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BRIEF FACTS OF THE CASE

M/s Adani Port & Special Economic Zone Ltd., (formerly known as Mundra Port & Special Economic Zone Ltd. or M/s MPSEZ Ltd) having their centralized registration at office situated at Adani House, Mithakahali Six Circle, Navrangpura, Ahmedabad-380 009 (hereinafter referred to as the “noticee”) are are holding Centralized Service Tax Registration in form ST-2 bearing No.AAACG7917KSD002 under Section 69 of Chapter V of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as “the said Act”) and have undertaken to comply with conditions prescribed in Service Tax Rules ,1994 (herein after referred to as “the said Rules”).

2. The jurisdictional Range Superintendent vide letter dated 17.07.2012, asked the noticee to submit figures relating to CENVAT Credit/ Service Tax availed by them during the period from April-2011 to September-2011.

2.1 The noticee vide their letter dated 24.08.2012 submitted that in respect of the following services/inputs, the Hon’ble Tribunal vide order No. A/2122/2008/WZB/AHD dated 30.9.2008 in Appeal No. ST/160/2007 allowed CENVAT credit on Mobile Phone; CHA Service; Rent- a-cab Service; Surveyor Charges; other input services such as professional fees, construction, soil testing, labour charges etc.; duty paid air conditioners. They further informed that the above order was upheld by the Hon’ble Gujarat High Court vide Order and Judgment dated 5.5.2010 in Tax Appeal No. 737/2009 filed by the department. The department challenged the order before the Hon’ble Supreme Court. The Hon’ble Supreme Court vide order dated 17.2.2012 dismissed the Special Leave Petition filed by the Department. They also enclosed details of CENVAT credit availed by them during the period April-2011 to Sept-2011

3. The noticee (earlier M/s MPSEZ Ltd) was issued SCN No.V.ST/AR-G-dham/Commr/35/2006 dated 17.04.2006 for an amount of Rs.1,83,21,778/- (including Ed.Cess) and SCN No.V.ST/AR-G.dham/Commr/32/2007 dated 13.04.2007 for an amount of Rs.10,96,11,944/- by the Commissioner, Customs & Central Excise, Rajkot. Both SCN’s were adjudicated by Commissioner, Customs & Central Excise, Rajkot who confirmed the demand vide OIO No.21-22/Commr/2007 dated 26.07.2007 amounting to Rs.12,79,33,722/- under Rule 14 of CCR, 2004 read with Section 68 & 73 of Finance Act, 1994 and ordered to recover interest under Rule 14. He also imposed penalty under Rule 15 of CCR, 2004 read with Section 78 of the Finance Act, 1994 and under Section 76 & 77 of the Finance Act, 1994. The noticee ( earlier M/s MPSEZ Ltd.) appealed against the Order passed by the Commissioner, Customs & Central Excise, Rajkot in CESTAT, WZB, Ahmedabad. CESTAT, WZB, Ahmedabad vide Order No.A/2122/WZB/AHD/2008 dated 30.09.2008 confirmed the demand on Steel, Cement and Club House fees and dropped the remaining demand. The noticee (earlier M/s MPSEZ Ltd) preferred Civil Application No. 576 of 2010 in Tax Appeal No. 15/2009 in Gujarat High Court against the order of CESTAT, WZB, Ahmedabad. The noticee (earlier M/s MPSEZ Ltd) has ‘Earmarked’ Rs.2.50 Crores through Cenvat Credit in the month of January 2008 and deposited Rs. 2.00 Crores through PLA in the month Of March 2012 after issuing recovery notice from Range Office. Gujarat High Court in the hearing of dated 21.03.2012 ordered to provide Bank guarantee of Rs.3.73 Crores to

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the Department. Bank Guarantee of Rs 3.73 Crores has been submitted by the noticee to Commissioner, Customs & Central Excise, Rajkot. 4. In view of the above order passed by the Hon’ble High Court, it appeared that the credit availed by the noticee on Steel, Cement and Bitumen is not admissible.

4.1 Thus, on the basis of the CENVAT credit details provided by the noticee vide their letter dated 24.08.2012, a chart was prepared containing details of the CENVAT credit availed by the noticee on Steel, Cement and Bitumen. The said chart is produced herein below:

STATEMENT OF CENVAT CREDIT/CREDIT OF SERVICE TAX WRONGLY AVAILED FOR THE PERIOD (April -2011 to Sept-2011 )

Sr.No. Name of the Capital Goods , Inputs/ Input Services

Ex/Duty/Service Tax

Edu. Cess

HSS Cess

Total

1 Steel 41,73,519 83,342 41,721 42,98,5822 Cement 15,623 312 156 16,0913 Other Inputs-

Excise Duty -BITUMEN

34,850 697 349 35,896

Total 42,23,992 84,351 42,226 43,50,569

5. It was evident from the above chart that the noticee had availed CENVAT Credit/Credit of Service Tax on the following Capital Goods & Inputs during the period April-11 to Sept-11, as under:

i Steel An amount of Rs.42,98,582/- (including Ed. Cess and Higher Secondary Education Cess) was availed as CENVAT Credit on Steel

ii Cement An amount of Rs.16,091/- (including Ed. Cess and Higher Secondary Education Cess) was availed as CENVAT Credit on Cement used in the construction of new jetties and buildings.

iii Other Inputs – Excise Duty – Bitumen

An amount of Rs.35,896/- (including Ed. Cess and Higher Secondary Education Cess) was availed as CENVAT Credit on Bitumen.

6. It appeared that the noticee had wrongly availed the CENVAT Credit for the reasons shown below:

6.1 The noticee had availed CENVAT Credit on Steel & Cement as input for providing output service. The definition of Rule 2(k) (ii) of the CENVAT Credit Rules, 2004 stipulates that “input” means all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service. Plain reading of the aforesaid definition clearly indicates that only those goods that are directly used for providing output service will be eligible for CENVAT Credit. On this premises, Cement & steel cannot be said to be used directly for providing output service i.e. Port Services, as the noticee had used Cement & Steel for construction

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of various terminals, jetty and other civil structures, which are nothing but immovable property. Also the definition of “input” as given in Rule 2(k) of CENVAT Credit Rules, 2004 in respect of service provider is restrictive and uses the phrase “used for providing an output service”. Thus, it is clear that only those goods used directly for providing output service will be eligible for CENVAT Credit. It appeared that the goods in question i.e. Cement and Steel have been used in the construction of jetty and port building and therefore appeared to be used for providing the output service of construction of building and are not used in providing the port service.

6.2 Similarly, the credit availed on cement and steel also doesn’t falls under the definition of “Input Service” under Rule 2(l) of the said CENVAT Credit Rules, 2004.

6.3 It appeared that the credit availed on cement and steel falling under chapter 25, 72 and 73 respectively of CETA, 1985 used for construction of jetty and other civil structures are not covered in clause (i) of the definition of “capital goods” as given in Rule 2(a)(A) of CENVAT Credit Rules, 2004 where there is a mandatory requirement for the goods to be classifiable under specific chapter headings. It also appears that the said goods do not even fall under clause (ii), (iv), (v), (vi) or (vii) of Rule 2(a) (A) of CENVAT Credit Rules, 2004. It further appeared that these goods do not even fall under clause (III) as the said goods cannot be called as components, spares or accessories of a capital goods specified in clause A (i) of Rule 2(a) of CENVAT Credit Rules, 2004. Thus, it appeared that Cement and Steel do not come within the ambit of any of the clauses from (A) (i) to (vii) of the definition given in Rule 2 (a) of the CENVAT Credit Rules, 2004. Therefore, the CENVAT Credit availed by the noticee on these goods appeared to be inadmissible as capital goods also and liable to be recovered along with interest.

7. Thus, it appeared from the above said Rule 2(a), 2(k) and 2(l) of the CENVAT Credit Rules, 2004, that the said Cement & Steel used in construction of new jetties and other building used as “Capital Goods” did not fall within the purview of “Capital Goods”, “Inputs” and “Input Service”.

8. Perusal of the ST-3 return filed by the noticee with the jurisdictional range office, revealed that they had declared a total CENVAT credit availed by them in a particular month. The details of month-wise CENVAT credit availed by them are as follows:F.Y 2011-2012 CENVAT credit availed

Month Service TaxEdu. Cess and Sec &

Higher Edu. Cess TotalApril 30310069 909303 31219372May 34450579 1033503 35484082June 21215762 636331 21852093July 22955546 688682 23644228August 22049208 662140 22711348September 41944210 1258078 43202288TOTAL 172925374 5188037 178113411

8.1 In view of the above, it appeared that the noticee had availed total cenvat credit of Rs.17,81,13,411/- during the period April-11 to Sept-11 out of which CENVAT credit of Rs.43,50,569/- (Rupees Forty Three Lakhs Fifty Thousand Five Hundred Sixty Nine Only) has been availed by them on Steel, Cement & Other Input-

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Excise Duty-Bitumen, which as already discussed in para 5 supra, is taken/utilized wrongly.

8.2 It was further revealed from the ST-3 return filed by the noticee that they had not provided details of input, input services and capital goods on which CENVAT credit was availed by them. Hence, the details as regards the nature of CENVAT credit availed by the noticee were not forthcoming from the ST-3 return filed by them. The details of CENVAT Credit availed by the noticee were provided by them only after the jurisdictional Range Superintendent issued letter dated 24.08.2012 asking for the details thereof. Thus the details were suppressed from the department even though show cause notices have been issued to the noticee earlier on the same issue. The details of CENVAT credit availed by the noticee are discussed in para 2 supra.

9. As per Rule 14 of the CENVAT Credit Rules, 2004, the CENVAT credit, taken or utilized wrongly, shall be recovered along with interest from the provider of the output service and provisions of Section 11A of the Central Excise Act, 1944 or sections 73 and 75 of the Finance Act, 1994 shall apply mutatis mutandis for effecting such recoveries.

10. Therefore, it appeared that the CENVAT credit of Rs.43,50,569/- (Rupees Forty Three Lakh Fifty Thousand Five Hundred Sixty Nine Only) availed/utilized by the noticee during the period from April-2011 to Sept-2011, was liable to be recovered along with interest under the provisions of Rule 14 of the CENVAT Credit Rules, 2004 read with Section 73 and 75 of the Finance Act, 1994. They were also liable to penalty under sub rule (1) and (3) of the Rule 15 of CENVAT Credit Rules, 2004.

11. Therefore, M/s Adani Port & Special Economic Zone Limited, Adani House, Mithakahali Six Circle, Navrangpura, Ahmedabad-380009 was issued a show cause notice No. STC/4-20/O&A/ADC/D.II/12-13 dated 18.12.2012 by the Additional Commissioner of Service Tax, Ahmedabad as to why:-

i. Wrongly availed and utilized Service tax credit/CENVAT credit of Rs. 43,50,569/- (Rupees Forty Three Lakh Fifty Thousand Five Hundred Sixty Nine Only) including Educ. Cess and Higher Education cess, as detailed in Annexure “A” to the Show Cause Notice, during the period from April-2011 to Sept-2011 should not be disallowed and recovered from them under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994;

ii. Interest at the appropriate rate on the aforesaid credit should not be recovered from them under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 75 of the Finance Act, 1994;

iii. Penalty should not be imposed upon them under Rule 15(1) and 15(3) of the CENVAT Credit Rules, 2004;

DEFENCE REPLY

12. The noticee filed their reply dated 31.01.2013 received by this office on 14.02.2013, wherein they stated as under :

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13. That they are a port registered under the Indian Ports Act, 1908 and renders services in relation to port. That they hold Centralized Service Tax registration in Form ST-2 bearing No. AAACG7917KSD002 under section 69 of Chapter V of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the “Finance Act”) and also has undertaken to comply with conditions prescribed in Service Tax Rules, 1994 (herein after referred to as “the said Rules”).

14. That in addition to Port Services, the Noticee also renders Storage and Warehousing Services and Cargo Handling Services and is accordingly also registered for the same.

15. That the said port is a private port as opposed to a Government port. That they entirely operate the port and its services encompass the entire range of activities right from the berthing of a ship to the storing of the goods and subsequent dispatch to customers thereafter in case of imported goods and vice versa in case of goods meant for export. To illustrate, the activities carried out by the Noticee in the case of import of goods inter alia includes:

a. Co-ordination with the Master of the vessel for berthingb. Provisions of tugs and the berthing of the vessel / shipc. Survey of vessel / goodsd. Unloading of goods from the vessel / shipe. Customs Clearancef. Unloading and storing of the goodsg. Warehousing (wherever required)h. Loading of goods on trucks / railway wagonsi. Transportation for final delivery to the customers

16. That the Noticee, unlike a Government run port, carries out the entire gamut of activities within the port. The Noticee, however does not itself carry out all of the activities mentioned above and has appointed various service providers for carrying out specific activities such as CHAs, cargo handlers, surveyors, transporters etc. The Noticee utilizes the services of these service providers for effectively discharging its obligations to its customers.

17. The Noticee thus, is in the business of running of the port unlike other non-private ports and the services utilized by it are consequently input services which are used by the Noticee for providing its output service i.e. Port Service.

18. That a port is one of the basic infrastructures necessary for the functioning of foreign trade. It is a medium / facilitator through which the foreign trade of India is carried out. Given the sheer volume of the goods that it is expected to handle, a port is required to be fully equipped with all the necessary facilities for the smooth movement of goods into and out of India. This inter alia requires jetties / berths for berthing of ships / vessels, adequate storage and warehousing facilities and unhindered movement of men and material within the port.

19. That the port facilities of the Noticee are spread over an area of approximately 300 acres which shows the sheer size of operations of the Noticee. Given this size, the

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Noticee uses various services for the seamless movement of men and material within the port premises.

20. That during the course of scrutiny of their records, the Department observed that they had availed and utilized CENVAT credit of Rs.42,23,992/-, Education Cess of Rs.84,351/- and Secondary and Higher Education Cess of Rs.42,226/-, totaling to Rs.43,50,569/- during the period from April, 2011 to September, 2011.

21. Based on the above investigation, the Addl. Commissioner of Service Tax, Ahmedabad issued the impugned Notice dated 18 th December 2012 , calling upon them to show cause as to why :

a. wrongly availed and utilized CENVAT credit of Rs. 43,50,569/- including Education Cess and Higher Education Cess during the period from April, 2011 to September, 2011 should not be disallowed and recovered under Rule 14 of the CENVAT credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994 (‘the Act’).

b. Interest at appropriate rate on the aforesaid credit should not be recovered under Rule 14 of the CENVAT credit Rules, 2004 read with Section 75 of the Act.

c. Penalty should not be imposed on them under Rule 15(1) and 15(3) of the CENVAT credit Rules, 2004.

22. It was submitted by the noticee that the Department had issued the present Notice without application of mind. That the impugned Notice had been issued seeking to deny the CENVAT credit availed by them during the period April, 2011 to September, 2011 in relation to cement, steel and bitumen.

(i) That it is alleged in the Show Cause Notice that in the ST-3 returns filed by them, no details of input, input services and capital goods on which CENVAT Credit was availed were provided. Further, it is alleged that the details of CENVAT Credit availed were provided only after the jurisdictional Range Superintendent issued letter dated 24.08.2012 and therefore the details were suppressed from the department.

(ii) It was submitted by the noticee that all the details of Input, Input Services and Capital Goods were clearly mentioned in the ST-3 return filed for the relevant period. The ST-3 returns do not provide/facilitate for giving details/break up for each of the line item. Vide letter dated 24.08.2012, when the jurisdictional Range Superintendent asked for details/break up the said were immediately provided. The question of alleging suppression does not arise at all. A copy of the ST-3 return of the relevant period is attached as Annexure – A to support the submissions made above.

(iii) Further, it was submitted by them that when the law does not provide/require/demand compliance, suppression cannot be alleged. The said view was held in the case of CCE, Indore v. Medicaps Ltd. [2011

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(24) STR 572 (Tri. – Del.)]. The relevant extracts of the case are as follows: “If there is no column in the monthly returns to show the nature of service on which the credit was availed, the assessee cannot be blamed for not disclosing the said fact. When the assessee have reflected the amount of credit availed by them in their monthly returns, it cannot be said that there was any positive act of suppression or mis-statement on their part.”

POSITION IN LAW:

23. That before making any submissions in respect of allegations levelled in the captioned Show Cause Notice, it would be useful to understand the position in law. The relevant provisions of the Credit Rules are set out hereunder.

24. As per Rule 3(1) of the CENVAT credit Rules, 2004 an Output Service provider is eligible to avail CENVAT credit of Excise duty paid on Inputs and Capital Goods and Service tax paid on Input Services. The relevant extract of Rule 3(1) of the Credit Rules is as follows;

(1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of –

(i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;

(ii)… (v)(vi) the Education Cess on excisable goods leviable under section 91

read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);

(vii) … (ix)

(ix) the service tax leviable under Section 66 of the Finance Act;

(x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004),

…

paid on-

(i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and

(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,

(Emphasis supplied)

25. It was submitted by the noticee that, as per Rule 3(1) of the Credit Rules, CENVAT credit can be availed only if the goods qualify as Inputs/Capital Goods and the services qualify as Input Services. It would be important to understand the

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meaning and scope of the terms “Inputs”, and “Capital Goods”, under the CENVAT credit Rules’ 2004.

26. The term ‘Input’ has been defined under Rule 2(k) of the Credit Rules as under: (k) "input" means-

(i) All goods used in the factory by the manufacturer of the final product; or

(ii) Any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or

(iii) All goods used for generation of electricity or steam for captive use; or(iv) All goods used for providing any output service;

but excludes –

(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

(B)any goods 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 any taxable service specified in sub-clauses (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act

(C)capital goods except when used as parts or components in the manufacture of a final product;

(D) motor vehicles;

(E)any goods, such as food items, goods used in a guest house, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and

(F) any goods which have no relationship whatsoever with the manufacture of a final product.

Explanation – For the purpose of this clause, “free warranty” means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;

(Emphasis supplied)

27. It was further submitted that it was clear from a plain reading of the definition of ‘input’ that, in so far as it relates to provision of services, it covers “all goods” used for providing any output service.

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28. The term ‘Input Service’ has been defined under Rule 2(l) of the Credit Rules as under:

(l) “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 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, …….

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 to as specified services), in so far 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

………….

29. The term ‘Capital Goods’ has been defined under Rule 2(a) of the Credit Rules as under:

(a) "capital goods" means:-(A) the following goods, namely:-

(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading No. 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act;

(ii) pollution control equipment;(iii) components, spares and accessories of the goods specified at (i)

and (ii);(iv) moulds and dies, jigs and fixtures;(v) refractories and refractory materials;(vi) tubes and pipes and fittings thereof; and(vii) storage tank,used-

(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or

(1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or

(2) for providing output service.…

(Emphasis supplied)

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30. It was submitted that it is clear from a plain reading of the definition of ‘capital goods’ that it covers specified goods used for providing any output service.

31. It was submitted that the language of the definitions of ‘input’, and ‘capital goods’, insofar as it relates to services is “used for providing output service”.

32. The term ‘output service’ is defined in Rule 2(p) of the Credit Rules as follows:

"output service" means any taxable service, excluding the taxable service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act, provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions ‘provider’ and ‘provided’ shall be construed accordingly;

33. It was submitted that they were the provider of taxable output services as the services provided by them inter alia fall under the taxing entry of ‘Port Services’ as defined under Section 65(82) of the Finance Act, 1994 ‘(the Act’).

34. With effect from 1st July, 2010, Section 65(82) defines “Port Services” as ‘any service rendered within a port or other port, in any manner’. Prior to the amendment, “Port Service” was defined ‘as any service rendered by a port or other port or any other person authorized by such port or other port, in any manner, in relation to goods or vessels.’

35. It was submitted that the definition of Port Services prior to the amendment on 1 st

July, 2010 covered only services in relation to vessel or goods. However, post amendment with effect from 1st July, 2010, the words ‘in relation to goods or vessels’ have been deleted from the definition of Port Services. It follows therefore that with effect from 1st July, 2010, all services provided within the port area would be considered as port services.

36. With effect from 1st July, 2010, Section 65(105)(zzl) of the Act defines taxable services in relation to ‘Other Port Services’ as “any service provided or to be provided to any person, by any other person, in relation to port services in other port, in any manner”.

37. It was submitted that the terms used in the definition of taxable services are ‘in relation to port services’ and ‘in any manner’. It was submitted that the usage of these phrases in the definition have widened the scope of the taxable service to include any kind of service provided by a port authority.

38. It was submitted that the definitions of the terms “input” and “capital goods” require that the input / capital goods must be “used for providing output service”. The term ‘used for providing an output service’ has not been defined. It is submitted that in so far as service providers are concerned i.e. persons who are engaged in providing only taxable services, it can be said that they are in the business of

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providing taxable service. Reliance in this regard is also placed on the decision of the Hon’ble Commissioner (Appeals) in the case of DCM Shriram Ltd. (supra) wherein in the context of the definition of “input service” it has been held that it includes services which are used to run the day to day business. It is, therefore, submitted that insofar as service providers are concerned, the term “used for providing output service” in the definitions of input / capital goods can be read as “used for the purpose of business”.

39. The above decision was approved by the Larger Bench of the Hon’ble Tribunal in the case of CCE, Mumbai vs. GTC Industries Ltd. - 2008(12) S.T.R. 468 (Tri. - LB) holding that credit of tax is allowed on taxable services that go to form part of assessable value for payment of excise duty. This ratio has also been followed by the Hon’ble Tribunal in M/s.Dell International Services India Pvt Ltd Vs CCE, Bangalore, [2009-TIOL-1957-CESTAT-BANG]

40. It was submitted that the views of the various tribunals have been affirmed by the Hon’ble High Court in Coca Cola India Pvt. Ltd. Versus Commissioner Of C. Ex., Pune-III, [2009 (242) E.L.T. 168 (Bom.)] wherein it has been held that

“To illustrate input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products upto the place of removal.”

State of Punjab & Another Vs. British India Corporation Ltd. (1964) 2 SCR 114Dealing with a case pertaining to property tax, the Hon’ble Supreme Court on the term “Used for the purpose of factory” held that: “That the legislature left this undefined is a good indication that the intention was to have the question decided in any case where controversy arises over it, on a consideration of the facts of the case. It appears to us to be reasonable to think, however, that two principles will be of easy application in the solution of the problem in the majority of cases. One is that where the building is used for a purpose which the factory law requires must be fulfilled in order that the factory may function, that will be use for the purpose of a factory.The other is that where the use of the building is such as is necessary for the efficiency of the machines or of the workmen engaged in the factory the building should be held to be used for the purpose of a factory”.

(Emphasis supplied)

Liquidators of Pursa Limited Vs. CIT, Bihar [(1954) 25 ITR 265 at p. 272 (SC)]The words “used for the purpose of business” obviously mean used for the purpose of enabling the owner to carry on the business and earn profits in the business.

(Emphasis supplied)

41. In view of the aforesaid decisions of the Hon’ble Supreme Court, it was submitted by the noticee that if the inputs and capital goods are used for the purpose of business

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(of the output service provider), then the credit of duty / tax paid on such inputs and capital goods would be available to them. Further, in view of the decision in the case of British India Corporation Ltd. (supra) what constitutes “used for the purpose of business” must be decided on the facts of each case.

42. It was submitted that in the present case, they were a port and provides Port Services, Storage and Warehousing Services and Cargo Handling Services. It uses various goods / number of services for providing taxable services i.e. for the purpose of running of its day to day business. The submissions in respect of credit of duty paid on certain goods which are under dispute in the proceedings are set out hereinafter.

CENVAT CREDIT ON CEMENT, STEEL AND BITUMEN:

43. It was submitted that they had used the cement and steel, on which credit of Excise duty has been taken, in the construction of jetties and building within the port and bitumen on which credit of Excise Duty has been taken have been used in godown facility and internal roads in the port area. It was submitted by them that the construction of a jetty and building in the port is being carried out to enable it to expand its business i.e. to increase its capacity to handle more ships and consequently increase its business as well as conduct its business in a more efficient manner. Bitumen was used in godown facility and internal roads in port area would enable the conduct of port services in an efficient manner.

44. The Noticee submitted that without the jetty and the port building, the port itself does not come into existence and therefore, it is imperative that for them to render port services of inputs used in the construction of the port and the jetty qualified as inputs for availing the tax credit.

45. It was alleged that post amendment to the definition of ‘Input’ effective from 01.04.2011 also, any goods used for the construction of a building or a civil structure or laying of foundation or making of structure for support of any capital goods still stand denied from being eligible as ‘input’. The Noticee submitted that the amended definition of “input” contained in Rule 2(k), with effect from 01.04.2011 has now very clearly covered all goods used for providing any output service in the definition itself. ‘All goods’ is a very wide terminology covering cement, steel and bitumen within its ambit. There are certain exceptions/exclusions from the definition which would not be termed as ‘input’ even post amendment of the definition. As an exception to the exclusion in the definition portion of ‘Input’, the said goods will still remain to be ‘input’, if used for the provision of any specified taxable service i.e. Port Services [Section 65 (105) (zn)], Other Port Services [Section 65 (105) (zzl)], Airport Services [Section 65 (105) (zzm)], Commercial or Industrial Construction [Section 65 (105) (zzq)], Sponsorship Services [Section 65 (105) (zzzn)], Works Contract Service [Section 65 (105) (zzzza)]. There is a very clear scenario post amendment to the definition of ‘Input’ and therefore Cement, Steel and Bitumen are goods which are clearly covered by the inclusive portion of the definition and also as the same are used for construction of Port, the said do not get hit by the exclusion portion of the definition and henceforth CENVAT Credit on the same was permissible.

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46. It was submitted that the inclusive portion of the definition of “Input” begins with the words “all goods”, “any goods” and then goes on to set out certain specific exclusions. It would therefore follow that besides these exclusions, all other goods would qualify as ‘Input’ if they are used for providing Output Services. In the facts of the present case, steel and cement are used for construction of the jetties and building, and bitumen is used for godown facilities and internal roads which are covered by the term “all goods”. As a proviso to the exclusion portion of the definition any goods used for construction of a building or a civil structure or a part thereof or for laying of foundation or making of structures for support of capital goods for the provision of “Port Service” and/or “Other Port Service” would qualify as “Input”.

47. That it was an admitted position in the impugned Notice that cement and steel have been used by them for the purpose of construction of the jetty for providing “Port Services”. Thus, they have rightly availed CENVAT credit of Excise Duty paid on cement, steel and bitumen which is used for construction of Jetty, godown facilities and internal roads for purpose of providing Port service. It was submitted that so long as the nexus between the inputs and the provision of output service is established, credit of duty paid on inputs cannot be denied.

48. To butterace their submissions made above they relied upon the “Explanatory Notes on Central Excise” given vide D.O.F No. 334/3/2011- TRU, dated 28.02.2011. The amendments carried out vide the Budget 2011 pertaining to the relevant portions of the CENVAT Credit Rules, 2004 are well explained as under:

“7. Amendments in CENVAT Credit Rules, 2004

7.1 …..

(a) The definition of ‘input’ contained in rule 2(k) has been revised. The requirement that goods should be used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not has been removed. Henceforth, all goods used in the factory by the manufacturer of the final product, except those specified in the negative list and goods having no relationship whatsoever with the manufacture of final product, would qualify for treatment as inputs. In addition, any goods including accessories cleared along with the final product and goods used for providing free warranty have also been included in the definition of inputs. Similarly, goods used for generation of electricity or steam for captive use also constitute inputs. As for exclusions, any goods used for the construction of a building or a civil structure or laying of foundation or making of structure for support of capital goods have been excluded. Another feature of the new definition is that goods used primarily for personal use or consumption of any employee including food articles, etc have been expressly excluded.

(b) The definition of ‘input service’ has also been rationalized to impart clarity and to achieve congruence between goods and services so that the services related to any goods excluded from the definition of ‘inputs’ are also excluded from the definition of ‘input services’. To give an example, goods used for construction have been excluded from inputs while construction services, works contract service, and other specified services in so far as they are used for construction have been kept out of the purview of input services.”

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49. That the purpose of a jetty was to enable the movement of the cargo from the vessel to the port and vice versa which is effectively used for the purpose of providing output service. It was submitted that without a jetty, godown facility and internal roads, they cannot provide the taxable service of Port Services. In other words, without a jetty, godown facilities and internal roads, they would not be in a position to carry on its business. Therefore, goods and services used for the construction of the jetty and bitumen used in godown facility and internal roads which is vital to the functioning of a Port, are used for the purpose of providing output services. Accordingly, cement, steel and bitumen are ‘Inputs’ used for construction of jetty, godown facilities and internal roads which is ultimately used for providing output services.

50. It was submitted that having regard to the definition of “input service” which inter alia includes services in relation to modernization of a factory or premises of the provider of output service, which is nothing but immovable property, the credit of duty paid on inputs cannot be denied on the ground that it results in the creation of immovable property. It was submitted that so long as the nexus between the inputs and the provision of output service is established, credit of duty paid on inputs cannot be denied.

51. In the recent decision of CCEx, Visakhapatnam-II v. Sai Sahmita Storages (P) Ltd. [2011 (270) ELT 33 AP-HC] the position is made crystal clear holding that the Storage and Warehousing service provider were entitled to avail the credit of Central Excise duty paid on the cement and TMT bar used by them as inputs for the construction of warehouses. The bench of Andhra Pradesh High Court held that without the use of these items, the assessee could not provide storage and warehousing services.

52. It was submitted that definition of Port Services has been amended with effect from 1st July, 2010 whereby the words in relation to vessels or goods have been deleted and thus any service rendered within a port or other port in any manner shall be a Port Service. It is submitted that post amendment of the definition of Port Services as above, the exemption under the above Notification seems redundant, since if commercial or industrial service is provided wholly within the port or other port, it will be classified as “port or other port service” and hence cannot fall in Section 65(105)(zzq) as Commercial and Industrial Construction.

53. It was submitted that post amendment of the definition of Port Services, all the activities carried out by port whether or not in relation to vessel or goods are covered under the taxable services.

54. In view of the above, it was submitted by the noticee that the cement, steel and bitumen used by the Noticee for the purpose of construction of the jetties qualify as ‘inputs’ and accordingly credit of the Excise duty paid on such inputs would be available to the Noticee and the Noticee has not wrongly claimed the credit, as alleged in the Show Cause Notice.

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55. For reasons stated hereinabove, since CENVAT credit was not required to be reversed, interest under Rule 14 of the CENVAT credit Rules, 2004 read with Section 75 also cannot be recovered from them.

56. It was further submitted that the present issue had arisen due to a disputed interpretation of the law and not due to mala fide intention to evade tax and therefore no penalty can be imposed in the present case.

57. It was submitted penalty under Rule 15(1) and Rule 15(3) cannot be imposed where the matter is of an interpretation nature. The Hon’ble Tribunal in Wiptech Peripherals Pvt. Ltd. vs. Commissioner Of Central Excise, Rajkot, [2008 (12) S.T.R. 716 (Tri. - Ahmd.] held that there is no justification to impose a penalty where the matter was of an interpretational nature.

58. That it had been similarly held by the Hon’ble Tribunal in Sanghi Industries Ltd. vs. Commissioner Of Central Excise, Rajkot, [2008 (12) S.T.R. 495 (Tri. - Ahmd.)]; Metro Shoes Pvt. Ltd. Versus Commissioner Of Central Excise, Mumbai-I [Supra] and A.G. Shibu Versus Commissioner Of Cus., C. Ex. & S.T., Cochin, [2008 (10) S.T.R. 317 (Tri. - Bang.)] and the ratio of all the above decisions is applicable and binding, insofar as the aspect of imposition of penalty is concerned.

59. In the case of Nizam Sugar Factory Vs. CCE, AP [2006 (197) E.L.T. 465 (S.C.)], the Hon’ble Supreme Court held that allegations of suppression of facts against the assessee cannot be sustained in second show cause notice when all the relevant facts were in the knowledge of the authorities at the time of issuance of first show cause notice. It is held that later on, while issuing the second and third show cause notices the same/similar facts could not be taken as suppression of facts on the part of the assessee as these facts were already in the knowledge of the authorities.

60. In the case of ECE Industries Ltd. Vs. CCE, Delhi [2004 (164) E.L.T. 236 (S.C.)], it is held in Para 5 to 7 as under :

5. In our view, the principles laid down in above case fully apply here. As earlier proceedings in respect of same subject matter were pending adjudication it could not be said that there was any suppression and the extended period under Section 11A was not available.

6. To this extent the impugned judgment requires to be and is set aside. Ordered accordingly

7.It must also be mentioned that as there is no suppression, penalty cannot be imposed.

(Emphasis supplied)

61. That in view of the settled legal position as set out above, it was submitted that there was no suppression of facts by them and consequently 15 (3) was not invocable.

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Since Rule 15(3) is not invocable in the present case, there was no question of imposition of any penalty on them.

62. In view of the above, they requested that the SCN be withdrawn / dropped.

63. Further they submitted that without prejudice to the above they had filed an

Appeal before the Hon’ble Gujarat High Court vide Appeal No. 3876 dated

05.12.2008 against the Order No. A/2122/WZB/AHD/08 dated 8th May 2008 / 30th

September 2008 passed by the Customs, Excise and Service Tax Appellate Tribunal;

Ahmedabad (“the Tribunal) to the extent the Tribunal has disallowed CENVAT credit

of Excise duty paid on cement and steel used in construction of the jetty and the port

terminal for utilization towards payment of Service tax by the Noticee under the

taxable service of “Port services”.

64. Since the matter is already pending before the Hon’ble High Court, they prayed

that the adjudication of present SCN be kept in abeyance, till the issues in dispute are

finally decided by the Hon’ble High Court and that adjudication of the present Show

Cause Notice may result in multiplicity of proceedings and must be avoided. Further,

no prejudice whatsoever will be caused to the Department, if the matter is kept in

abeyance, pending the outcome of the proceedings before the Hon’ble Gujarat High

Court.

PERSONAL HEARING

65. The noticee was represented by Shri Hardik P Modh, Advocate and Shri

Nirav Patel on 20.12.2013. They submitted a compilation containing decisions on the

issues under consideration.

DISCUSSIONS AND FINDINGS

66. I have carefully gone through the show cause notice, the defence reply, the

available records and the contentions made by the noticee at the time of personal

hearing.

67. On going through the SCN, I find that the noticee has availed Cenvat credit

on (i) Steel & Cement as ‘Inputs’ and (ii) Bitumen as ‘Other Input’. The subject SCN

proposes to deny the Cenvat Credit availed, on above, on the grounds that, firstly,

Cement, Steel & Bitumen have been used in the construction of Terminals, Jetty, Port

building & other civil structures, which are an immovable property and thus these

goods do not fall within the ambit of the definition of inputs or capital goods, and

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secondly, the said goods have been used for providing output service of construction

of building and not used for providing port services.

67.1 I find that the noticee has contended in their defence that they had used the

cement and steel, on which credit of Excise duty has been taken, in the construction

of jetties and building within the port and that bitumen on which credit of Excise

Duty has been taken have been used in godown facility and internal roads in the port

area. It was submitted by them that the construction of a jetty and building in the port

is being carried out to enable it to expand their business i.e. to increase their capacity

to handle more ships and consequently increase its business as well as conduct its

business in a more efficient manner. Similarly, they contended that Bitumen was

used in godown facility and internal roads in port area to enable the conduct of port

services in an efficient manner. They further submitted that without the jetty and the

port building, the port itself does not come into existence and therefore, it was

imperative that to render port services, inputs used in the construction of the port and

the jetty qualified as inputs for availing the tax credit.

68. Thus, the basic issue to be decided in the present case is whether the goods

viz. Cement, Steel & Bitumen, which though used in the construction of port, could

be said to used for ‘providing Port Services’ and the cenvat credit availed on them by

the noticee on the said goods is admissible as per Rules. The noticee in his defence

reply dated 31/01//2013 referred the Rule 3(1) of the Cenvat Credit Rules, 2004 and

submitted that Cenvat Credit can be availed if the goods qualify as inputs/ capital

goods and services qualify as input service. They also referred to the amended

definition as on 1.04.2011, of input, input service and capital goods stipulated under

Rule 2(k), Rule 2(l) and Rule 2(a) of the Cenvat Credit Rules, 2004 respectively.

They submitted their contention regarding admissibility of Cenvat on Cement and

Steel, and on Bitumen. I discuss the eligibility of Cenvat Credit on the above goods

and services as follows:

Cenvat Credit availed on Cement , Steel & Bitumen

69. The noticee has submitted that:

- Cement and Steel were used for construction of jetty within the port which

was done to enable them to expand their capacity and handle more ships,

thereby increasing their business. Bitumen was used for construction internal

roads in the Port area. Therefore, Cement, Steel & Bitumen qualified as

“inputs” within the definition as provided under Rule 2(k) of Cenvat Credit

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Rules, 2004 and accordingly, Cenvat credit of duty paid thereon was available

to them.

- Post amendment to the definition of the ‘Input’ effective from 1.04.2011, the

said goods i.e Cement, Steel & Bitumen, will still remain to be ‘input’, if used

for the provision of any specified taxable service i.e Port Service.

- that insofar as service providers like them are concerned, the term “used for

providing output service” in the definitions of input / capital goods can be

read as “used for the purpose of business”.

- the credit of duty paid on inputs cannot be denied so long as the nexus

between the inputs and the provision of output service is established.

69.1 In this regard, I find from the definition of “input” and “input service” as

defined under Cenvat Credit Rules, 2004 that both the definitions are separate and having

different clauses. The clauses of “input service” cannot be borrowed in the matter of

“input” for justification of admissibility of Cenvat credit on the goods which are not input

as per its definition. Therefore, the admissibility of Cenvat credit on input is decided by

the definition of “input” only. In the present case, Cement, steel & Bitumen were used for

construction of new jetties, buildings & other civil structures, as alleged in the SCN

which is also confirmed by the noticee in their written submission.

69.2 On careful examination of the issue, I find that Cement & Steel have been used

for construction of immovable properties viz. new jetties, buildings & other civil

structures, which is classified under a specified service namely, “Commercial or

Industrial Construction Services” referred to in sub-clause (zzq) of clause (105) of section

65 of the Finance Act, 1994. The same view was taken by the Hon’ble Tribunal in the

noticee’s own case in order dated 30/09/2008 reported in 2009 (13) STR 178 (Tri-

Ahmd.). Thus, when the said inputs i.e Cement & Steel , have been used for output

service of construction of the said jetties, buildings & other civil structures, the same

cannot be said to be used for providing Port Services as well.

69.3 Further, these immovable properties are neither subjected to central excise duty

nor to service tax. Input credit of service tax can be taken only if the output is a ‘service’

liable to service tax or a ‘goods’ liable to excise duty. Since immovable properties such

as those constructed by the noticee are neither ‘service’ or ‘goods’ as referred to above,

input credit cannot be taken.

69.4 Secondly, Bitumen has been used for construction of the roads in the Port area.

Construction of a road is also an immovable property. Thus, Bitumen used in such road

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construction does not qualify as ‘service’ liable to service tax or a ‘goods’ liable to excise

duty, and therefore the cenvat credit availed on them is also inadmissible.

69.5 Therefore, I hold that the said goods i.e. Cement, steel & bitumen cannot be

treated as “input” for the said noticee, being a service provider. Further, Cement & steel

cannot also be considered as “capital goods” as they are not covered under the definition

of “capital goods”. My above view is supported by the following decisions /judgments

as under:-

69.6 Larger bench decision in the case of M/s VANDANA GLOBAL LTD.

Versus COMMISSIONER OF C. EX., RAIPUR reported in 2010 (253) E.L.T. 440 (Tri. -

LB). The Hon’ble Tribunal dealt on the issue in great detail and came to the following

conclusions in Paras 49 and 51:

“49. In the light of the foregoing findings, we answer the questions referred to the Larger Bench as follows :-(a) The term “capital goods” has been defined in the Cenvat Credit Rules, which in turn have been framed under the rule making powers conferred under Section 37(2) of the Act. The said Section refers to credit of duty paid on goods used in, or in relation to the manufacture of excisable goods. Hence, ‘capital goods’ defined in the Cenvat Credit Rules in the context of providing credit of duty paid, have to be excisable goods. Whether a particular plant or structure embedded to earth can be considered as excisable goods or not has to be determined in the light of the decisions of the Hon’ble Supreme Court on the issue, which is no longer res integra.(b) Goods like cement and steel items used for laying ‘foundation’ and for building ‘supporting structures’ cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the Cenvat Credit Rules for the impugned period.****51. In view of our opinion as above, we also hold that the view taken by the Division Bench in the case of Bhushan Steel and Strips Ltd. (supra) is not the correct view in law.”

69.7 Further, the Central Board of Excise and Customs vide Circular issued from F.No.267/11/2010-CX8 dated the 8th July, 2010, has provided clarification on the issue of availment of Cenvat credit on cement, angles, channels, CTD or TMT bars and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods as under : 

“Subject: Availability of Cenvat credit on inputs used in the manufacture of capital goods-reg.

         I am directed to invite your attention to the landmark judgement of the CESTAT Larger Bench in the case of Vandana Global Ltd. V/s CCE, Raipur

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[2010-TIOL-624-CESTAT-DEL-LB] delivered on 30.04.10, on admissibility of credit on capital goods and inputs and to state that the Tribunal has ruled that ‘capital goods’ defined in the CENVAT Credit Rules, in the context of providing credit of duty paid, have to be excisable goods. Whether a particular plant or structure embedded to earth can be considered as excisable goods or not has to be determined in the light of settled decisions of Supreme Court on the issue. The Tribunal has further ruled that goods like cement and steel items used for laying ‘foundation’ and for building ‘supporting structures’ cannot be treated as either inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules. It has also been stated by Tribunal that amendment to Explanation 2 to Rule 2(k) of CENVAT Credit Rules, 2004 inserted vide Notification No. 16/2009-CE (NT) dated 07.07.09, is clarificatory in nature and has retrospective effect.

2.    Attention is also drawn to the Tribunal’s judgement in the case of Vikram Cement V/s CCE, Indore [2009(242)ELT545(Tri-Del)], where the Tribunal held that credit on welding electrodes used for repair and maintenance, is not available as input. It may also be noted that in the case of Vikram Cements V/s CCE, Indore [2005(187)ELT145(SC)], it has been conclusively held by the Apex Court that the definition of capital goods is not inclusive and only the items covered under the definition and used in the factory of the manufacturer can be treated as capital goods.

3.     It thus follows from the above judgements that credit on capital goods is available only on items, which are excisable goods covered under the definition of ‘capital goods’ under CENVAT Credit Rules, 2004 and used in the factory of the manufacturer. As regards ‘inputs’, they have to be covered under the definition of ‘input’ under the CENVAT Credit Rules, 2004 and used in or integrally connected with the process of actual manufacture of the final product for admissibility of Cenvat credit. The credit on inputs used in the manufacture of capital goods, which are further used in the factory of the manufacturer is also available, except for items like cement, angles, channels, CTD or TMT bars and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. Further, credit shall also not be admissible on inputs used for repair and maintenance of capital goods.”

69.8 In this regard, I also note that in the case of M/s Mundra Port & SEZ Ltd vide CESTAT order dated 30/09/2008 reported in 2009 (13) STR 178 (Tri-Ahmd.), the Honourable CESTAT disallowed Cenvat credit on Cement and steel used for construction jetty and port. The findings of CESTAT are contained in para 7 which is reproduced below:-

“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

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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. Accordingly, confirm the demand on this count.” (Emphasis Supplied)

69.9 Thus, I find that the issue of inadmissibility of cenvat credit on goods such as

cement and steel which have been used for construction of jetties and port buildings is

not in doubt.

69.10 Regarding Bitumen , as discussed in Para 69.1, I find that it has been used in or

in relation to construction of immovable property i.e roads in the Port area, which are not

“goods” and therefore, Bitumen do not qualify as an “input” under Rule 3(1) of CCR,

2004 and the cenvat credit availed on it is inadmissible. This fact is also fortified by the

landmark judgement of M/s BHARTI AIRTEL LTD. Versus COMMISSIONER OF

CENTRAL EXCISE, PUNE reported at 2013 (29) STR 0401 (Tri-Mum.). The Hon’ble

Tribunal in the said case examined the issue of whether the immovable, non-marketable

and non-excisable structure viz. tower can be considered as “goods” for providing output

service and whether its components can be held to be inputs. In Paras 38 to 40, the

Hon’ble Tribunal examined the issue in detail, and concluded as under :

“38. If  the towers and parts thereof are not capital goods falling under

Rule 2(a)(A) of the CENVAT Credit Rules, 2004, it is argued, they are liable to

be recognized as ‘inputs’ under Rule 2(k). We have examined this alternative

plea also. The appellant and their counsel are now claiming under clause (ii)

of the definition of ‘input’, which reads thus : “all goods, except light diesel

oil, high speed diesel oil, motor spirit commonly known as petrol, and ‘motor

vehicles, used for providing any output service”. The argument is that there is

no place for Chapters, Headings and sub-headings of the CETA Schedule in

the definition of “input” and therefore the tower should be held to be input

used for providing output service. Relying on Explanation 2, the learned

counsel has argued that, in case the tower is held to be capital goods, the

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components used for its fabrication and erection would stand covered by the

definition of input. Contextually, it has also been argued that the amendment

which was brought to the explanation by Notification No. 16/2009-C.E. (N.T.),

dated 7-7-2009 did not have retrospective effect to defeat the appellant’s

contention that the various items used for making the tower for support to

antennas are covered by the definition of ‘input’. The learned JCDR has, on

his part, placed heavy reliance on the Tribunal’s Larger Bench decision in

Vandana Global case wherein the said amendment was held to have

retrospective effect. We have carefully considered all these submissions.

Looking at the definition of ‘ input’ referred to by both sides, we note that all

“goods” (except motor vehicles and certain petroleum products) used for

providing any output service are within the ambit of the definition of

“input”. If any item has to be brought within the ambit of this definition, it

has to be, firstly, “goods” and, secondly, “used for providing any output

service”. The first requirement in this case is not met by the towers which are

admittedly immovable structures and ipso facto non-marketable and non-

excisable. In our view, the following points made by C.B.E. & C. in Circular

No. 58/1/2002-CX., dated 15-1-2002 are relevant to this context :

(i) Where change of identity takes place in the course of construction or

erection of a structure which is an immovable property, then there would

be no manufacture of “goods” involved and no levy of excise duty.

(ii) If items assembled or erected at site and attached by foundation to

earth cannot be dismantled without substantial damage to its components

and thus cannot be reassembled, then the items would not be considered

as moveable and will, therefore, not be excisable goods.

(iii) When the final product is considered as immovable and hence

not excisable goods, the same product in CKD or unassembled form will

also not be dutiable as a whole by applying Rule 2(a) of the Rules of

Interpretation of the Central Excise Tariff… …

The appellant’s counsel submitted that towers in CKD condition falling

under sub-heading 7308 20 of the CETA Schedule were procured and brought

to the sites and assembled and erected there for installation of antennas aloft.

That, upon such assembly and erection, they became immovable structures is

an admitted fact. On these facts, there is no question of holding the towers to

be “goods” and, for that matter, to be “inputs” under Rule 2(k).

(emphasis supplied)

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70. In the present case, the noticee is not a manufacturer but a service provider.

The definition of “inputs” must be read differently in respect of a manufacturer and a

service provider. For a manufacturer, Cenvat credit may be allowed when “inputs” are

used in the manufacture directly or indirectly, whereas for a service provider, Cenvat

credit may be allowed only when “inputs” are used directly for providing output

service. The noticee has used the said goods, viz Cement, Steel and Bitumen, in

relation to the construction of the Port only, which are their output service and also

immovable properties, and therefore the same cannot be said to be used for providing

Port Services. In view of the above, I find that Cement, steel and bitumen used in the

construction of the Dahej Port are neither Inputs nor Capital Goods, and therefore

Cenvat credit taken by them on the excise duty paid by them on cement, steel &

bitumen is not admissible and therefore required to be recovered from them. I also

rely on the ratio of the judgment of Hon’ble High Court of Rajasthan in the case of

UOI v/s Hindustan Zinc Ltd. reported at 2009(16) STR 234 (Raj.).

71. Further, the noticee has argued that all goods used for providing any output

service is covered under the definition of input. They also referred to the amended

definition of input w.e.f. 01/04/2011 and argued that w.e.f. 01/04/2011 input includes

all goods used for providing any output service excluding goods used for construction

of building or civil structure or part thereof, except goods used for the provisions of

taxable service specified in Section 65(105)(zn) of the Finance Act. Section 65(105)

(zn) defines ‘taxable service’ as a service provided or to be provided to any person, by

any other person, in relation to port service in a port, in any manner. They argued that

post amendment of the definition of ‘input’ w.e.f. 01/04/2011, all goods used in

relation to port services shall fall within the definition of input.

72. The definition of “input” has been amended w.e.f. 1.04.2011 vide Notification

No. 3/2011-Central Excise (N.T), the relevant portions are reproduced as under :

“Notification No. 3/2011-Central Excise (N.T.)

G.S.R. -(E).- In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 (1 of 1944) and section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the CENVAT Credit Rules, 2004, namely :-

1. (a) These rules may be called the CENVAT Credit (Amendment) Rules, 2011.(b) Save as otherwise provided in these rules, they shall come into force on the 1st day of April,2011.

2. In the CENVAT Credit Rules, 2004 (hereinafter referred to as the said rules), in rule 2,-

(i) ....

(ii) ....

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(iii) .....

(iv) for clause (k), the following shall be substituted, namely:-(k) “input” means–(i) all goods used in the factory by the manufacturer of the final product; or

(ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or(iii) all goods used for generation of electricity or steam for captive use; or(iv) all goods used for providing any output service;but excludes-(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;(B) any goods 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 any taxable service specified in sub-clauses (zn), (zzl), (zzm),(zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act;(C) capital goods except when used as parts or components in the manufacture of a final product;(D) motor vehicles;(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and(F) any goods which have no relationship whatsoever with the manufacture of a final product.Explanation. – For the purpose of this clause, “free warranty” means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;‟;(v ) ….

72.1 From the above definition of the input stipulated in Rule 2(k) of the Cenvat Credit

Rules, 2004 that for qualifying the goods as input for the service provider, the goods must

be used for the providing the output service. However, the exclusion clause reads as

under :

2(k) (iv) all goods used for providing any output service;but excludes-(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;(B) any goods 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 any taxable service specified in sub-clauses (zn), (zzl), (zzm),(zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act;

72.2 On careful reading of the above definition, I find that the goods used in

construction of a building or a civil structure or a part thereof have been specifically

excluded from the definition of inputs, Thus the amended definition has clearly barred

goods used in construction of a building or a civil structure or part thereof . I find that the

noticee has constructed jetties, terminals, buildings or roads, which are akin to

construction of a building or a civil structure, as described in clause (a) above.

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72.3 The noticee has however contended that Cement, Steel & Bitumen, will still

remain to be ‘input’, if used for the provision of any specified taxable service i.e Port

Service, w.e.f. 1.04.2011. I have already come to a conclusion that the noticee has used

the inputs in providing construction service and therefore using the same for providing of

Port Service does not arise. Now, delving into the definition of “inputs”, I find that in

clause (b) ,the exception given in the exclusion clause is applicable when the goods are

used for “laying of foundation or making of structures for support of capital goods” ,

for provision of taxable services {which includes Construction services (zzq)}. Thus, on

plain reading it is evident that only those inputs which have been used for ‘Laying of

foundation or for making of structures for support of the capital goods’ for the provision

of the taxable service namely, the construction services, would be eligible for cenvat

credit. However, I find that the clause (b) would be applicable only when the inputs are

used for making/constructing foundations for supporting capital goods in as much as the

construction a terminal or a jetty is entirely different to that of constructing a foundation

or structure to support capital goods. In this case, the noticee has also admitted to the fact

that Cement, Steel and Bitumen have been used to construct jetties, terminals, buildings

or roads, and not foundations or structures, and therefore clause (b) is not applicable to

them.

72.4 Therefore, in view of the above discussions, I find that the said goods viz.

“Cement, Steel and Bitumen ” do not qualify as inputs either under the ambit of clause

(a) or under clause (b) of the amended definition of the inputs, and the cenvat credit

availed on them by the noticee is inadmissible.

73. In view of the above, the said goods are not inputs for the noticee prior to or after

01/04/2011.

74. In view of the above discussion at paras 69 to 73 supra, I find that the case laws

cited by the noticee are not applicable as the facts are different. Therefore, I hold that

the Cenvat credit amounting to Rs. 43,50,569/- availed by the noticee on the said goods

i.e Cement, Steel and Bitumen, for the period from April 2011 to September 2011,

were used for their output service which is ‘Commercial or Industrial Construction

Services’ under which the construction of port falls, and not ‘Port Services’, and the

port being an immovable property, the said goods i.e Cement, Steel and Bitumen also

do not qualify as “inputs” . Therefore, I find that the goods in question are neither input

nor capital goods as defined in Rule 2(k) and Rule 2(a) of the Cenvat Credit Rules,

2004 and therefore, the Cenvat Credit taken on such goods are not admissible under

Rule 3(1) of the Cenvat Credit Rules, 2004. Therefore, I hold that the Cenvat Credit of

Rs. 43,50,569/- taken on goods as inputs by the noticee as shown in the Annexure ‘A’

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of the show cause notice is in contravention of Rule 3(1) of the Cenvat Credit and the

same is required to be disallowed and recovered from them under Rule 14 of Cenvat

Credit Rules, 2004 read with Section 73 of the Finance Act, 1994 along with interest

under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 75 of the Finance

Act, 1994.

Imposition of Penalty

76. I now come to the issue regarding imposition of penalty under Rule 15 of

Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

77. The noticee have in their defence submitted that the present issue has arisen due to

a disputed interpretation of statutory provisions and therefore no penalty can be imposed

in the present case and have in support to their contention relied on the following

decisions.

Wiptech Peripherals Pvt. Ltd. vs CCE, Rajkot [2008 (12) S.T.R. 716 (Tri. –Ahmed)

Sanghi Industries Ltd. vs CCE, Rajkot, [2008 (12)S.T.R. 495(Tri. Ahmd)];

A.G. Shibu vs Commr of Customs,C.Ex. & S.T. Cochin, [2008 (10) S.T.R. 317 (Tri. Bang.)].

Nizam Sugar Factory Vs. CCE, AP [2006 (197) E.L.T. 465 (S.C.)] ECE Industries Ltd. Vs. CCE, Delhi [2004 (164) E.L.T. 236 (S.C.)]

The ratio of the above judgments has no relevance to the present case and hence not considered.

77.2 I find that show cause notices No. V.ST/AR-G.dham/ Commr./035/2006 dated

17.04.2006 and V.ST/AR-G.dham/ Commr./32/2007 dated 13.04.2007 were issued to the

noticee by the Commissioner of Central Excise & Customs, Rajkot, covering the period

April’05 to Mar’06, for wrong availment of Cenvat Credit on various inputs, capital

goods and services. The said show cause notices were later on adjudicated vide Order-

in-Original No. 21-22/ COMMR/ 2007 dated 26/07/2007 which was passed by the

Commissioner confirming the demands raised therein. Thus, ideally the noticee should

have followed the order of the Commissioner and discontinued the practice of availment

of CENVAT credit on Cement & Steel and “other inputs” such as Bitumen. However, the

noticee continued to take and utilize the Cenvat Credit which was otherwise held

inadmissible by the Commissioner vide above referred order. Further, the Hon’ble

Tribunal vide Order No. A/2122/WZB/AHD/2008 dated 30.09.2008 {in the noticee’s

own case}, also confirmed the demands on cenvat credit availed on Steel & cement, and

in Misc Order No. M/934-935/WZB/AHD/2009 dated 4.08.2009 held that the

admissibility of cenvat credit on inputs such as Bitumen was required to be re-decided.

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However, the noticee continued to avail and utilize cenvat credit on Steel, Cement &

Bitumen, which shows their intention to avail inadmissible Cenvat credit and thereby

evade payment of Service Tax.

77.3 Rule 15(3) of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance

Act, 1994 can be invoked in cases of fraud or collusion or any willful mis-statement or

suppression of facts, or contravention of any of the provisions of this Act or of the rules

made thereunder with intent to evade payment of duty . In this regard. Rule 15(3) of

Cenvat Credit Rules, 2004 stipulates as under:

Rule 15 of the Cenvat Credit Rules, 2004 reads as under: Confiscation and penalty.-  

(1) ……..

(2) ………

(3) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilised wrongly by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of these rules or of the Finance Act or of the rules made there under with intent to evade payment of service tax , then, the provider of output service shall also be liable to pay penalty in terms of the provisions of section78 of the Finance Act.

(4) ……..

Further, Section 78 of the Finance Act, 1994 is also reproduced hereunder:

“SECTION 78:  Penalty for suppressing, etc. of value of taxable services. — [(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of -

(a) fraud; or(b) collusion; or(c) wilful mis-statement; or(d) suppression of facts; or(e) contravention of any of the provisions of this Chapter or of the rules made

thereunder with the intent to evade payment of service tax,

the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:

Provided ……

Provided further ……”

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77.3.1 The interpretation of the phrase ‘intent to evade’, has been clearly defined

in the case of Vinaychandra Chandulal Shah vs. State of Gujarat and Anr - [1995] 213

ITR 307(GUJ)], wherein at Para 9 it was observed as under,-

“The two learned judges did not agree with the opinion of the learned chief justice and the matter was carried in appeal before the Privy Council. The privy Council observed that, “….………. Everybody agrees that the word is capable of being used in two senses: one which suggests underhand dealing, and another which means nothing more than the intentional avoidance of something disagreeable.”

77.4 In view of the above discussion, considering the situation where the order of the

Commissioner confirming recovery of CENVAT credit on the same issue was still

operative, a bonafide service provider would have abstained from taking credit on the

said inputs/capital goods or at least not utilized the same for payment of Service Tax,

after the date of the Order of the Commissioner i.e. 26.07.2007. However, the noticee

continued to take and utilize ineligible Cenvat credit, in complete disregard of an

operative Order of the Commissioner and in sheer defiance of Section 67 & 68 of the

Finance Act, 1994 read with Rule 5 and Rule 6 of the Service Tax Rules, 1994 and Rule

3(1) of the Cenvat Credit Rules, 2004. This act of noticee of availing inadmissible credit

can certainly be construed as an intentional avoidance of something disagreeable. The

noticee was fully aware that the inputs/capital goods on which the said noticee have

availed Cenvat credit were not being used in or in relation to the provisions of Port

Services for which they obtained service tax registration and thereby not falling under the

definitions as laid down under Rule 2(k) and Rule 2(a) of the Cenvat Credit Rules, 2004

respectively. The noticee have by their action contravened the provisions as laid down

under Rule 3(1) of the Cenvat Credit Rules, 2004 with an intent to evade payment of

service tax and thereby I find that they have made themselves liable for penal action as

per the provisions laid down under Rule 15(3) of the Cenvat Credit Rules read with

Section 78 of the Finance Act, 1994.

77.5 My findings are further supported by the judgements of the Apex court in the

case of Dharmendra Textile Mills Ltd- 2008(231) ELT 3(SC) and Rajasthan Spinning

& Weaving Mills Ltd-2009(238) ELT 3 (SC).

78. In view of the above discussion and findings, I pass the following order :-

O R D E R

(i) I confirm the demand for recovery of wrongly availed Cenvat credit amounting

to Rs. 43,50,569/- [Rupees Forty Three Lacs Fifty Thousand Five

Hundred and Sixty Nine only] under Rule 14 of Cenvat Credit Rules, 2004

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read with Section 73 of the Finance Act, 1994 against M/s Adani Port &

Special Economic Zone Ltd, Ahmedabad.

(ii) I order for recovery of interest on the above confirmed demand of wrongly

availed Cenvat credit from M/s Adani Port & Special Economic Zone Ltd.,

Ahmedabad at the rates applicable from time to time under Rule 14 of the

Cenvat Credit Rules, 2004 read with Section 75 of the Finance Act, 1994.

(iii) I impose a penalty of Rs. 43,50,569/- [Rupees Forty Three Lacs Fifty

Thousand Five Hundred and Sixty Nine only] under Rule 15(3) of the

Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 on

M/s Adani Port & Special Economic Zone Ltd., Ahmedabad. They shall be

eligible for the benefit of reduced penalty in terms of proviso to Section 78, if

the entire amount of Cenvat credit confirmed at (i) above along with interest

amount confirmed at (ii) above is paid within 30 days of the receipt of this

order, the said reduced penalty of 25% of Rs. 43,50,569/- shall be available

only if the same is also paid within 30 days of the receipt of this order.

(Tejasvini P. Kumar) Commissioner

Service Tax, Ahmedabad.BY REGD POST A.D/HAND DELIVERY

F.No. STC/4-20/O&A/ADC/D.II/12-13 Date: 29/03/2014To,

M/s Adani Port & Special Economic Zone Ltd.,Adani House, Mithakhali Six Circle,Navrangpura, Ahmedabad.

Copy to :

(1) The Chief Commissioner, Ahmedabad(2) The Assistant Commissioner of Service Tax, Division-II, Ahmedabad(3) The Superintendent of Service Tax, Range-VIII,Division-II, Ahmedabad with a extra

copy of the OIO to be delivered to the noticee and obtain dated acknowledgement.(4) Guard file.

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