2025 (7) TMI 340 - AT - Service Tax

Denial of CENVAT Credit - input services used for the purpose of construction of storage tank - HELD THAT - Rule 2(l) of the CENVAT Credit Rules 2004 defines input service to mean any service used by a provider of output service for providing an output service. Admittedly the appellant is a output service provider who has availed the service of construction of storage tank for providing the output service. In view of the decision of this Tribunal in the case of Vedanta Aluminium Ltd. 2023 (6) TMI 897 - CESTAT KOLKATA it is held that the issue is no longer res integra and further hold that for the services availed by the appellant for construction of the storage tank the appellant is entitled to avail CENVAT Credit of the Service Tax paid thereon. There are no merit in the impugned order and hence the same is set aside - appeal allowed.

Summary

The core legal questions considered in this appeal revolve around the entitlement to CENVAT Credit on input services related to the construction of storage tanks used in providing output services. Specifically, the issues are:

1. Whether the service of construction of storage tanks and related civil structures qualifies as an "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, thereby entitling the appellant to avail CENVAT Credit on Service Tax paid for such services.

2. Whether storage tanks used by the appellant for storage and warehousing services constitute "capital goods" eligible for CENVAT Credit, despite being immovable property and not excisable goods.

3. The applicability of precedents and legal principles regarding the classification of storage tanks and the scope of input services under the CENVAT Credit Rules.

Regarding the first issue, the relevant legal framework is Rule 2(l) of the CENVAT Credit Rules, 2004, which defines "input service" as "any service used by a provider of output service for providing an output service." The appellant, engaged in providing storage and warehousing services, had availed services from EPC contractors for the construction of storage tanks and related structures. The Revenue contended that these construction services are excluded from the definition of input services as they pertain to civil structures/foundations, which are not eligible for CENVAT Credit. Additionally, the Revenue argued that since the storage tanks are not excisable goods, credit is not permissible.

The Court examined the issue in light of a recent authoritative decision by the same Tribunal in Vedanta Aluminium Ltd. v. Commissioner of C.Ex. & S.T., which held that storage tanks, irrespective of their immovable nature, qualify as capital goods. The Tribunal in Vedanta Aluminium Ltd. emphasized that capital goods include components, spares, and accessories used in the manufacture or processing of goods, as defined under Rule 2A of the CENVAT Credit Rules, 2004. The Court relied on the Karnataka High Court's ruling in SLR Steels Ltd., which clarified that while inputs used in constructing factory sheds or foundations are not eligible for credit, inputs used in manufacturing capital goods like storage tanks are eligible, even if such tanks are immovable properties.

The Court noted that the appellant's services of constructing storage tanks are integral to providing the output service of storage and warehousing and that the service tax paid on such input services is therefore eligible for credit. The Tribunal rejected the Revenue's contention that the tanks are not excisable goods and that credit is impermissible on that basis, holding that the nature of the goods as capital goods is determinative.

In applying the law to the facts, the Court found that the appellant had availed taxable services for construction of storage tanks as part of its output service provision. The EPC contractors' invoices with applicable Service Tax were rightly treated as input services. The appellant's entitlement to credit on these services was supported by the established legal position that storage tanks qualify as capital goods, and the services used for their fabrication and installation fall within the ambit of input services under the CENVAT Credit Rules.

The Court also addressed competing arguments by acknowledging the Revenue's initial audit findings but ultimately found that the legal precedents and statutory definitions favored the appellant's claim. The Revenue's reliance on the exclusion of civil structures from input services was distinguished on the basis that the storage tanks are not mere civil structures but capital goods essential to the appellant's output service.

Consequently, the Court concluded that the appellant was entitled to avail CENVAT Credit on the Service Tax paid for the construction of storage tanks and related services. The impugned order denying credit, confirming demand, and imposing penalty was set aside.

Significant holdings from the judgment include the following verbatim excerpt from the Tribunal's reasoning in Vedanta Aluminium Ltd., which the Court adopted:

"Therefore, the notification of the Legislature is very clear that it is only the 'inputs' used in the manufacture or construction of capital goods which is construed as input and cenvat credit is available on the duty paid in purchase of such inputs. If the cement, angles channels, Centrally Twister Deform bar (C.T.D.) or Thermo Mechanically Treated bar (T.M.T) and other items are used in the construction of factory shed, building or laying of foundation, the duty paid on such items the assessee is entitled to cenvat credit. Similarly, though the assessee is entitled to cenvat credit of cement and steel used in the manufacture of capital goods viz., storage tank, if any structure for support of capital goods is constructed and steel and cement is used for such support, the assessee is not entitled to the benefit of cenvat credit on the duty paid on such cement and steel. Therefore, there is no ambiguity in any of these provisions. When once a storage tank and pollution control equipment constitutes capital goods and any raw material purchased for construction of those goods, the duty paid could utilized as a cenvant credit by the assessee notwithstanding the fact that the storage tank is an immovable property."

The core principle established is that storage tanks used in the manufacture or processing of goods, even if immovable, are capital goods under the CENVAT Credit Rules, and input services used in their fabrication and installation qualify as input services eligible for CENVAT Credit. The Tribunal reaffirmed that the exclusion of civil structures from input services does not extend to capital goods like storage tanks.

The final determination was that the appellant was entitled to CENVAT Credit on the Service Tax paid on input services related to the construction of storage tanks. The impugned order denying credit and imposing penalties was set aside, and the appeal was allowed with consequential relief.