The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal has held that the manufacturing and packaging of cement cannot be treated as civil construction activities and therefore do not fall within the excluded category of works contracts for denying CENVAT credit. The ruling came while allowing the appeal filed by Zuari Cement Limited.
The bench of P.A. Augustian and Pullela Nageswara Rao set aside the adjudication order that demanded ₹6,54,97,114 in alleged ineligible CENVAT credit on various input services. The case stemmed from an audit by the Additional Director General of Audit, which alleged short payment of duty on MRP-based clearances and claimed that the appellant wrongly availed CENVAT credit. Although the company reversed the disputed amount during audit, authorities issued show-cause notices that culminated in the demand under appeal.
The main issue involved ₹6,18,00,000 in service tax credit on upfront lease charges paid for land taken from the Cochin Port Trust for setting up a cement packing plant. The department argued that the expenditure related to “setting up” the factory, a phrase removed from the input service definition after the 2011 amendment. The Tribunal rejected the contention, holding that removal of the phrase from the inclusive portion did not exclude the services from the main definition. It found a direct nexus between the leased land and manufacturing activity, observing that production could not begin without the land.
The Tribunal also upheld credit of ₹36,97,114 for services received before commencement of production, holding that lease, procurement of machinery, and installation of plant were essential for manufacturing and therefore fell within the scope of Rule 2(l) of the CENVAT Credit Rules, 2004.
Regarding ₹1,21,727 distributed by Input Service Distributor invoices issued from the company’s marketing offices, the bench ruled that the receiving unit was not responsible for examining eligibility of distributed credit. Since the services related to marketing of the final product, the credit was valid.
Credit on event management services of ₹90,716 and repainting services of ₹1,34,123 was also restored. The Tribunal noted that marketing and promotional activities qualify as input services and clarified that the exclusion in the definition applies only to works contracts related to construction of buildings or civil structures, not maintenance or commercial upkeep.
On limitation and penalty, the bench held that invoking the extended period was unjustified since earlier audits had not raised such issues and the demand relied solely on the company’s own records. It ruled that suppression could not be alleged and set aside the penalties as well.
Allowing the appeal, the Tribunal granted consequential relief.
Cause title: M/s Zuari Cement Limited v. Commissioner of Central Tax & Central Excise
Case No: Central Excise Appeal No. 20591 of 2022
Coram: P.A. Augustian, Pullela Nageswara Rao
