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2015 (10) TMI 1571 - GUJARAT HIGH COURT

2015 (10) TMI 1571 - GUJARAT HIGH COURT - 2016 (334) E.L.T. 630 (Guj.) - Denial of CENVAT Credit - scope of the show cause notice - input services - Availment and utilization of credit before actual installation of the capital goods - Port Services - service tax paid under section 66 A of the said Act is not qualified to avail the Cenvat credit as the same has not been specified under Rule 3 of Cenvat credit Rule 2004 - Held that:- Issues raised in the questions proposed do not find place in the .....

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er subject matter of the show cause notice. - In the light of the settled legal position as emerging from the above referred decisions of the Supreme Court, that the show cause notice is the foundation of the demand under the Central Excise Act and that the order-in-original and the subsequent orders passed by the appellate authorities under the statute would be confined to the show cause notice, the question of examining the validity of the impugned order on grounds which were not subject .....

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a, Advocate For the Respondent : Mr JC Patel with Ms Shilpa Balani with Mr Dilip Kanojiya ORDER PER : MS. HARSHA DEVANI 1. In this appeal under section 35G of the Central Excise Act, 1944 (hereinafter referred to as the Act ), the appellant has called in question the order dated 17.12.2014 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (hereinafter referred to as the Tribunal ), by proposing the following three questions stated to be substantial que .....

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e Hon ble Customs, Excise and Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Ahmedabad, while passing the Order No.A/12359/2014 dated 17.12.2014, has correctly allowed the Cenvat Credit of Capital Goods without ascertaining that the said capital goods were used for providing output services provided by the respondent i.e. Port Service etc. (iii) Whether in the facts and circumstances of the case, was the Tribunal right in law to allow the Cenvat Credit of ₹ 59,82,52,117/- and u .....

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Service and Banking & Finance Service. According to the appellant, as the CENVAT Credit of service tax paid under section 66A is not allowed by rule 3 of the Cenvat Credit Rules, 2004 (hereinafter referred to as the rules ), the CENVAT credit availed by the respondent on the above service tax paid by them as recipient of service appeared to be irregular and wrongly availed. Further, on scrutiny of the CENVAT credit records and other related records of the respondent, it was noticed that the .....

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er of output service at any point of time in given financial year, shall be taken only for an amount not exceeding 50% of the duty paid on such capital goods in the same financial year. As regards the balance 50% of the CENVAT credit thereon, the same has to be taken in any financial year subsequent to the financial year in which such capital goods were received in the factory of the manufacturer subject to such capital goods (if not excluded) being in his possession, as provided under rule 4(2) .....

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the Finance Act, 1994, which is not specified as a tax to be availed as CENVAT credit under rule 3 of the rules and by irregularly utilizing the CENVAT credit of duty paid on capital goods before the actual installation of the credit availed capital goods, had contravened the provisions of rules 3 and 4 of the Rules. 3. Accordingly, a show cause notice dated 13.10.2011 came to be issued to the respondent, which culminated into an order-in-original dated 27.08.2012 passed by the Commissioner, Cen .....

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Engineers and Banking and other Financial Services , the Commissioner observed that the issue was examined by the Ministry who, after examining the provisions of law, had issued instructions in their letter dated 16.07.2009 whereby, it was clarified that the provisions under section 66A state that in case service is provided from abroad and received in India, such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly, all the provisions .....

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n 66 of the Finance Act, 1994. Therefore, there is no mistake or omission in the relevant provisions of the CENVAT Credit Rules, 2004 and that credit of tax paid on imported services should be allowed if they are in the nature of input services. The Commissioner placed reliance upon a clause (ixa) inserted in sub-rule (1) of rule 3 of the rules, with retrospective effect from 18.04.2006, thereby allowing credit of service tax paid under section 66A of the Finance Act, 1994 and held that the resp .....

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Commissioner further observed that rule 3(1) of the Cenvat Credit Rules, 2004 allows availment of the CENVAT credit of any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004. Rule 4(2)(a) of the Cenvat Credit Rules, 2004 provides that Cenvat Credit in respect of capital goods received in a factory or in the premises of the provider of output service at any point of time in a giv .....

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s have been procured after that date, in the year 2007-08. The Commissioner further observed that there is no specific debarring provision in the Cenvat Credit Rules, 2004 and the only condition is that the capital goods must be used for manufacture of excisable goods or for providing output service. Placing reliance upon various decisions on the issue of availment of CENVAT credit on capital goods without installation, the Commissioner observed that there is no precondition of installation of c .....

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Mandavia, learned standing counsel for the appellant assailed the impugned order by submitting that the Tribunal has totally overlooked the contention of the revenue made in the grounds of appeal that the services, namely, Consulting Engineers and Banking and other Financial Services would not qualify as input service of the respondent for providing of output service, that is, Port Service , etc. and also overlooked the contention of the department that the capital goods on which the respondent .....

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/taken if they are in the nature of input services . Therefore, the Commissioner has erred in relying upon the Board s letters to assert that the credit of service tax paid on the imported services can be allowed, without ascertaining the basic premise of the said letters, as to whether the services of Consulting Engineers and Banking and other Financial Services used by the respondent would qualify as Input Service in its case. It was submitted that the Commissioner has not at all examined the .....

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the goods in respect of which CENVAT credit was availed are capital Goods as defined in rule 2(a) of the rules, and also whether the same were used for providing output services of the type provided by the respondent, viz. Port Services , etc. It was, accordingly, urged that the appeal deserves to be admitted on the questions as proposed or as may be formulated by the court. 7. Opposing the appeal, Mr. J. C. Patel, learned counsel with Ms. Shilpa Balani and Mr. Dilip Kanojia, learned advocates .....

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d availed and utilized CENVAT credit of duty paid on capital goods received for expansion in respect of Coated Line Pipes supplied by M/s PSL Ltd., Gandhidham for SPMs with Sea base Pipelines Project during 2006-07 and 2007-08, and that the project was completed only in May 2008. That the CENVAT credit availed and utilized by the assessee before the actual installation of the capital goods is irregular and caused unintended benefit to it, which was required to be recovered from it with interest .....

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pute the same. However, the impugned order as well as the order-inoriginal are sought to be challenged on grounds which are beyond the scope of the show cause notice. 7.1 Reference was made to the decision of the Supreme Court in the case of Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd., 2007 (215) ELT 489 (SC), wherein the court held that it is well settled that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. In the .....

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n that case itself proceeded on the basis that the product in question was a by-product and not a final product, then, in that event, the court need not answer the larger question of law framed. The court was in agreement with the view expressed by the Tribunal that nowhere in the show cause notice it had been alleged by the Department that Lean Gas was a final product. The court observed that ultimately, an assessee is required to reply to the show cause notice and if the allegation proceeds on .....

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nsidered the submissions advanced by the learned counsel for the respective parties and has perused the impugned orders passed by the Tribunal as well as by the Commissioner as well as the decisions cited by the learned counsel for the respondent. 9. On a conjoint reading of the show cause notice issued to the assessee and the questions proposed in this appeal, it is evident that the issues raised in the questions proposed do not find place in the show cause notice. From the averments made in th .....

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