Roads In Jaipur Industrial Park Qualify As Public Roads, CENVAT Credit Not Admissible: CESTAT New Delhi

The New Delhi Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 15 May held that roads constructed within Krishna Kunj Pvt. Ltd.'s “Solitaire Industrial Park-II” at Jaipur were meant for use by the general public and qualified for exemption under Notification No. 25/2012-ST.

Judicial Member Binu Tamta and Technical Member P.V. Subba Rao partly allowed the appeal filed by Krishna Kunj and upheld denial of CENVAT credit on merits but remanded the matter to the adjudicating authority for recomputation of the demand for the normal period, along with applicable interest and penalty. It observed:

"...roads were constructed in the Solitaire Industrial Park and as per the Brochure, the “Jaipur Master Plan” roads are crossing through the park and maximum roads are connected with already existing public roads. Therefore, the roads are not only to be used by the industrial Park, but the same are to be used by the general public also."

The dispute arose after the department alleged wrongful availment of CENVAT credit of Rs. 35.50 lakh on input services used for constructing roads within the “Solitaire Industrial Park-II” project at Bagru, Jaipur.

The department relied on Serial No. 13(a) of Notification No. 25/2012-ST and argued that construction of roads for use by the general public remained exempt from service tax, and therefore the company could not avail credit on such input services.

Krishna Kunj Pvt. Ltd. argued that it constructed the roads only for internal use within the industrial park and that the general public could not access them. It also submitted that it had paid service tax on the activity, which made the issue revenue neutral, and that no suppression existed to justify invocation of the extended limitation period.

The Tribunal examined the project brochure and the Jaipur Master Plan and found that the roads within the industrial park connected to existing public roads and passed through the project area. It held that location inside a private industrial park did not determine the character of the roads.

The Bench held that the roads were available for use by the general public and therefore fell within the scope of exemption under Notification No. 25/2012-ST. It accordingly ruled that the company could not claim CENVAT credit on input services under Rule 6 of the CENVAT Credit Rules, 2004. It held:

"The fact that roads in question are for the utility of the general public the same would fall within the scope of the exemption Notification No.25/2012–ST dated June 20, 2012 and as per S.No.13(a) services provided by way of construction, direction, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of road, bridge, tunnel or terminal for road, transportation for use by general public is exempt from the payment of service tax and therefore, the service provider is not entitled to take CENVAT Credit of service tax on the exempted services as per the provisions of Rule 6 of CENVAT Credit Rules, 2004"

On limitation, CESTAT found no material showing wilful suppression or intent to evade tax. It noted that Krishna Kunj Pvt. Ltd. disclosed all relevant facts in its records and paid service tax instead of claiming exemption. It held that the dispute involved interpretation of the exemption notification and therefore the extended period under Section 73(1) of the Finance Act, 1994 could not apply.

It remanded the matter to the adjudicating authority for recomputation of recoverable credit, along with applicable interest and penalty. It also clarified that Krishna Kunj Pvt. Ltd. would be entitled to a refund of the service tax paid for the relevant period.

Accordingly, CESTAT upheld denial of CENVAT credit on merits but restricted the demand to the normal limitation period.

For Appellant: Shri Agarwal Sanjiv and Ms. Neha Somani, Chartered Accountants

For Respondent: Shri Aejaz Ahmad, Authorised Representative