2026-VIL-1769-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Scope of Exclusion in Clause (A) of Rule 2(l) of CENVAT Credit Rules, 2004 for Contractor Services - Appellant, a cement manufacturer, took credit of service tax on services of contractors engaged for setting up a captive thermal power plant and for expansion, upgradation, repair and maintenance work in the cement plant - Audit alleged that the services involved construction of a civil structure or building and laying of foundation or structures for support of capital goods and were excluded from the definition of input service with effect from 01.04.2011 - Adjudicating Authority confirmed the entire demand, though it had itself found part of the credit to be in order, and the Commissioner (Appeals) upheld the denial for six contractors on the basis of a few sample bills - Whether the services of the contractors fall within clause (A) of the exclusion in Rule 2(l) and what test governs that inquiry - HELD - The main limb of the definition is wide and the inclusive limb expressly covers services used in relation to modernisation, renovation or repairs of a factory. Once a service is caught by the exclusion, its nexus with manufacture cannot rescue it. The exclusion is not engaged merely because a service is rendered in the course of a project, or because it involves steel, fabrication or a works contract. The service must be one of the specified services, and it must be used for construction of a building or a civil structure or a part thereof, or for laying of foundation or making of structures for support of capital goods. Erection, installation and commissioning of machinery, its repair and maintenance, and the hire of equipment such as a crane are not by themselves any of these purposes. This is a question of fact to be answered from the work order and the invoice, transaction by transaction - Rule 9(6) places the burden of proving admissibility on the manufacturer, which is discharged in the first instance by producing the invoices and work orders and explaining how the service was used. Rule 9(6) neither permits a blanket assumption that everything done by a contractor on a project site is construction nor allows an authority to call upon the assessee to prove a negative. The order in original disposed of five contractors in a single sentence without reference to any work order or invoice. The order in appeal rested on sample bills and bare conclusions. For the next period the Department itself found the work of the largest contractor to be repair and maintenance of factory machinery, and that finding must be taken into account - The denial of credit on merits cannot be sustained, and eligibility is to be examined afresh only for the credit that is not time barred - The appeal is partly allowed on limitation - Extended Period of Limitation under Section 11A(4) of Central Excise Act, 1944 for Recovery of CENVAT Credit - Show cause notice invoked the extended period on the allegations that details of the credit were not shown in the ER-1 returns, that invoices and work orders were not furnished before the audit, and that the matter would not have come to light but for the audit, while acknowledging that all the transactions were available in the records of the Appellant - Audit had examined the invoices and issued its report long before the notice, and the Appellant had described the scope of work of each contractor to the Range officer, yet the notice was issued after a considerable delay without explanation - Whether the extended period under Section 11A(4) was validly invoked - HELD - When the notice was issued, the normal period was one year, and the later enlargement to two years cannot revive a demand already barred. Section 11A(4) extends the period to five years only where duty has escaped by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade payment of duty - Where the facts are known to both parties, omission by one to do what he might have done is not suppression. The burden of proving suppression lies on the Revenue - The extended period was not available, the demand for credit beyond one year before the date of the notice is barred by limitation and set aside together with interest, and the credit within the normal period is remitted to the Adjudicating Authority to quantify and decide its eligibility afresh - Interest under Section 11AA and Penalty under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 on Credit Denied to Contractor Services - Penalty equal to the credit was imposed on the finding of wilful intention, and the notice proposed penalty only under Rule 15(2) on the footing of suppression - Extended period had been held not invocable and part of the demand was remitted for fresh decision - Whether interest and the penalty under Rule 15(2) read with Section 11AC can be sustained - HELD - The penalty rests on the very allegation of suppression with intent to evade, which stands unproved, and it cannot stand for any part of the period. The Adjudicating Authority cannot on remand impose a penalty on a footing not proposed in the notice, since adjudication cannot travel beyond the show cause notice. The dispute is in any event one of interpretation, and no penalty is therefore imposable. Interest under Rule 14 read with Section 11AA follows only on such credit within the normal period as is found on remand to be ineligible and to have been utilised - The penalty is set aside in its entirety, interest on the time barred demand is set aside, and the appeal is partly allowed on limitation.
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