CESTAT Bangalore Quashes Central Excise Demand Against Zuari Cement, Affirms CENVAT Credit Eligibility

Tribunal rules in favor of Zuari Cement, allowing CENVAT credits on leased land, ISD invoices, and business-related services, while dismissing extended limitation for recovery.

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bangalore, has set aside the demand against M/s. Zuari Cement Limited, permitting the company to avail CENVAT credit on various services, including leasing land, input service distribution (ISD) invoices, and business meeting expenses. The tribunal also dismissed the extended period of limitation invoked by the revenue authorities for recovery.

The dispute arose when the Commissioner of Central Tax & Central Excise alleged that Zuari Cement had availed ineligible CENVAT credits amounting to over Rs. 6.5 crore, primarily on service tax paid for leasing land from Cochin Port Trust for setting up a factory. The department contended that such services were excluded from the definition of input services post the 2011 amendment to Rule 2(l) of the CENVAT Credit Rules, 2004.

However, the Tribunal, comprising Mr. P.A. Augustian and Mr. Pullela Nageswara Rao, held that the services used for leasing land and other activities related to manufacturing operations qualified as input services under the expansive definition in Rule 2(l), even post-amendment. The tribunal noted that these services were crucial for the manufacturing process, thereby establishing a direct nexus with manufacturing activities.

The tribunal also addressed the issue of CENVAT credit availed based on ISD invoices from regional marketing offices. It ruled that jurisdiction to question and recover such credits lies with the authority of the ISD, not the recipient unit, thereby validating Zuari Cement's credits.

Furthermore, the Tribunal recognized the eligibility of CENVAT credits for services related to business meetings and event management, emphasizing their connection to manufacturing and marketing activities. It also overturned the denial of credits on repainting work, as these did not pertain to construction of buildings or civil structures.

Importantly, the Tribunal found the invocation of the extended period of limitation for raising the demand unsustainable, given that no objections were raised during previous audits and all records were transparent.

This judgment not only provides substantial relief to Zuari Cement but also sets a precedent for similar disputes regarding the interpretation of input services under the CENVAT Credit Rules.

Bottom Line:

CENVAT Credit - Services used for setting up a plant or factory are eligible for CENVAT credit under Rule 2(l) of the CENVAT Credit Rules, 2004, even post amendment in 2011, provided they are in relation to manufacturing activities.

Statutory provisions: Rule 2(l) of the CENVAT Credit Rules, 2004, Section 11A of the Central Excise Act, 1944

M/s. Zuari Cement Limited v. Commissioner of Central Tax & Central Excise, (CESTAT)(Bangalore)(Regional Bench) : Law Finder Doc id # 2817121