CESTAT Chennai Remands Ramco Cements' CENVAT Dispute, Says Actual Nature Of Work Must Be Examined

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, on 15 October set aside the CENVAT credit demand against Ramco Cements Ltd. and remanded the matter to the adjudicating authority to examine the services contractor-wise and quantify the demand falling within the normal limitation period.

A Bench comprising Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao held that machinery installation, repair and maintenance services cannot be excluded from CENVAT credit merely because they relate to a plant expansion project. The eligibility of such services must be determined by examining the actual work performed under Rule 2(l) of the CENVAT Credit Rules, 2004. It observed:

“...An order of adjudication is meant to adjudicate. One which records a finding in favour of the assessee and confirms the demand regardless, and which visits a penalty equal to the duty on a finding of wilful intention that is nowhere reasoned, does not answer that description. Such orders breed precisely the needless litigation that the Commissioner (Appeals) rightly deprecated”

Ramco Cements had availed CENVAT credit on services provided by contractors between April 2011 and December 2015 for activities including the setting up of a captive thermal power plant, coal handling systems, machinery fabrication, and repair and maintenance.

The Department alleged that services provided by six contractors involved the construction of civil structures, buildings or foundations supporting capital goods, making the credit ineligible under Rule 2(l) of the CENVAT Credit Rules, 2004. A show-cause notice issued on 26 April 2016 sought recovery of approximately Rs. 1.30 crore, along with interest and an equal penalty.

The Tribunal observed that the exclusion under Rule 2(l) applies to services falling within the specified categories when used for excluded purposes, such as constructing buildings or civil structures, or laying foundations and making structures to support capital goods. Erection, installation and commissioning of machinery, its repair and maintenance, and hiring equipment such as cranes do not, by themselves, constitute excluded activities.

It also found that the lower authorities had failed to examine the contractors' work in sufficient detail. The adjudicating authority had confirmed the demand despite recording findings in favour of Ramco Cements for certain services. The appellate authority had also relied on sample bills and conclusions without adequately examining the nature of the work performed.

Further, the Bench noted that, for a subsequent period, the Department had allowed most of the credit relating to services provided by TPM Constructions after finding that the work largely involved repairs and maintenance of factory machinery. Although that decision was not binding for the earlier period, the Revenue could not characterise the same contractor's work differently without giving reasons.

On limitation, it noted that Ramco Cements had reflected the credit in its statutory records and monthly ER-1 returns. The Department had audited the relevant invoices in 2011 and 2012 and received details of the contractors' work through the company's letters in 2014. However, it issued the show-cause notice only on 26 April 2016 without identifying any specific fact concealed by Ramco Cements.

Relying on the Supreme Court decisions in Cosmic Dye Chemical v. Collector of Central Excise and Lipi Boilers Ltd. v. Commissioner of Central Excise, the Tribunal held that mere non-disclosure or a difference of opinion over credit eligibility does not establish wilful suppression. It accordingly held that the demand relating to credit taken beyond one year before the notice was time-barred.

It also set aside the penalty under Rule 15(2) of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944, holding that suppression with intent to evade duty had not been established. It further ruled that no penalty could be imposed in the remand proceedings.

Accordingly, the CESTAT remanded the matter for contractor-wise verification of credit eligibility and quantification of the demand within the normal limitation period.

For Ramco Cements: R. Parthasarathy

For Revenue: O.M. Reena