CESTAT Chennai Allows ₹84 Lakh CENVAT Credit Claim By Komatsu India For Factory Expansion

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal has ruled that Komatsu India Pvt. Ltd. was entitled to claim tax credit worth Rs 84.08 lakh on services used to expand its factory.

A coram of Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao noted that the company, which manufactures dump trucks, had added a new facility next to its existing plant to produce hydraulic excavators.

While expanding the plant, the company took credit for taxes paid on services such as erection, commissioning and installation, consulting engineering and manpower supply.

Tax authorities later issued a show cause notice dated November 2, 2016 seeking to deny and recover this credit under the law, along with interest and penalty, arguing that the services were used for “setting up” a factory and were not eligible after April 1, 2011.

The Tribunal found that the factory was already operational, and the services were used only for expanding production and installing machinery in the new facility.

It observed, "We further observe that in the present case the services in dispute are erection, commissioning and installation services, consulting engineering services and manpower supply services used for installation and operationalisation of plant and machinery in the expanded facility. The show cause notice does not establish that these services are for construction of building or civil structure or laying of foundation for support of capital goods so as to attract the exclusion clause."

The bench held that expanding an existing factory cannot be treated as setting up a new one and credit cannot be denied on that basis.

It further said, "Accordingly, we hold that denial of CENVAT credit solely on the basis of deletion of the phrase “setting up of a factory” from the inclusive portion of Rule 2(l) is not legally sustainable in the facts of the present case. The CENVAT credit is therefore admissible on merits to the appellant."

The tribunal also found that the services were directly connected to manufacturing and did not fall under restricted categories such as construction of buildings or foundation work.

On limitation, the tribunal held that the notice was issued beyond the normal one-year period, and the department had not alleged suppression or fraud.

It therefore ruled that the demand was time-barred and could not be sustained.

Since the demand itself failed on merits and limitations, the tribunal held that interest and penalty would also not survive.

Setting aside the earlier order, the tribunal allowed the appeal and confirmed that Komatsu India is entitled to retain the Rs. 84.08 lakh tax credit.

For Appellant: Advocate Sridevi

For Respondent: G. Krupa, Authorized Representative