital goods is not proper. Further, I find that the findings in Para 12.1 of the impugned order that the lifts were not used in providing service but used in supply of material hence not eligible for credit, is not sustainable in law because the capital goods used cannot be attributed to service portion and material portion as envisaged in the order. Therefore, the basis to deny the credit is not legally sustainable. Further, the decision relied upon by the learned AR in the case of Jabalpur Hotels (cited supra) is not applicable to the facts and circumstances of the present case because the said decision is under the GST Law and decision of advance ruling only therefore the same is not applicable to the facts of the case.
7. In view of my discussion above and relying upon the decisions cited supra by the appellant, I am of the view that the appellant is entitled to CENVAT credit on lift which is capital goods and the denial of the same is not sustainable therefore I set aside the impugned order by allowing the appeal of the appellant.
(Order pronounced in the open court on 18/08/2021)
