CESTAT, AHMEDABAD BENCH
Commissioner of Central Excise, Vadodara
ORDER NO. A/47/WZB/AHD. OF 2012
APPEAL NO. ST/344 OF 2010
JANUARY 17, 2012
1. M/s. Venus Investments, Vadodara are engaged in providing taxable services falling under category of renting of immovable property services. On verification it was detected by the department that they have wrongly availed cenvat credit of Rs. 5,05,974 under category of commercial or industrial construction services as input service for construction of an immovable property. The Revenue’s contention was that such services is neither input service for output service nor immovable property service is service for goods in terms of rule 2(A)(i) read with rule 6 of Cenvat Credit Rules, 2004. The original adjudicating authority disallowed the cenvat credit and ordered recovery of an amount of Rs. 2,96,892/- along with interest and imposed penalty. The present appeal is against this order.
2. It was submitted by the appellants that the original adjudicating authority placed reliance on CBEC Circular No. 98/1/2008-ST dated 04.01.2008 which clarified that such input service of construction is to be provided for output service i.e. building which is neither dutiable nor taxable under service tax. They argued that the clarification is valid because such premises are to be used for providing taxable service. They placed reliance in the judgment of the Hon’ble Supreme Court in the case of CCE v. Ratan Melting & Wire Industries 2008 (231) ELT 22. It was the contention of the department that the provisions of the Act do not provide for levy of service tax on the renting of immovable property as such and does not treat renting out of immovable property as a service. The service could be rendered to any person provided it was in relation to the renting of the property and not to the person who takes the property on rent.
3. Shri S.R. Dixit, learned counsel appearing on behalf of the appellant invited attention to the provisions of Rule 2(l) which are as follows:
Rule 2(l) “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 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, 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.
It was argued by him that the definition given under Rule 2 squarely covers their case. The thrust of the argument is that the definition of input as contained in Rule 2(k)(ii) is all goods used for providing any output service.
4. This Bench of the Tribunal has dealt with the similar issue in the case of Mundra Port & Special Economic Zone Ltd. v. CCE  18 STT 314 (Ahd.-CESTAT). I quote:
“We find that the definition of input is provided in Rule 2(k), in two different clauses i.e. (i) and (ii). Clause (i) refers to the definition of inputs for the purposes of excise duty whereas clause (ii) refers to the definition of input for the purposes of service tax. When we compare the definition of inputs as contained in the said two clauses, we note the following differences;
(a) the definition of input in clause (i) refers to all goods, used in or in relation to the manufacture of final products;
(b) whether-directly or indirectly
(c) whether contained in the final product or not
(d) used for any other purpose, within the factory of production.
As is seen from the above, the definition of input as contained in clause (i) is to —– a definition and refers to all inputs either used in or in relation to the manufacture of the final product or for any other purposes within the factory of production. On the other hand the definition of inputs as contained in clause (ii) is limited to all goods, used for providing any output service. If the expression used for providing any output service is required to be given wide import, as contended by the ld. Advocate and is required to be expanded to such an extent so as to cover the raw materials used for construction of port buildings or jetty etc., the difference in the definitions, as carved out by the legislation, would get diminished and blurred. The legislation in it wisdom has given extended meaning to the definition of input as contained in clause (i) and comparatively a simple and restrictive meaning as contained in clause (ii). If the identical treatment is to be given to the definition of inputs as contained in clause (ii), the distinction drawn by the legislation, i.e. by giving wider scope to the definition of input as contained in clause (i) and restricted as given in clause (ii) would become otiose and as such frustrative of the legislative intent.
7. Having observed as above, we proceed to find out the true meaning and interpretation of the expression “used for providing a output service”. A plain and simple English meaning of the above would be the goods which are required for providing a output service. Admittedly jetty is required for providing the port service in the same manner as any office building etc. is required for providing any other output service. The question is as to whether cement and steel, which are the disputed goods in the present case, are required for providing port service or can be said to be used for providing port service. The cement and steel have undoubtedly been used in the construction of jetty and port building by the contractor, which service is itself liable to service tax, though the same is exempted under the Notification. As such, it can be safely concluded that the cement and steel stand used for providing the output service of construction of building and not used in providing the port service, such an interpretation would lead to unwarranted results and the definition cannot be so stretched so as to include the use of cement and steel as used for providing the output service of port services. If such a wide meaning is given to the above expression then the cement and steel used for construction of any building which houses the office etc. would become eligible inputs for the purposes of providing output services. As such, we do not agree with the ld. Advocate that such cement and steel can be held to be eligible inputs used for providing the output port service.”
5. The Larger Bench in the case of Vandana Global Ltd. v. CCE 2010 (253) ELT 440 (Tri -LB) Raipur has dealt with the issue in detail. The findings in both the cases (supra) will answer the contentions of the appellant.
6. Shri S.K. Mall, learned SDR while arguing the case for the department stated that the commercial or industrial construction service or works contract service is an input service for the output service namely immovable property. Immovable property is neither subjected to central excise duty nor to service tax and input credit of service tax can be taken only if the output is a service liable to service tax or a goods liable to central excise duty. Therefore he argued that the credit on input service will not be available to the appellant.
7. Reliance was placed by the appellants on the judgment of the Hon’ble Supreme Court in the case of Ratan Melting & Wire Industries (supra) which held that the CBEC circulars clarifying legal position contrary to the law laid down by the Hon’ble Apex Court is required to be ignored. This contention of the appellant is not sustainable. The observations of the Hon’ble Apex Court has been misconstrued as the Hon’ble Court only held that departmental circulars and instructions issued by the Board are binding in law on the authorities under the respective statutes and not on the Supreme Court or High Court. As such the directions of the Hon’ble Court are respectfully considered in this case also to arrive at a proper legal conclusion.
8. On going through the facts of the case I do not find any reason to waive any penalty or recovery of interest. The various facts show the intention to wrongly avail the cenvat credit and the appellants have not paid a major portion of the demand.
9. Considering the facts of the case and various legal pronouncements, I find that the contentions raised by the Revenue are sustainable. The appeal filed by M/s. Venus Investments is accordingly rejected and the order-in-Appeal is upheld.