Citation Codes

Equivalent Citations

citation codes

Case Number

Service Tax 87864 Of 2014

Attorney(S)

Acts

sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act,
SECTION 65 FINANCE ACT
Rule 15(1) of the Cenvat Credit Rules, 2004.
Rule 2(1) of the Cenvat Credit Rules, 2004.
Central Excise Tariff Act, 1985

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Summary of Opinion — Appeal No. ST/87864/2014 (Pronounced 22/03/2016)

Factual and Procedural Background

This appeal challenges Order-in-Original No. 27/ST/RN/SCL/MIII/13-14 dated 26.03.2014 passed by the Commissioner of Central Excise, Mumbai-II.

The Commissioner, out of a total credit dispute of Rs. 1,28,27,801/- (as proposed in the show cause notice dated 26.03.2013), allowed credit of Rs. 1,23,00,665/- in respect of Optical Fibre Cable Duct (Chapter heading 3917 of the Central Excise Tariff Act, 1985) and disallowed an amount of Rs. 5,27,136/- claimed as Cenvat credit on certain input services used for erection of BTS towers (services described in the impugned order include Consulting Engineers Service, Designer Service, Technical Testing & Analysis Service, and erection-related services).

The impugned order also recorded a penalty of Rs. 25,000/-. The show cause notice and first paragraph of the opinion reference the penalty as imposed under Rule 15(1) of the Cenvat Credit Rules, 2004; subsequently the order records that a penalty of Rs. 25,000/- imposed by the lower authorities under Rule 25 (no further elaboration in the text) is set aside by the adjudicating authority in this appeal.

The appellant (a provider of telecom services) challenged the disallowance and penalty before the appellate authority; hearings were held and representations were made by the appellant's chartered accountants and by the Revenue representative. The order under appeal partly disallowed Cenvat credit and imposed the penalty; the appellate forum examined the admissibility of the disputed credits and the appropriateness of the penalty.

Legal Issues Presented

Whether the Cenvat credit of Rs. 5,27,136/- availed on various input services (including erection, commissioning & installation service; consultancy engineers service; design service; technical testing & analysis service; business auxiliary service; business support service) is admissible after the amendment to the definition of "input service" w.e.f. 01.04.2011 which excluded certain services (notably construction-related services and works contracts) from the definition.
Whether the penalty of Rs. 25,000/- imposed on the appellant (referenced in the opinion both under Rule 15(1) and later as under Rule 25) was justified in the facts and circumstances of this case.

Arguments of the Parties

Appellant's Arguments

The appellant (through Shri S.S. Gupta and Manoj Chauhan, Chartered Accountants) conceded that Cenvat credit in respect of construction service and works contract service is not admissible after 01.04.2011 because those services were excluded from the definition of "input service".
Other services for which credit was claimed — erection, commissioning & installation service; consultancy engineers service; business auxiliary service; business support service; design service; technical testing & analysis service — are directly used for providing the output service (telecom service) and therefore are covered by the main clause of the definition of "input service".
The appellant pointed out that the Commissioner in the impugned order characterized some services differently (e.g., calling some items "design service" or "technical analysis" when the appellant treats them as business auxiliary/support services), and contended that the Commissioner's classification was therefore incorrect.
The appellant produced a bifurcation (October 2011 to June 2012) showing the amounts claimed for each category (totaling Rs. 5,27,136/-) and relied on several judicial decisions to support the admissibility of credit on the services in dispute.
Specifically, the appellant placed reliance on the following judgments (as listed in the opinion):

Commr. of C. Ex. Visakhapatnam-II v. Sai Sahmita Storages (P) Ltd., 2011 (23) S.T.R. 341 (A.P.)
Mundra Ports and Special Economic Zone Ltd. v. Commissioner of Central Excise and Customs, 2015-TIOL-1288-HC-AHM-ST
Commissioner of Central Excise Commissionerate, Delhi-III v. M/s. Bellsonics Auto Components India P. Ltd., 2015 (7) TMI 930 (Punjab & Haryana HC)
Commissioner of C.Ex. Ahmedabad-II v. Cadila Healthcare Ltd., 2013 (30) S.T.R. 3 (Guj.)
Navratna S.G. Highway Prop. Pvt. Ltd. v. Commr. of S.T., Ahmedabad, 2012 (28) S.T.R. 166 (Tri.-Ahmd.)
Gujarat State Petronet Ltd. v. Commr. of Cus. & C. Ex., Ahmedabad, 2013 (32) S.T.R. 510 (Tri.-Ahmd.)

Revenue's Arguments

The Revenue (represented by Shri B. Kumar Iyer, Ld. Superintendent (A.R.)) supported the findings of the impugned order that, after the amendment w.e.f. 01.04.2011, the disputed services are not specifically mentioned in the definition of "input service" and therefore credit on those services was correctly denied by the Commissioner.
The Revenue relied on the following judgments (as listed in the opinion) to support its position:

Bharti Airtel Ltd. v. Commissioner of C. Ex., Pune-III, 2014 (35) S.T.R. 865 (Bom.)
Vodafone India Ltd. v. Commissioner of Central Excise, 2015-TIOL-2098-HC-MUM-ST

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commr. of C. Ex. Visakhapatnam-II v. Sai Sahmita Storages (P) Ltd., 2011 (23) S.T.R. 341 (A.P.)	Relied upon by the appellant to support admissibility of Cenvat credit on certain services.	The court record notes reliance by the appellant; the opinion does not analyse or apply this precedent in its reasoning.
Mundra Ports & Special Economic Zone Ltd. v. Commissioner of Central Excise and Customs, 2015-TIOL-1288-HC-AHM-ST	Relied upon by the appellant to support credit admissibility.	The court record notes reliance by the appellant; the opinion does not analyse or apply this precedent in its reasoning.
Commissioner of Central Excise Commissionerate, Delhi-III v. M/s. Bellsonics Auto Components India P. Ltd., 2015 (7) TMI 930 (Punjab & Haryana HC)	Relied upon by the appellant to support credit admissibility.	The court record notes reliance by the appellant; the opinion does not analyse or apply this precedent in its reasoning.
Commissioner of C.Ex. Ahmedabad-II v. Cadila Healthcare Ltd., 2013 (30) S.T.R. 3 (Guj.)	Relied upon by the appellant to support credit admissibility.	The court record notes reliance by the appellant; the opinion does not analyse or apply this precedent in its reasoning.
Navratna S.G. Highway Prop. Pvt. Ltd. v. Commr. of S.T., Ahmedabad, 2012 (28) S.T.R. 166 (Tri.-Ahmd.)	Relied upon by the appellant to support credit admissibility.	The court record notes reliance by the appellant; the opinion does not analyse or apply this precedent in its reasoning.
Gujarat State Petronet Ltd. v. Commr. of Cus. & C. Ex., Ahmedabad, 2013 (32) S.T.R. 510 (Tri.-Ahmd.)	Relied upon by the appellant to support credit admissibility.	The court record notes reliance by the appellant; the opinion does not analyse or apply this precedent in its reasoning.
Bharti Airtel Ltd. v. Commissioner of C. Ex., Pune-III, 2014 (35) S.T.R. 865 (Bom.)	Relied upon by the Revenue to support denial of credit in contexts involving tower setup/materials.	The court distinguished and held this precedent not relevant to the present facts because Bharti Airtel concerned credit on material used for setting up towers/prefabricated buildings with antenna, whereas the present case concerns input services; the court did not apply this precedent to deny credit.
Vodafone India Ltd. v. Commissioner of Central Excise, 2015-TIOL-2098-HC-MUM-ST	Relied upon by the Revenue to support denial of credit in contexts involving tower setup/materials.	The court distinguished and held this precedent not relevant to the present facts for the same reason as Bharti Airtel (material-setting-up-towers facts differ from the present issue of input services); the court did not apply this precedent to deny credit.

Court's Reasoning and Analysis

The court proceeded by examining the nature of the appellant's business, the nature of services on which credit was claimed, the statutory definition of "input service" as amended w.e.f. 01.04.2011, and the factual bifurcation of claimed credits submitted by the appellant.

Key steps in the court's analysis (as stated in the opinion):

The appellant is a provider of telecom services and claimed Cenvat credit in respect of various services (construction service; erection, commissioning & installation service; works contract service; consultancy engineers service; business auxiliary & business support services; design service; technical testing & analysis service). The appellant provided a bifurcation of amounts (October 2011 to June 2012) showing totals for each category summing to Rs. 5,27,136/-.
The court reproduced and considered the amended definition of "input service" (Rule 2(1) of the Cenvat Credit Rules, 2004) effective from 01.04.2011. The definition includes services used by a provider of taxable service for providing an output service and lists several illustrative inclusions, but expressly excludes certain specified services insofar as they are used for construction of a building or civil structure or laying of foundation or making structures for support of capital goods (and certain other exclusions such as motor vehicles and personal services to employees).
The court identified the specific excluded services (as they appear in the amendment): Architects Service; Ports Service; Airports Authority Service; Commercial or Industrial Constructions Service; Construction of Complexes Service; Works Contracts Service. The court accepted the appellant's concession that construction service and works contract service fall within the exclusion and therefore credit on those two categories is not admissible.
For the other disputed services (erection, commissioning & installation; consultancy engineers; business auxiliary; business support; design; technical testing & analysis), the court observed there was a factual dispute about the correct classification of some items, but emphasised that none of those services fall within the explicit exclusion categories in the amended definition. On that basis, the court concluded that credit on those other services could not be denied merely because they were characterized differently by the Commissioner.
The court distinguished the precedents relied upon by the Revenue (Bharti Airtel and Vodafone), noting that those decisions dealt with Cenvat credit on material used for setting up towers/prefabricated buildings with antenna (i.e., factual situations concerning materials/structures) and therefore were not relevant to a dispute concerning input services. The court thus did not follow those authorities as dispositive for denial of the service credits in the present case.
Turning to penalty, the court noted that the dispute involved interpretation of the definition of "input service" and that, on examination, most of the services were found to be admissible for credit while only the construction and works contract services were inadmissible by reason of the statutory exclusion effective 01.04.2011. Given those circumstances, the court found no evidence of malafide intent on the part of the appellant in claiming the credits and therefore concluded that imposition of the penalty was not warranted.

Holding and Implications

Holding:

APPEAL PARTLY ALLOWED.

The tribunal held that, except for Cenvat credit claimed on Construction Service and Works Contract Service (which are expressly excluded from the definition of "input service" w.e.f. 01.04.2011 and therefore not admissible), Cenvat credit on the other disputed input services (including erection, commissioning & installation service; consultancy engineers service; business auxiliary and business support services; and services described as design service and technical testing & analysis service) is admissible.

The penalty of Rs. 25,000/- imposed by the lower authorities (the opinion records the penalty as having been imposed under Rule 25 in the appellate disposal, though the show cause notice earlier referenced Rule 15(1)) was set aside by the adjudicating authority on the ground that there was no malafide intention in the appellant's claims given the interpretative nature of the dispute and the fact that most of the services were ultimately found to be admissible.

Implications:

Direct effect on the parties: The appellant's Cenvat credit of Rs. 5,27,136/- is sustained except to the extent attributable to construction and works contract services; the monetary disallowance is therefore reduced accordingly. The penalty of Rs. 25,000/- is rescinded.
Broader precedent: The opinion distinguishes certain High Court decisions relied on by the Revenue (Bharti Airtel and Vodafone) on the basis of differing factual matrices (materials/tower construction vs. input services). The opinion does not announce or state that it establishes a new legal principle beyond its specific application to the facts before the court; it limits its conclusion to the statutory interpretation and factual application in this case.

Additional details recorded in the opinion: Judgment pronounced on 22/03/2016 by Ramesh Nair, Member (Judicial). Appeal No. ST/87864/2014.

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Vodafone India Ltd v. Commissioner Of Central Excise

The appeal is directed against Order-in-Original No. 27/ST/RN/SCL/MIII/13-14 dated 26.03.2014 passed by the Commissioner of Central Excise, Mumbai-II, wherein the Ld. Commissioner out of total credit of Rs.1,28,27,801/- proposed to be disallowed in the show cause notice dt. 26.3.2013, an amount of Rs.5,27,136/- was disallowed on the services, such as Consulting Engineers Service, Designer Service, Technical Testing & Analysis Service used for erection of BTS Towers. However, a credit of Rs.1,23,00,665/- in respect of Optical Fibre Cable Duct falling under Chapter heading 3917 of the Central Excise Tariff Act, 1985 was allowed. Therefore the only issue remains to be decided is credit of Rs.5,27,136/- and the various input services and penalty of Rs.25,000/- imposed upon the appellant under Rule 15(1) of the Cenvat Credit Rules, 2004. The Ld. Commissioner while disallowing the credit on aforesaid services observed as under: The input service namely Construction Service Erection & Commissioning Service are pertaining to creation of the immovable structures, viz., BTS Towers & Shelters which do not qualify to be either Capital Goods or Inputs, as already discussed above. These services do not have any direct nexus with the output services being rendered by the Noticee i.e. Telecom Service. The expression Activities relating to business such as was deleted from the definition of input services w.e.f.01.04.2011 and the period involved in this show cause notice is after 01.04.2011. These services are not specifically mentioned in the definition of input service under Rule 2(1) of the Cenvat Credit Rules, 2004. Accordingly these services are held not eligible for Cenvat Credit. Therefore, I disallow the Credit availed on input service while receiving certain services like erection, commissioning and installation etc., for erection of BTS Towers and shelters & other services such as Consultancy Engineers Services, Design Services, Technical Testing & Analysis service to the tune of Rs. 5,27,136/-. Aggrieved by the adjudication order the appellant is before me.

2. Shri S.S. Gupta Ld. Chartered Accountant along with Manoj Chauhan Chartered Accountant appeared on behalf of the appellant. He fairly concedes that Cenvat Credit in respect of construction and works contract is not admissible after 1.4.2011 as the said services were excluded from the purview of input service. He further submits that apart from construction and works contract service, remaining services are related to erection, commissioning and installation service, consultancy engineers service, business auxiliary services and business support services. He submits that these services are directly used for providing the output service. Therefore these services are even covered under the main clause of the definition of input services. He further submits that the Ld. Commissioner firstly disallowed the credit considering the services as Erection, Commissioning and Installation, Design Services, Technical Testing & Analysis service whereas the services are erection, commissioning and installation service, consultancy engineers service, business auxiliary service & business support services. Therefore, the finding of the Ld. Commissioner is wrong on the basis that the services involved is different from the services considered and discussed by him in the impugned order. He submits that after 1.4.2011, as per the amended definition of input service, certain services were excluded, which are only two services of the present case i.e. construction of towers and works contract, except these two services, other services are not falling under exclusion category, credit cannot be denied on such services. In support, he has placed reliance on the following judgement:

(i) Commr. of C. Ex. Visakhapatanam-II Vs. Sai Sahmita Storages (P) Ltd. 2011 (23) S.T.R. 341 (A.P.)

(ii) Mundra ports and Special Economic Zone Ltd. Vs. Commissioner of Central Excise and Customs 2015-TIOL-1288-HC-AHM-ST

(iii) Commissioner of Central Excise Commissionerate, Delhi-III Vs. M/s. Bellsonics Auto Components India P. Ltd. 2015 (7) TMI 930-PUNJAB & HARYANA HIGH COURT

(iv) Commissioner of C.Ex. Ahmedabad-II Vs. Cadila Healthcare Ltd. 2013 (30) S.T.R. 3 (Guj.)

(v) Navratna S.G. Highway Prop. Pvt. Ltd. Vs. Commr. of S.T., Ahmedabad 2012 (28) S.T.R. 166 (Tri.-Ahmd.)

(vi) Gujarat State Petronet Ltd. Vs. Commr. of Cus. & C. Ex., Ahmedabad 2013 (32) S.T.R. 510 (Tri.-Ahmd.)

3. On the other hand, Shri B. Kumar Iyer Ld. Supdt. (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He submits that the Ld. Commissioner has given categorical finding that as per the amended definition w.e.f. 1.4.2011 these services are not specifically mentioned in the definition of input, service therefore he correctly denied the credit. In support he placed reliance on the following judgments:

(i) Bharti Airtel Ltd. Vs. Commissioner of C. Ex., Pune-III 2014 (35) S.T.R. 865 (Bom.)

(ii) Vodafone India Ltd. Vs. Commissioner of Central Excise 2015-TIOL-2098-HC-MUM-ST

4. I have carefully considered the submissions made by both the sides. I find that the appellant is providing telecom services. They availed Cenvat Credit in respect of construction service, erection, commissioning and installation service, consultancy engineers service & though in the order it was mentioned the design service, technical analysis services. As per the claim of the appellant the Cenvat Credit of Rs.5,27,136/- is on business auxiliary service and business support services also. During the hearing, the Ld. Chartered Accountant of the appellant placed the bifurcation of the input service and credit availed thereon as under: October 2011 to June 2012 Category of Service Total Construction Services 101,628 Erection, Commissioning & Installation Service 204,810 Woks Contract Service 109,431 Consultancy Engineers Services 8,240 Business Auxiliary Services 86,015 Business Support Services 17,011 Total 527,136 From the above chart, it is clear that there are some different services as mentioned by the Ld. Commissioner in the impugned order then the claim of the appellant. I find that there is a amendment in the definition of input service w.e.f.1.4.2011 the amended definition reads as under: (1) input service means any service,

(i) used by a provider of taxable 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 upto the place of removal, and includes services used in relation to modernisation, 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 services, (A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), insofar as they are used for (a) construction 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) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, insofar as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;. From the above definition, it is clear that the following services provided for construction of building or a civil structure or a part thereof are excluded for the definition of input service. (p) Architects Service (zn) Ports Service (zzl) Ports Service (zzm) Airports Authority Service (zzq) Commercial or Industrial Constructions Service (zzzh) Construction of Complexs service (zzzza) Works Contracts Service Therefore, as clearly conceded by the Ld. Chartered Accountant services of construction and works contract are excluded from the definition of input service, therefore the Cenvat Credit on the said two services are disallowed. As regard other services there is a dispute between the Ld. Commissioner and the appellant that some of the services like design service, technical testing and analysis service are in fact business auxiliary service and business support service, which needs verification by the adjudicating authority. However, irrespective of difference of service whether it is design service, technical testing and analysis service or business auxiliary service and business support service, the same for not falling under the exclusion category, therefore the credit cannot be denied on these services. Similarly, the services like erection, commissioning and installation and consultancy engineers service are also not excluded in the amended definition of input service. Therefore in my considered view, except the construction service and works contract service the credit on other services are admissible. As regard the judgments relied upon by the Ld. AR in the case of Bharti Airtel Ltd. (Supra) and Vodafone India Ltd. (supra), the issue relates to the Cenvat Credit on material used for setting up towers prefabricated buildings with antenna etc. whereas in the present case the issue is on the input services received by the appellant. Therefore, the fact of the case relied upon by the Revenue are totally different from the facts of the present case, hence the said judgements are not relevant. As per my above discussion, I am of the considered view that Cenvat Credit in respect of input services except the service of construction service and works contract service is admissible. A regard penalty, I find that the issue relates to the interpretation of definition of input service and on most of the services credit is admissible and the credit is inadmissible in respect of construction and works contract service, only due to the reason that there is exclusion w.e.f.1.4.2011. In this facts and circumstances, I do not see any malafide intention on the part of the appellant. Therefore penalty of Rs.25,000/- imposed by the lower authorities under Rule 25 is hereby set aside. The appeal is partly allowed in the above terms. (Pronounced in court on 22/03/2016) (Ramesh Nair) Member (Judicial) Appeal No. ST/87864/2014

Vodafone India Ltd v. Commissioner Of Central Excise

Summary of Opinion — Appeal No. ST/87864/2014 (Pronounced 22/03/2016)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Vodafone India Ltd v. Commissioner Of Central Excise

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