By TIOL News Service

AHMEDABAD, DEC 30, 2015: THE Appellants are providing services in relation to Port.

They availed CENVAT Credit on inputs, capital goods and input services used in various output services.

Credit has been denied on the following by the adjudicating authority -

(a) Inputs viz. Cement and Steel.

(b) Other inputs and Capital Goods,

(c) Input services.

The appellants are before the CESTAT.

After considering the exhaustive submissions made by both sides, the Bench observed thus -

Cement and Steel: The Tribunal in the Appellants own case - 2008-TIOL-1691-CESTAT-AHM disallowed the CENVAT credit on cement and steel. However, the Gujarat High Court- 2015-TIOL-1288-HC-AHM-ST allowed the appeal of the Appellant. The Appellant would, therefore, be entitled to avail input credit on Cement and Steel, the Bench opined.

Nonetheless, the AR submitted that as per amendment to Explanation 2 of the definition of inputsunder Rule 2(k) of the CCR, by Notification No. 16/2009-CE (NT) dated 07.07.2009, the Appellant is not eligible to avail CENVAT credit on cement and steel items after 07.07.2009.

The Bench, therefore, reproduced the Explanation 2 of Rule 2(k), as amended on 07.07.2009 -

Explanation 2. Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bars (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.

And observed -

"On plain reading of Explanation-2 of the definition of Input, as amended on 07.07.2009, we find that the said explanation would apply in respect of the goods used in the manufacture of capital goods, which are further used in the factory of the manufacturer. Thus, it is clear that input Cement and Steel used in the factory of manufacturer shall not be eligible input credit. This explanation is applicable only to the manufacturer and not the service provider. It is to be read strictly as per plain meaning of the statute. There is no indication in the Explanation that it would apply to the service provider. The Hon'ble Gujarat High Court in the appellants own case held that amendment in Explanation-2 in Notification No. 16/2009-CE (NT) (supra) was not clarificatory in nature and the amended definition will not be applicable to the service providers. So, the denial of input credit on Cement and Steel before and after amendment of Explanation 2 of definition Input, cannot be sustained."

Other input/capital goods: The adjudicating authority observed that the inputs and capital goods were used in the construction of Port Jetty, Port buildings and Warehouse services, which are not output service i.e. Port services; that inputs and capital goods were used for maintenance repair of machines used in the Port area and for other general use in the Port area; that construction of Port is exempted service in view of the Notification No. 25/2007-ST dated 22.05.2007 and no CENVAT credit is eligible on exempted services. [Period April 2005 to September 2011]

After extracting the definitions of Capital Goods, Input and Input Service appearing in Rule 2 of the CCR, 2004 & as prevailing during the material period, the Bench observed -

+ It is well settled that literal interpretation would prevail, where the plain words of statute are clear, unambiguous and not absurd or unjust.

+ When words of statute are clear and meaning is unambiguous, intention of statute gets irrelevant; the plain meaning of the statute should not be distorted by following the interpretation based on intention.

+ Following case laws were adverted to - Sai Samhita Storages (P) Limited - 2011-TIOL-863-HC-AP-CX , Reliance Infratel Ltd Vs CST, Mumbai-II - 2015-TIOL-516-CESTAT-MUM , Laxmi Enterprise Vs CCE & ST, Vadodara - 2014-TIOL-2042-CESTAT-AHM , Navratna S. G. Highways Prop. Pvt. Ltd Vs CCE Ahmedabad - 2012-TIOL-1245-CESTAT-AHM .

Thereafter, the CESTAT reproduced the dictionary meaning of "port"& "Jetty" -

Port:

++ A harbour where ships load and unload cargo; any place where persons and cargo are allowed to enter a country and where customs officials are stationed.[Blacks Law Dictionary, 7th & 8th Eds.].

++ A place for the loading and unloading of the cargoes of vessels, and the collection of duties or customs upon imports and exports.[Blacks Law Dictionary, 5th Ed.].

++ A port is a place intended for loading or unloading goods; hence includes the natural shelter surrounding water, as also sheltered water produced by artificial jetties, etc. [The Baldhill CCANY, 42 F 2d 123, 125].

++ A port is a place where a vessel can lie in a position of more or less shelter from the elements, with a view to the loading or discharge of cargo. [Hunter v Northern Marine Insurance Co. Ltd. (1888)13 App Cas 717, 726, per Lord Herschell].

++ The word port must be construed in its usual and limited popular or commercial sense as a place where ships are in the habit of coming for the purpose of loading or unloading, embarking or disembarking. [The Mowe (1915) P 1, 15, per Evans]."

Jetty. A pier or breakwater constructed to protect or defend a harbour, coast, etc.; a structure in a body of water serving to control or divert a current, protect a harbour or the like, or as a wharfor pier; a projection of stone or other material serving as a protection against the waves; a kind of pier for loading and unloading cargo from a vessel. Jetty is used for loading and unloading of goods. [Mitras Legal and Commercial Dictionary (6th Edition)]

The Bench further observed -

"…The definition of Port service under Section 65 (82) of the said Act, 1994 covers any service rendered by a port in any manner in relation to a vessel or goods. Thus, jetty is used within the port for loading and unloading of the goods from the vessel. Port cannot function without jetty. So, CENVAT credit on the inputs and capital goods used in the construction of jetty is eligible for output service namely port service. It is noticed from the above decisions that the test of input and capital goods in respect of output service is whether it is used for providing output service. In the present case, it is clearly evident that the inputs and capital goods were used in construction of jetty for rendering port service. There is no reason to deny CENVAT credit on such input and capital goods."

In the context of the submission by the AR that construction of Port is an exempted service and, therefore, CENVAT is not admissible, the Bench held -

"In the present case, the Port was constructed by the contractor appointed by the Appellant for construction of Jetty, the exemption 25/2007-ST is applicable to the contractor. The contractors are not eligible to avail CENVAT credit. On the other hand, the appellant paid service tax on Port service. Hence, the Appellants are entitled to avail CENVAT credit on the inputs used for taxable output services, Port service."

Input services: It has been alleged that the input services have no nexus with output service. The Bench held -

"…From an analysis of the statutory provisions, definitions, and the decisions of the Hon'ble High Courts and the Tribunal, it is evident that any service used by a service provider for providing Port Service in any manner, is eligible for credit. The definition of Input service by way of "means","and includes" also amplify the scope of the same. Further, the definition also mentions certain specific services. The definition also includes services used in relation to activities relating to business. These further enlarge the scope of the input services. The net result of such a wide definition as rightly held by the High Courts and Tribunal, is that any input service which has any nexus or is in relation to the output services in any manner whatsoever, or is in relation to the activities relating to business would be eligible for credit. Therefore, the appellants would be eligible to take credit on the input services where they are able to satisfy the above criteria."

Keeping the above guidelines in mind, the Adjudicating authority was directed to examine the same whether the services are eligible to be treated as input services for providing the output services viz. Port Service.

Observing that the appeal concerns eligibility of CENVAT Credit on input, input service and capital goods and most of the items are admissible, imposition of penalty was held as not warranted.

The appeals were disposed of.

(See 2015-TIOL-2822-CESTAT-AHM)