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2025 (7) TMI 211 - AT - Service TaxCENVAT Credit - capital goods or inputs - imported parts of the dredger - items imported for the purpose of taking credit when the same is admittedly used for repair of dredgers which in turn has been used for providing taxable service - HELD THAT - The issue whether an item can be both capital good as well as input for the purpose of providing taxable output service has been dealt with extensively by the Hon ble Supreme Court in the case of Bharti Airtel Ltd. 2024 (11) TMI 1042 - SUPREME COURT where interalia they held that We therefore agree with the conclusion arrived at by the Delhi High Court that towers and shelters (PFBs) support the BTS/antenna for effective transmission of mobile signals and thus enhance their efficiency and since these articles are components/accessories of BTS/antenna which are admittedly capital goods falling under Chapter 85 within sub-clause (i) of Rule 2(a)(A) of CENVAT Rules these items consequently are covered by the definition of capital goods within the meaning of sub-clause (iii) read with sub-clause (i) of Rule 2(a)(A) of CENVAT Rules. The impugned orders passed by the Adjudicating Authority in these appeals are not sustainable and therefore liable to be set aside - Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The primary legal question before the Tribunal was whether the imported parts used for repair of dredgers qualify as "capital goods" or "inputs" under the Cenvat Credit Rules, 2004, thereby entitling the appellant to avail Cenvat credit on the duties paid on such goods. Specifically, the issues considered included:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Qualification of imported parts as capital goods under Cenvat Credit Rules Relevant legal framework and precedents: The definition of "capital goods" under sub-clause (i) of Rule 2(a)(A) of the Cenvat Credit Rules, 2004, includes goods falling under specified chapters of the Customs Tariff Act, which are used in the manufacture of final products or in providing output services. The Supreme Court's decision in Bharti Airtel Ltd. Vs. CCE, Pune is pivotal, where the Court held that components/accessories that support capital goods used in providing taxable output services qualify as capital goods eligible for Cenvat credit. Court's interpretation and reasoning: The Tribunal relied heavily on the Supreme Court's reasoning that goods used for repair of capital goods, which are in turn used for providing taxable output services, qualify as capital goods. The Court emphasized that the imported parts used in dredgers fall within chapters 82, 84, 85, and 90, which are covered under the definition of capital goods. Even items not specifically covered under these chapters but used for repairing dredgers were considered inputs for the same purpose. Key evidence and findings: It was undisputed that the parts were used for repair of dredgers and that the dredgers were employed to provide taxable dredging services, on which service tax was paid. The Adjudicating Authority's finding that dredgers were not used for taxable output service was challenged and found incorrect based on the evidence of service tax payment and usage. Application of law to facts: Applying the Supreme Court's ruling in Bharti Airtel Ltd., the Tribunal held that the imported parts, as accessories or components used for repair of capital goods (dredgers), qualify as capital goods. Since these dredgers were used for taxable output services, the parts are eligible for Cenvat credit. Treatment of competing arguments: The Revenue's argument that the goods did not qualify as capital goods because the dredgers were not used for taxable services was rejected. The Tribunal found that this was contrary to the undisputed facts and judicial precedents. The argument that certain goods were not covered under specified chapters was also negated by recognizing their treatment as inputs for repair. Conclusions: The imported parts used for repair of dredgers used in taxable output services qualify as capital goods under the Cenvat Credit Rules, entitling the appellant to Cenvat credit. Issue 2: Qualification of imported parts as inputs under Rule 2(k)(ii) Relevant legal framework and precedents: Rule 2(k)(ii) defines "input" as goods used for providing any output service, excluding certain petroleum products and motor vehicles. The Supreme Court in Bharti Airtel Ltd. clarified that goods not necessarily electrical equipment but indispensable for providing output service qualify as inputs. Court's interpretation and reasoning: The Tribunal noted that although some parts may not be electrical or directly involved in the output service, their indispensable role in enabling the dredgers to provide taxable services brings them within the ambit of inputs. The Supreme Court rejected narrow interpretations that exclude such goods on grounds of non-excisability or immovability. Key evidence and findings: The parts were used for repair and maintenance of dredgers, which were actively engaged in providing taxable dredging services. The Tribunal found a close nexus between the parts and the output service. Application of law to facts: The Tribunal applied the Supreme Court's rationale that the functional relationship and indispensability of goods to the output service qualify them as inputs. Hence, the imported parts qualify as inputs under Rule 2(k)(ii). Treatment of competing arguments: The Revenue's reliance on the Adjudicating Authority's view that the goods were not inputs was rejected as inconsistent with the law and facts. The Tribunal found no merit in excluding goods merely because they are not electrical or directly involved in the service. Conclusions: The imported parts used for repair of dredgers qualify as inputs under Rule 2(k)(ii), supporting the appellant's claim for Cenvat credit. Issue 3: Correctness of the Adjudicating Authority's finding regarding use of dredgers for taxable output service Relevant legal framework and precedents: The provision of taxable output service and payment of service tax are critical to entitlement to Cenvat credit. The Supreme Court and Tribunal decisions emphasize the factual determination of use of capital goods or inputs in providing taxable services. Court's interpretation and reasoning: The Tribunal found that the Adjudicating Authority erred in concluding that dredgers were not used for taxable output services. The undisputed evidence of service tax payment on dredging services and usage of dredgers for such services directly contradicted this finding. Key evidence and findings: The appellant's undisputed use of dredgers for taxable dredging services and payment of service tax was established. This was supported by documentary evidence and submissions. Application of law to facts: The Tribunal applied the principle that Cenvat credit is available when goods are used in providing taxable output services. Since dredgers were used for such services, the parts used for their repair qualify accordingly. Treatment of competing arguments: The Revenue's contention was based on a misreading of facts and was rejected. The Tribunal gave precedence to the established facts and judicial precedents. Conclusions: The dredgers were used for providing taxable output services, and the Adjudicating Authority's contrary finding was set aside. 3. SIGNIFICANT HOLDINGS The Tribunal, relying on the Supreme Court's decision in Bharti Airtel Ltd., held: "We, therefore, agree with the conclusion arrived at by the Delhi High Court that towers and shelters (PFBs) support the BTS/antenna for effective transmission of mobile signals and thus enhance their efficiency and since these articles are components/accessories of BTS/antenna which are admittedly 'capital goods' falling under Chapter 85 within sub-clause (i) of Rule 2(a)(A) of CENVAT Rules, these items consequently are covered by the definition of 'capital goods' within the meaning of sub-clause (iii) read with sub-clause (i) of Rule 2(a)(A) of CENVAT Rules. Further, since these are used for providing output service, i.e., mobile telecommunication service, and since these are 'capital goods' received in the premises of the provider of output service as contemplated under Rule 3(1)(i), the Assesses would be entitled to CENVAT credit on the excise duties paid on these goods." And further: "Even though tower and the PFBs are not electrical items/equipment in the sense that these do not transmit signals, yet these are indispensable for the effective functioning of antenna by which the radio signals are received and transmitted and accordingly, used for providing the mobile telephonic services to the subscribers. Thus, towers and PFBs, though are not electrical equipment for transmission of signals, yet these are used for transmission of signal by the antennas. Therefore, there can be no denying of the fact that there is a close proximity and nexus between their functioning and the ultimate transmission of radio signals which is the output service rendered by the MSPs." The Tribunal concluded that the ratio of these decisions squarely applies to the present appeals involving dredger parts, leading to the setting aside of the impugned orders. Core principles established include:
Final determinations:
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