BRIEF FACTS OF THE CASE

1. M/s. Adani Petronet [Dahej] Port Pvt. Ltd., having their registered office at Adani House, Near Mithakhali Six Roads, Navrangpura, Ahmedabad [here-in-after referred as M/s. Adani Petronet/noticee, for the sake of brevity] are engaged in construction and development of a new solid cargo port terminal at Dahej, Distt. Bharuch, Gujarat and are holding a Service Tax Registration No. AAECA5046RST001 for providing taxable services such as Port Service, Consulting Engineer Service and Transport of Goods by Roads Service. They have started construction of the said Dahej Port during the year 2007-08.

2. Directorate General of Central Excise Intelligence, Ahmedabad [DGCEI, for brevity] gathered an intelligence indicating that M/s. Adani Petronet has wrongly availed Cenvat credit on inputs, input services, and capital goods used in the construction of the said Dahej Port, notwithstanding the fact that ‘Construction of Port’ is an exempted service classified under Commercial or Industrial Construction Services referred to in sub-clause (zzq) of clause (105) of section 65 of the Finance Act, 1994 and services provided in relation to the execution of Works Contract, referred to in sub-clause (zzzza) of clause (105) of section 65 of the Finance Act, 1994, and therefore, Cenvat credit is not available in terms of Rule 6(1) of the Cenvat Credit Rules, 2004.

3. On the basis of the aforesaid intelligence, a team of officers from DGCEI visited the business premises of M/s. Adani Petronet on 21.10.2010 and requisitioned the documents and records which appeared relevant for further investigation. Accordingly, M/s. Adani Petronet, vide their letter dated 21.10.2010, submitted the invoices on which they have availed Cenvat credit during the year 2007-08, 2008-09 and 2009-10 along with copies of ST-3 Returns, Balance Sheets, and a chart showing the details of Cenvat credit availed during the period from April, 2010 to September, 2010 of the current financial year 2010-11.

3.1. Scrutiny of the documents resumed from M/s. Adani Petronet revealed that they had availed credit of duty paid on inputs and capital goods as well as credit of service tax paid on input services which were used in or in relation to the construction of Dahej port. While submitting the documents vide their letter dated 21.10.2010, M/s. Adani Petronet had submitted copies of ST-3 Returns filed by them during the period from April, 2007 to March, 2010. Since the ST-3 Return for the period from April, 2010 to September, 2010 was required to be filed only on or before 25.10.2010, the same was not produced by them under the aforesaid letter dated 21.10.2010. However, while furnishing the aforesaid documents, they submitted printouts of their ledger showing the details of receipts under inputs, input services and capital goods during the said period from April, 2010 to September, 2010. Thereafter, on 20.11.2010, they submitted a copy of the ST-3 return filed by them on 25.10.2010, which indicated the actual details of availment of credit on inputs, input services and capital goods. On the basis of such ST-3 returns filed by M/s. Adani Petronet during the period from April, 2007 to September, 2010, the officers of DGCEI prepared a chart showing the details of credit availed by them on inputs, capital goods and input services, which were used in or in relation to the construction of Dahej Port. The said chart was enclosed as Annexure-A, and summarized as under:-

Month/YearCenvat credit availed on [Amounts in `]

InputsCapital Goods Input Service Total

Apr-07 to Sep-07 0 0 0 0

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Oct-07 to Mar-08 31779221 0 15759087 47538308

Apr-08 to Sep-08 0 13119405 5782700 18902105

Oct-08 to Mar-09 30709941 1307572 10153726 42171239

Apr-09 to Sep-09 28416957 1803682 7169391 37390030

Oct-09 to Mar-10 70899292 804381 48782297 120485970

Apr-10 to Sep-10 46706203 4025943 36840425 87572571

Total 208511614 21060983 124487626 354060223

3.3. The chart indicated that M/s. Adani Petronet started availing Cenvat credit on the inputs such as cement, steel, etc. as well as on capital goods and input service with effect from October, 2007. During the period from October, 2007 to September, 2010, they availed total Cenvat credit of Rs.35,40,60,223/- on such inputs, input services and capital goods which were used in or in relation to the construction of the aforesaid Dahej Port.

4. During the investigation of the case, statements of the key persons who were responsible for handling the Service Tax matters of M/s. Adani Petronet were recorded under the provisions of Section 14 of the Central Excise Act, 1944, which are discussed in the following paras:-

4.1. Statement dated 21.10.2010 of Shri Anish Ashokkumar Shah, Associate Manager of M/s. Adani Petronet:-

A statement of Shri Anish Ashokkumar Shah, Associate Manager of M/s. Adani Petronet was recorded on 21.10.2010. His statement was recorded in question-answer form. The questions asked and the answers given by him are as under:-

“Q.1 : As an Associate Manager of M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six Roads, Navrangpura, Ahmedabad [APPPL] what are your job responsibilities?

A.1 : I state that as an Associate Manger of M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six Road, Navrangpura, Ahmedabad, I look after all the works relating to accounts, finance and taxation including service tax matters.

Q.2 : Since how long you are working with M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six Road, Navrangpura, Ahmedabad?

A.2 : I state that I am working with M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six Road, Navrangpura, Ahmedabad since almost four years.

Q.3 : What are the business activities of M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six Road, Navrangpura, Ahmedabad?

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A.3 : I state that M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six Road, Navrangpura, Ahmedabad is developing solid cargo port terminal at Dahej. This port will be used for providing port services.

Q.4 : When did you get permission from Gujarat Maritime Board for development of said Port at Dahej?

A.4 : I state that sub concession agreement was entered by the company [APPPL] on 3rd January, 2007.

Q.5 Please state whether the said Dahej Port was existing at the time of your above agreement or was developed after the agreement?

A.5 : I state that we are developing the said Dahej Port as a new port.

Q.6 : Have you obtained Service Tax registration? If yes, for which services?

A.6 : I state that we have obtained Service Tax registration from the appropriate authorities. I state that we have obtained Service Tax Registration No. AAECA5046RST001 for the following services from Ahmedabad Service Tax Commissionerate:-

01. Consulting Engineers Service02. Port Service03. Transport of Goods by Roads.

Q.7 : What was the reason for obtaining the Service Tax Registration Number from Ahmedabad Service Tax Commissionerate?

A.7 : I state that since our Registered office is based at Ahmedabad and therefore, we have obtained Service Tax registration from Ahmedabad Service Tax Commissionerate

Q.8 : Are you providing Consulting Engineers Service?

A.8 : I state that we are not providing Consulting Engineers Service. However, we have received Consulting Engineers Service from outside India and paid Service Tax as recipient of Service under reverse charged mechanism under Section 66A of the Finance Act, 1994.

Q.9 : What was the purpose and where the services of consulting engineers services used?

A.9 : I state that we have availed consulting engineering services for construction of port. This port will be used for providing port services.

Q.10 : Are you providing GTA services?

A.10 : I state that we are not providing GTA services. However, for GTA services we have paid Service Tax as recipient of services under reversed charged mechanism under Rule 2(1)(d)(v) of the Service Tax Rules, 1994.

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Q.11 : What was the purpose and where the services of GTA services used?

A.11 : I state that we have availed GTA services for procuring material for construction of port. This port will be used for providing port services.

Q.12 : Are you providing Port Services at Dahej? If yes, since how long?

A.12 : I state that we are providing Port Services at Dahej from September, 2010.

Q.13 : From the ST-3 returns filed for the period from October, 2007 to March, 2010 by APPPL, it is observed that Cenvat credit is shown to have been taken. Please state the details of Cenvat credit taken and for what services?

A.13 : I state that we have taken Cenvat credit mainly on construction material and other services for constructing port. This port will be used for providing port services.

Q.14 : Whether construction materials and other services are used for construction of port or providing port services?

A.14 : I state that we have utilized construction material and other services for construction of the port.

Q.15 : Have your company constructed the port?

A.15 : Our company have constructed the port by appointing contractors.

Q.16 : Who was awarded the contract for construction of the port?

A.16 : I state that for construction of approach jetty, main berth and mooring dolphins, we have awarded the contract to M/s. Simplex Infrastructure Ltd., Kolkata vide work order No. APPPL/1005.201.001/1540 dated 28.03.2007. For other construction related works, viz. conveyor foundation, backup yard, etc. we have awarded contracts to different contractors

Q.17 : Please state the name of the conveyer foundation and backup yard contractors?

A.17 : For construction of backup yard, work order was given to M/s. Cube Construction, Baroda, M/s. Bridge & Roof, M/s. Techpro Engineers.

Q.18 : What is the scope of contract entered with M/s. Simplex Infrastructure Ltd., Kolkata?

A.18 : I state that the scope of contract with M/s. Simplex Infrastructure Ltd., Kolkata mainly includes construction of approach jetty, main berth and mooring dolphins.

Q.19 : Who purchased the materials or inputs used for construction of approach jetty, main berth and mooring dolphins by M/s. Simplex Infrastructure Ltd., Kolkata?

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A.19 : As per terms of contact, construction material such as cement, material for iron & steel, required for construction of approach jetty, main berth and mooring dolphins is to be issued as free issue material by APPPL to M/s. Simplex Infrastructure Ltd.

A.20 : Who supply the materials other than those free issue material mentioned in the contract with M/s. Simplex Infrastructure Ltd., Kolkata?

A.20 : We have supplied only free issue material as contract to M/s. Simplex Infrastructure Ltd. Other materials, if required, for providing services may have been procured by M/s. Simplex Infrastructure Ltd.

Q.21 : Whether M/s. Simplex Infrastructure Ltd. has charged any service tax in the bills raised to your company for providing construction services?

A.21 : I state that M/s. Simplex Infrastructure Ltd. has not charged any service tax in the bills raised to our company for construction services because services for construction of port is exempted from payment of service tax.

Q.22 : Are you aware that as per Rule 6(1) of the Cenvat Credit Rules, 2004 the Cenvat credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or provision of exempted services?

A.22 : Yes, I am aware.

Q.23 : Please give details of Cenvat credit availed by your company?

A.23 : I state that we have availed Cenvat credit during the period from October, 2007 to March, 2010 details of which are produced in a separate sheet.

Q.24 : Please state under whose guidance and instructions do you work?

A.24 : I state that I work under the guidance and instructions from Shri Manoj Chanduka, Associate Vice President [Accounts & Finance].

Q.25 : Do you like to say anything further?

A.25 : I believe that we are justified for taking Cenvat credit on materials and services utilized for construction of port facilities for providing port services, which is a taxable service.”

4.2. Statement dated 21.10.2010 of Shri Manoj Chanduka, Associate Vice President of M/s. Adani Petronet:-

A statement of Shri Manoj Chanduka, Associate Vice President of M/s. Adani Petronet was recorded on 21.10.2010. His statement was recorded in question-answer form. The questions asked and the answers given by him are as under:-

“Q.1 : As an Associate Vice President [Accounts & Finance] of M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six Roads, Navrangpura, Ahmedabad, what are your job responsibilities?

A.1 : I state that as an Associate Vice President [Accounts & Finance] of M/s. Adani Petronet (Dahej) Port Pvt. Ltd., Adani House, Near Mithakhali Six

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Roads, Navrangpura, Ahmedabad I look after all the works relating to accounts, finance and taxation including service tax matters. I have been working in this company for the past one year.

Q.2 : Is Shri Anish Ashokkumar Shah, Associate manager of your firm work under your guidance and instructions?

A.2 : Yes

Q.3 : Please peruse statement dated 21.10.2010 of Shri Anish Ashokkumar Shah, Associate Manager. Do you agree with the facts stated therein?

A.3 : I have perused statement dated 21.10.2010 of Shri Anish Ashokkumar Shah, Associate Manager. In token of having perused and in agreement of facts stated therein, I put my signature on it.”

5. From the facts and evidences as discussed supra, it appeared that M/s. Adani Petronet had signed the Sub Concession Agreement for construction of Dahej Port for developing Solid Cargo Terminal on January 03, 2007. They had obtained Service Tax Registration for provision of three taxable services, viz. Consulting Engineer Services, Goods Transport Services by Road and Port Services. While registration for the first two services was obtained for payment of service on reverse charge mechanism as provided under Section 66A of the Finance Act, 1994, it was evidently clear that they had obtained registration for actual provision of only Port Services. Documents resumed by DGCEI from M/s. Adani Petronet revealed that during the period from October, 2007, they had been availing Cenvat credit on inputs, input services as well as capital goods. The input Cenvat invoices resumed by DGCEI indicated that the inputs on which Cenvat credit was availed included steel, cement, bars, angles, rods and other construction materials. Similarly, the documents resumed in respect of input services and capital goods also revealed that Cenvat credit was availed by them in respect of such goods and services used in the construction activities carried out by M/s. Adani Petronet during the period under review.

5.2. While recording his statement, Shri Anish Shah, Associate Manager of M/s. Adani Petronet stated that they started providing Port Services only with effect from September, 2010. Statutory records maintained by the service provider also substantiate this point. Thus it appeared that during the period from October, 2007 to September, 2010, they were holding Central Excise Registration for providing Port Services, however, actually no such taxable services were provided by them during this period. The records also established that during this period, M/s. Adani Petronet was actually engaged in the construction of Dahej Port for developing solid cargo terminal as per the aforesaid Sub Concession Agreement reached between them and Gujarat Maritime Board. Thus it was established that the entire amount of Cenvat credit of Rs. 35,40,60,223/- as tabulated in Para 3.2 supra was availed by M/s. Adani Petronet in respect of the goods and services which were used in or in relation to the construction of port at Dahej.

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5.3. Shri Anish Shah, Associate Manager of M/s. Adani Petronet, in his aforesaid statement, had categorically stated that the civil construction works of the port was given to M/s. Simplex Infrastructure Ltd. on contract basis. He further stated that that the said contractors, who had constructed the port, had not charged Service Tax from M/s. Adani Petronet in view of the fact that such construction of the port is an exempted service in terms of Notification No. 16/2005-ST dated 07.06.2005 as substituted by Notification No. 25/2007-ST dated 22.05.2007. Therefore, it was evidently clear that the inputs, input services and capital goods on which M/s. Adani Petronet had taken Cenvat credit, were actually used by the independent contractors for construction of port which was an exempted specified service in terms of the aforesaid notification. The aforesaid very same fact stated by Shri Anish Shah, Associate Manager revealed that they were fully aware that the inputs, input services and capital goods were being used in or in relation to the construction of port, which was an exempted service, and also that such goods and services were not being used in or in relation to the provision of outgoing services, i.e. Port Services for which they had obtained registration. Thus it was evidently clear that Cenvat credit on inputs, input services and capital goods used for construction of port shall not be available to M/s. Adani Petronet.

5.4.1. The term ‘input’ has been defined under Rule 2(k) of the Cenvat Credit Rules, 2004 which reads as under:-

“(k) ”input” means -

(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;

(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service”

5.4.2. Similarly, the term ‘input services’ has been defined under Rule 2(l) of the Cenvat Credit Rules, 2004 which reads as under:-

(l) “input service” means any service, -

(i) used by a provider of taxable service for providing an output service, or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

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and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal”

5.4.3. Further the term ‘capital goods’ has been defined under Rule 2(a) of the Cenvat Credit Rules, 2004 which reads as under:-

“(a) ”capital goods” means :- (A) the following goods, namely :-(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act; (ii) pollution control equipment;(iii) components, spares and accessories of the goods specified at (i)

and (ii); (iv) moulds and dies, jigs and fixtures; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; and (vii) storage tank,used -(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or(2) for providing output service;(B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act;[(C) dumpers or tippers, falling under Chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), registered in the name of provider of output service for providing taxable services as specified in sub-clauses (zzza) and (zzzy) of clause (105) of section 65 of the said Finance Act;] (D) components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide taxable services as specified in sub-clauses (B) and (C”

5.4.4. A plain reading of the aforesaid definitions of the term input, input services, and capital goods clearly indicated that only those goods and services that are directly used for providing output service will be eligible for Cenvat credit. Cement, Steel and other like inputs, input services and capital goods which were used for construction of the port cannot be said to have been used directly for providing output service, viz. Port Services, as M/s. Adani Petronet has used such inputs, input services and capital goods for construction of various terminals, jetty and other civil structures, which are nothing but immovable property. Further, the aforesaid definitions of the terms are restrictive and use the phrase ‘used for providing an output service’. Thus, it was evidently clear that only those goods and services used directly for providing output service would be

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eligible for Cenvat credit, whereas in the present case, the inputs, input services and capital goods on which Cenvat credit was availed by them were actually and directly used in the construction of immovable property.

5.5.1. Sub-Rule (1) of Rule 6 of Cenvat Credit Rules, 2004 provides that Cenvat credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services. This provision makes it mandatory that the output service, in relation to which the Cenvat credit was availed by the service provider, should be a taxable service. In the present case, although M/s. Adani Petronet was holding a Service Tax registration for providing Port Services, no such port services, as defined under Section 65(82) of the Finance Act, 1994, were provided by them till September, 2010. As already mentioned aforesaid, the only activity which was carried out by the assessee was construction of port.

5.5.2. As per the provisions of Notification No. 16/2005-ST dated 07.06.2005 as substituted by Notification No. 25/2007-ST dated 22.05.2007, it was evident that ‘Construction of Port or other Port’ is appropriately covered under ‘Commercial or Industrial Construction Service’, referred to in sub-clause (zzq) of clause (105) of Section 65 of the Finance Act, 1994 and ‘Execution of Works Contract Services’ referred to in sub-clause (zzzza) of clause (105) of Section 65 of the said Finance Act. The said notification fully exempts commercial or industrial construction service and services provided in relation to the works contract services provided in relation to construction of port or other port. Explanation given under the said notification No. 25/2007-ST clearly states that such exemption is available for construction of new port or other ports, which is the activity carried out by M/s. Adani Petronet in the present case. It was, therefore, evidently clear that the aforesaid entire Cenvat credit was availed by M/s. Adani Petronet in respect of the goods and services used in or in relation to the provision of ‘Construction of Port or other Port, which was an exempted service. Therefore, it appeared that the said Cenvat credit was not eligible as per the aforesaid Rule 6(1) of the Cenvat Credit Rules, 2004.

5.6. During the course of investigation, Shri Anish Shah, Associate Manager had stated that Cenvat credit would be available on materials and services utilized for construction of port facilities for providing port services, which is a taxable service. It is an admitted fact on record that the activity carried out by M/s. Adani Petronet was actually construction of a new port and not repairing or refurbishing the existing port facilities, which is covered in the aforesaid explanation given under Notification No. 25/2007-ST. Infact, it was clearly evident from the statement dated 21.10.2010 given by Shri Anish Shah in answer to Question No. 21, wherein he had categorically stated that M/s. Simplex Infrastructure Ltd. had not charged any service tax in the bills raised to M/s. Adani Petronet for carrying out the construction activities, because of the fact that services for construction of port was exempted from payment of service tax. Thus, it was amply clear that M/s. Adani Petronet was aware and was having

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complete knowledge that the Cenvat credit availed by them on materials and services which are actually used by them in the provision of exempted output services.

5.7. It further appeared that CBEC vide Circular No. 98/1/2008-ST dated 04.01.2008 issued from F.No. 345/6/2007-TRU has provided clarification in relation to a similar issue, which is mutatis mutandis applicable in the present case. For the sake of easy comprehension, the relevant portion of the said circular is reproduced as under:-

Reference Code

Issue Clarification

(1) (2) (3)

096.01/4-1-08

Commercial or industrial construction service [section 65(105)(zzq)] or works contract service [section 65(105)(zzzza)] is used for construction of an immovable property. Renting of an immovable property is leviable to service tax [section 65(105)zzzz)]

Whether or not, commercial or industrial construction service or works contract service used for construction of an immovable property, could be treated as input service for the output service namely renting of immovable property service under the Cenvat Credit Rules, 2004?

Right to use immovable property is leviable to service tax under renting of immovable property service.

Commercial or industrial construction service or works contract service is an input service for the output namely immovable property. Immovable property is neither subjected to central excise duty nor to service tax.

Input credit of service tax can be taken only if the output is a ‘service’ liable to service tax or a ‘goods’ liable to excise duty. Since immovable property is neither ‘service’ or ‘goods’ as referred to above, input credit cannot be taken.

5.8. The above clarification had been issued by the Board in respect of the goods and services used for commercial construction or works contract services, both of which are taxable services. Whereas in the present case, the commercial construction service or works contract service, which is in the form of construction of port, is an exempted service by virtue of the aforesaid Notification No. 25/2007-ST. Therefore, it was evident that the above clarification would be applicable with more force in the present case. The port which was constructed

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by M/s. Adani Petronet is an immovable property and the process of construction of the said port was an exempted service. Therefore, no Cenvat credit could be allowed on the goods and services used for construction of such immovable property which is even otherwise exempted from payment of service tax.

5.9. Thus the above investigation irrefutably established that the Cenvat credit availed by M/s. Adani Petronet was illegal and hence not available to them. Therefore, it appeared that the aforesaid total amount of Cenvat credit of Rs.35,40,60,223/- /- as discussed in Para 3.2 supra, was recoverable from them by invoking the appropriate provisions of the Law.

6. In view of the facts and circumstances as described in the foregoing paras, it appeared that M/s. Adani Petronet had contravened the provisions of Rule 6(1) of the Central Excise Rules, 1994 in as much as they had availed Cenvat credit on inputs, input services and capital goods which were used in the provision of services, i.e. Construction of Port, which is exempted by virtue of Notification No. 25/2007-ST dated 22.05.2007, and at the same time, is in the form of an immovable property which is not leviable to excise duty or service tax.

6.1. As per provisions of Rule 14 of Cenvat Credit Rules, 2004, the provisions of Section 73 and 75 of the Finance Act, 1994 shall apply mutatis mutandis. The proviso to Sub-Section (1) of Section 73 provides that if service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any provisions of the said Finance Act, 1994 or Rules made thereunder, with intent to evade payment of service tax, the service tax shall be demanded by invoking extended period of five years. As discussed in foregoing paras, it appeared that Noticee had wrongly availed Cenvat credit by way of suppression of facts, willful mis-statement, mis-declaration, and contravention of provisions of Cenvat Credit Rules, 2004 with an intent to evade Service Tax. It appeared that they were fully aware of the fact that construction of a port is an exempted service, and hence goods and services used for such exempted service were not eligible for Cenvat credit. They are also fully aware of the aforesaid legal provisions which are discussed by the judicial authorities in another case of the same nature in respect of their own group company. They were fully aware of the fact that the Cenvat credit availed by them were not in respect of the goods or services used in or in relation to the provisions of Port Services for which they hold a Service Tax registration. Therefore, it appeared that the wrongly availed Cenvat credit was recoverable from them by invoking extended period of five years under Rule 14 of Cenvat Credit Rules, 2004 read with proviso to sub-section (1) of Section 73 of Finance Act, 1994. It further appeared that M/s. Adani Petronet was liable to pay interest as per provisions of Rule 14 ibid, read with Section 75 of the Finance Act, 1994 and that Noticee was liable to penalty under Rule 15(3) of Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

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7. Therefore, M/s. Adani Petronet [Dahej] Port Pvt. Ltd., Adani House, Near Mithakhali Circle, Navrangpura, Ahmedabad was issue a show cause notice no. DGCEI/AZU/12(4)335/2010-11 dated 22.11.2010 by Additional Director General, DGCEI, Ahmedabad Zonal Unit, Ahmedabad and answerable to the Commissioner of Service Tax, Ahmedabad as to why:-

(i) Cenvat credit amounting to total Rs. 35,40,60,223/- [Rupees Thirty Five Crores Forty Lakhs Sixty Thousand Two Hundred Twenty Three only] as worked out in the enclosed Annexure-A and summarized in the chart discussed in Para 3.2 supra, should not be recovered from them under Rule 14 of Cenvat Credit Rules, 2004 read with proviso to sub-section (1) of Section 73 of the Finance Act, 1994;

(ii) Appropriate interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 75 of the Finance Act, 1994, should not be charged and recovered from them;

(iii) Penalty under Rule 15(3) of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994, should not be imposed upon them for their acts of omissions and commissions as discussed supra;

DEFENCE REPLY

8. The noticee filed their reply on 14.02.2012, wherein they stated as under:

1. That they are a private port as opposed to a Government port. Tha they

entirely operate the port and its services encompass the entire range of

activities right from the berthing of a ship to the storing of the goods and

subsequent dispatch to customer thereafter in case of imported goods and

vice versa in case of goods meant for export. To illustrate, the activities

carried out by them in the case of import of goods inter alia includes:

a. Co-ordination with the Master of the vessel for berthing

b. Provisions of tugs and the berthing of the vessel / ship

c. Survey of vessel / goods

d. Unloading of goods from the vessel / ship

e. Customs Clearance

f. Unloading and storing of the goods

g. Warehousing (wherever required)

h. Loading of goods on trucks / railway wagons

i. Transportation for final delivery to the customers

2. That unlike a Government run port, they carry out the entire gamut of

activities within the port. They however not itself carry out all of the

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activities mentioned above and has appointed various service providers for

carrying out specific activities such as CHAs, cargo handlers, surveyors,

transporters etc. They utilize the services of these service providers for

effectively discharging its obligations to its customers.

3. They are thus, is in the business of running of the port unlike other non-

private ports and the services utilised by it are consequently input services

which are used by the Noticee for providing its output service i.e. Port

Service.

4. That a port is one of the basic infrastructures necessary for the functioning

of foreign trade. It is a medium / facilitator through which the foreign trade

of India is carried out. Given the sheer volume of the goods that it is

expected to handle, a port is required to be fully equipped with all the

necessary facilities for the smooth movement of goods into and out of

India. This inter alia requires jetties / berths for berthing of ships / vessels,

adequate storage and warehousing facilities and unhindered movement of

men and material within the port.

5. That their port facilities are spread over an area of approximately 70.63

hectares which shows the sheer size of operations of the Noticee. Given

this size, they use various services for the seamless movement of men

and material within the port premises.

6. That during the course of scrutiny of their records, the Department

observed that the Noticee had availed and utilized CENVAT Credit of

Rs.35,40,60,223/- including Education Cess and Secondary and Higher

Education Cess during the period from April 2007 to September, 2010.

7. It was submitted that the Department had issued the present Notice

without application of mind; that the impugned Notice had been issued

seeking to deny the entire amount of CENVAT Credit availed of by the

Noticee during the period April 2007 to September 2010. The impugned

Notice had been issued without considering that they are admittedly

entitled to avail of and utilise credit in respect of certain services which are

not at all in dispute.

13

8. That the impugned Notice was extremely general in nature and does not

outline their alleged liability in respect of each individual service. It is

submitted that the Department had arrived at the total demand of

Rs.35,40,60,223/- raised in the Show Cause Notice, based entirely on the

CENVAT register produced by them. The Department has not set out any

basis, nor assigned any reasons for arriving at this demand. It is submitted

that in terms of settled law, the burden lies on the Department to show that

CENVAT Credit on the input services has been incorrectly availed and that

the same should be reversed.

9. That without prejudice to the above submissions, before making any

submissions in respect of each of the disputed services, it would be useful

to understand the position in law. The relevant provisions of the Credit

Rules are set out hereunder.

10. As per Rule 3(1) of the Credit Rules, an Output Service provider is eligible

to avail Cenvat Credit of Excise duty paid on Inputs and Capital Goods and

Service tax paid on Input Services. The relevant extract of Rule 3(1) of the

Credit Rules is as follows;

(1) A manufacturer or producer of final products or a provider of

taxable service shall be allowed to take credit of –

(i) the duty of excise specified in the First Schedule to the Excise

Tariff Act, leviable under the Excise Act;

(ii) … (v)

(vi) the Education Cess on excisable goods leviable under

section 91 read with section 93 of the Finance (No.2) Act,

2004 (23 of 2004);

(vii) … (ix)

(ix) the service tax leviable under Section 66 of the Finance

Act;

(x) the Education Cess on taxable services leviable under section

91 read with section 95 of the Finance (No.2) Act, 2004 (23 of

2004),

…

14

paid on-

(i) 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; and

(ii) any input service received by the

manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,

(Emphasis supplied)

11. It was submitted that, as per Rule 3(1) of the Credit Rules, Cenvat Credit

can be availed only if the goods qualify as Inputs / Capital Goods and the

services qualify as Input Services. It would be important to understand the

meaning and scope of the terms “Inputs”, “Capital Goods”, and “Input

Service” under the Credit Rules.

12. The term ‘Input’ has been defined under Rule 2(k) of the Credit Rules as

under:

(k) "input" means-

(a) all goods, except light diesel oil, high speed diesel oil and motor

spirit, commonly known as petrol, used in or in relation to the

manufacture of final products whether directly or indirectly and

whether contained in the final product or not and includes

lubricating oils, greases, cutting oils, coolants, accessories of the

final products cleared along with the final product, goods used as

paint, or as packing material, or as fuel, or for generation of

electricity or steam used in or in relation to manufacture of final

products or for any other purpose, within the factory of production;

(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit,

commonly known as petrol and motor vehicles, used for providing any output service.

Explanation 1.- The light diesel oil, high speed diesel oil or motor spirit,

commonly known as petrol, shall not be treated as an input for any

purpose whatsoever.

Explanation 2.- …

(Emphasis supplied)

15

13. That it was submitted that it was clear from a plain reading of the definition

of ‘input’ that, insofar as it relates to provision of services, it covers “all goods” used for providing any output service.

14. The term ‘Capital Goods’ has been defined under Rule 2(a) of the Credit

Rules as under:

(b) "capital goods" means:-

(A) the following goods, namely:-

(i) all goods falling under Chapter 82, Chapter 84, Chapter 85,

Chapter 90, heading No. 68.02 and sub-heading No.

6801.10 of the First Schedule to the Excise Tariff Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified

at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof; and

(vii) storage tank,

used-

(1) in the factory of the manufacturer of the final products, but

does not include any equipment or appliance used in an

office; or

(2) for providing output service.…

(Emphasis supplied)

15. That it was submitted that it was clear from a plain reading of the definition

of ‘capital goods’ that it covers specified goods used for providing any

output service.

16. The term ‘Input Service’ has been defined under Rule 2(l) of the Credit

Rules as under:

“Input Service” means any service:-

a. used by a provider of taxable service for providing an output service; or

16

b. used by the manufacturer, whether directly or indirectly in or in

relation to the manufacture of final products and clearance of final

products from the place of removal.

and includes services used in relation to setting up, modernization,

renovation or repairs of a factory, premises of provider of output

service or an office relating to such factory or premises, advertisement

or sales promotion, market research, storage upto the place of

removal, procurement of inputs, activities relating to business, such

as accounting, auditing, financing, recruitment and quality control,

coaching and training, computer networking, credit rating, share

registry, and security, inward transportation of inputs or capital goods

and outward transportation upto the place of removal.

(Emphasis Supplied)

17. That it was clear from a plain reading of the definition of ‘input service’ that

it covers any service used for providing any output service. It is

submitted that the language of the definition of all the three terms viz.

‘input’, ‘capital goods’ and ‘input service’, insofar as it relates to services is

“used for providing output service”.

18. The Hon’ble Commissioner of Customs and Central Excise (Appeals-I),

Jaipur has had the occasion to deal with Cenvat credit of Service tax paid

on input services in the case of In Re : D.C.M. Shriram Consolidated Ltd. [2006 (4) S.T.R. 610 (Commr. Appl.)] wherein it was held that the

definition of input service not only include services used in manufacture of final products but also services used in post manufacturing activities or activities which are necessary to run day to day business and accordingly allowed the Cenvat credit availed of

Service tax paid on security services used for the security of the assets

and photography services for photographs taken at different occasions /

activities.

19. It was submitted that the definition of “Input Services” as defined under the

Credit Rules is in three parts.

Part I: Service used by the provider for providing Output Services

Part II: Services used by the manufacturer, either directly or indirectly …

Part III: Certain specified services

17

20. That in the present case, to avail the Credit of Service tax, the services

received by them should either be covered by Part I or Part III of the

definition of Input Services. Under Part I of the definition, the services

should be:

1. Used by the provider of taxable services; and

2. Such services should be used for providing an Output Service.

21. In the present case, the services are used by them as a provider of taxable

service. Therefore, the first part of Part I of the definition stands satisfied.

The second condition, which is also the requirement in the definition of

“inputs” and “capital goods”, requires that the services must be used for

providing an output service.

22. The term ‘output service’ is defined in Rule 2(p) of the Credit Rules as

follows:

"output service" means any taxable service provided by the provider of

taxable service, to a customer, client, subscriber, policy holder or any

other person, as the case may be, and the expressions ‘provider’ and

‘provided’ shall be construed accordingly;

23. It was submitted that they are the provider of taxable output services as

the services provided by them inter alia fall under the taxing entry of ‘Port

Services’ as defined under Section 65(82) of the Finance Act, 1994 ‘(the

Act’).

24. Section 65(82) defines “Port Services” as ‘any service rendered by a port

or other port or any person authorised by such port or other port, in any

manner, in relation to a vessel or goods’.

25. Section 65(105)(zzl) of the Act defines taxable services in relation to ‘Other

Port Services’ as “any service provided or to be provided to any person, by

other port or any person authorized by that port, in relation to port services,

in any manner”.

26. It was submitted that the terms used in the definition of taxable services

are ‘in relation to port services’ and ‘in any manner’. It was submitted

that the usage of these phrases in the definition have widened the scope of

18

the taxable service to include any kind of service provided by a port

authority or person authorized by port in relation to vessels or goods. It

follows therefore that any tax paid on the input services which are used to

provide such taxable services would be eligible to be availed as credit by

the said taxable service provider.

27. That the CBEC in its Circular No. F. No. B-II/I/2000-TRU dated

09.07.2001, has clarified the scope of the activities in respect of Port

Services. The relevant extracts of the said Circular are reproduced

hereunder for ready reference:

2. Port services generally consist of port and dock services (these are

for services rendered in relation to vessels), cargo handling and

storage services, railway haulage services, and container handling

services (these are for services rendered in relation to goods). The

Dock Labour Board of the Port provides service of labour for

handling of goods. The port or the person authorised by the port

rendering these services is the service provider.

2.1 Some of the specific charges for the services rendered in

respect of port services are as follows.

(i) Port and dock charges consisting of berthing and

mooring charges, port dues, pilotage and towage, water supply

charges, salvage and diver charges, anchorage fee;

(ii) Cargo handling and storage charges consisting of

wharfage for general cargo, warehousing charges, cranage

charges, ore handling charges, wharfage on petroleum products,

weighment charges for lorries, traffic appliance charges,

weighment charges for goods;

(iii) Labour charges.

2.2 All these charges form part of taxable value of port services.

Demurrage charges are recovered by port authority as a rental for

storage of goods. … For any other charge not mentioned above, the

Commissioner may decide the inclusion/exclusion in the value of

taxable service on merits.

19

28. That it was clear from a plain reading of the said Circular, that the

Government itself recognises the fact that a port carries out a very wide

range of activities. It was submitted that given the wide range of activities

that a port is required to carry out, it also requires a wide range of input

services in order to carry out the activities specified in the said Circular.

29. It was submitted that the definitions of the terms “input”, “capital goods”

and input service” require that the input / capital goods / input services

must be “used for providing output service”. The term ‘used for

providing an output service’ has not been defined. It is submitted that

insofar as service providers are concerned i.e. persons who are engaged

in providing only taxable services, it can be said that they are in the

business of providing taxable service. Reliance in this regard was also

placed on the decision of the Hon’ble Commissioner (Appeals) in the case

of DCM Shriram Ltd. (supra) wherein in the context of the definition of

“input service” it had been held that it includes services which are used to

run the day to day business. It was, therefore, submitted that insofar as

service providers are concerned, the term “used for providing output service” in the definitions of input / capital goods / input service can be

read as “used for the purpose of business”.

30. Reliance was also placed on the decision of the Hon’ble Tribunal in the

case of Victor Gaskets India Ltd. vs. Commissioner of Central Excise, Pune I - [2008 (10) STR 369 (Tri. Mum)], wherein it was held that,

“The illustrative list of activities relating to business in the inclusive

definition of “input service” as reproduced above, consists of

accounting, auditing, financing, recruitment and quality control,

coaching and training, computer, networking, credit rating, share

registry, security. The credit of service tax paid on activities like

coaching and training, credit rating, although not directly or indirectly

related to manufacture of goods, is admissible as input service credit

to a manufacturer of final products as well as to output service

provider treating the same as activities in relation to business. In the

light of the above, I am of the view that the canteen service provided

within the factory premises of the appellants exclusively for the

factory workers is an activity in relation to the business of the

appellants, and hence can be regarded as ‘input service’ within the

ambit of rule 2(l) of the Cenvat Credit Rules, 2004”

20

31. The above decision was approved by the Larger Bench of the Hon’ble

Tribunal in the case of CCE, Mumbai vs. GTC Industries Ltd. - 2008 (12) S.T.R. 468 (Tri. - LB) holding that credit of tax is allowed on taxable

services that go to form part of assessable value for payment of excise

duty. This ratio has also been followed by the Hon’ble Tribunal in

M/s.Dell International Services India Pvt Ltd Vs CCE, Bangalore - 2010 (17) S.T.R. 540 (TRIB)

32. It was submitted that the aforesaid views of the Tribunal have been

affirmed by the Hon’ble High Court in Coca Cola India Pvt. Ltd. Versus Commissioner Of C. Ex., Pune-III, [2009 (242) E.L.T. 168 (Bom.)]

wherein it has been held that

“To illustrate input services used in relation to setting up,

modernization, renovation or repairs of a factory will be allowed as

credit, even if they are assumed as not an activity relating to

business as long as they are associated directly or indirectly in

relation to manufacture of final products and transportation of final

products upto the place of removal.”

33. It was submitted that the Hon’ble Larger bench of the Tribunal had also

considered the availability of CENVAT Credit on input services in ABB Ltd. vs. Commissioner of C. Ex. & S.T., Bangalore, [2009 (15) S.T.R. 23

(Tri. – LB)]. In this respect the Hon’ble Larger Bench has held that the

expression “activities relating to business” covers transportation upto

customer’s place and word “relating” widens scope. Credit is not deniable

by relying on coverage of outward transportation upto place of removal in

inclusive clause, there is no restriction on “activities relating to business”

being related to main or essential activities. All activities relating to

business fall under input service. Input service is not restricted to services

specified after expression “such as” as it is purely illustrative. The above

decision of larger bench has been affirmed by the Hon’ble Karnataka High

Court reported in 2011(23) STR97 (Kar).

34. It was submitted that the term “for the purpose of business” / “used for the

purpose of …” has been held to be a term of wide import. Reliance in this

21

regard was placed on the following decisions of the Hon’ble Supreme

Court:

Commissioner of Income tax Vs. Malyalam Plantation Ltd. (1964) 7 SCR 693The expression “for the purpose of the business” is wider in scope than

the expression “for the purpose of earning profits”. Its range is wide: it

may take not only day to day running of a business but also the

rationalization of its administration and modernization of its machinery;

it may include measure for the preservation of the business and for the

protection of its assets and property from expropriation, coercive

process or assertion of hostilities; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.

(Emphasis supplied)

State of Punjab & Another Vs. British India Corporation Ltd. (1964) 2 SCR 114Dealing with a case pertaining to property tax, the Hon’ble Supreme

Court on the term “Used for the purpose of factory” held that:- “That

the legislature left this undefined is a good indication that the intention

was to have the question decided in any case where controversy arises

over it, on a consideration of the facts of the case. It appears to us to be

reasonable to think, however, that two principles will be of easy

application in the solution of the problem in the majority of cases. One

is that where the building is used for a purpose which the factory law

requires must be fulfilled in order that the factory may function, that will be use for the purpose of a factory. The other is that where the use of the building is such as is necessary for the efficiency of the machines or of the workmen engaged in the factory the building should be held to be used for the purpose of a factory”.

(Emphasis supplied)

Liquidators of Pursa Limited Vs. CIT, Bihar [(1954) 25 ITR 265 at p. 272 (SC)]

22

The words “used for the purpose of business” obviously mean used for

the purpose of enabling the owner to carry on the business and earn profits in the business.

(Emphasis supplied)

35. That in view of the aforesaid decisions of the Hon’ble Supreme Court, it

was submitted by Noticee that if the inputs / capital goods / input services

are used for the purpose of business (of the output service provider), then

the credit of duty / tax paid on such inputs / capital goods / input services

would be available to them. Further, in view of the decision in the case of

British India Corporation Ltd. (supra) what constitutes “used for the

purpose of business” must be decided on the facts of each case.

36. It was submitted that in the present case, they are a port and provides Port

Services, Storage and Warehousing Services and Cargo Handling

Services. It uses various goods / number of services for providing taxable

services i.e. for the purpose of running of its day to day business. That the

submissions in respect of credit of duty / tax paid on certain goods and

services which are under dispute in the proceedings are set out

hereinafter.

CENVAT CREDIT ON CEMENT AND STEEL:

37. It was submitted by Noticee that some of the terms used in the definition of

taxable services of the taxing entry of Port services were ‘in relation to port services’ and ‘in any manner’. It was submitted that the usage of

these phrases in the definition have widened the scope of the taxable

service to include any kind of service provided by port authority or person

authorized by port in relation to vessels or goods in any manner. A port

provides services in relation to import and export cargo and vessel related

services such as loading and unloading, warehousing, repairs of ships,

transportation of goods from jetty to warehouse and vice versa etc. It

therefore follows that, all the activities carried out by port are in relation to vessel or goods and are covered under the taxable services.

23

38. It was submitted that they have used the cement and steel, on which credit

of Excise duty has been taken, in the construction of jetty within the port. It

was submitted that the construction of a new solid cargo port terminal at

Dahej port was being carried out to enable it to expand its business i.e. to

increase its capacity to handle more ships and consequently increase its

business as well as conduct its business in a more efficient manner and to

therefore provide a most efficient output service.

39. The purpose of a construction of a new solid cargo port terminal was to

enable the movement of the cargo from the vessel to the port and vice

versa which was effectively used for the purpose of business i.e. used for

providing output service. It was submitted that without a terminal, they

cannot provide the taxable service of Port Services. In other words,

without a terminal, they would not be in a position to carry on its business.

Therefore, goods and services used for the construction of the terminal,

which is vital to the functioning in a Port, are used for the purpose of

providing output services. Accordingly, cement and steel qualify as ‘Inputs’

used for construction of terminal which is ultimately used for providing

output services.

40. It was submitted that the definition of “Inputs” begins with the words “all

goods” and then goes on to set out certain specific exclusions which are

light diesel oil, high speed diesel oil, motor spirit. It would therefore follow

that besides these exclusions, all other goods would qualify as ‘Inputs’ if

they are used for providing Output Services. In the facts of the present

case, steel and cement are used for construction of the terminal, which are

covered by the term “all goods”.

41. That it was also an admitted position in the impugned Notice that the

cement and steel have been used by them for the purpose of construction

of the terminal. It was submitted that as cement and steel do not fall under

the specific exclusions provided in the definition of Inputs, they were

eligible inputs on which credit of duty can be taken and has been correctly

taken by them. Further, as submitted above, these are used for provision

of Port Services. In view of the above, it was submitted that cement and

steel fall under the definition of Inputs and the duty paid on the same was

eligible for availment of Cenvat Credit.

24

42. They also submitted that the definition of ‘Input Service’ under Rule 2(l) of

the Credit Rules specifically includes services used in relation to setting

up, modernization, renovation or repairs of a factory, premises of provider

of output service or an office relating to such factory or premises. That it

was clear that the intention of the Legislature was to include services in

relation to setting up of factory or office as input service, even though such

services would never be directly used in the manufacture of finished goods

or provision of output services. Taking an analogy from the above, it was

submitted that if services in relation to setting up of factory or office can

form part of ‘Input services’, then cement and steel used in setting up of

jetty(ies) which is an essential and integral part of a port, would clearly fall

under the definition of ‘Inputs’ as defined under the Credit Rules.

43. That the Credit Rules do not specifically provide that credit would not be

available if the inputs used, result in an immovable property. On the

contrary, it is submitted that having regard to the definition of “input

service” which inter alia includes services in relation to setting up and

modernization of a factory or premises of the provider of output service,

which is nothing but immovable property, the credit of duty paid on inputs

cannot be denied on the ground that it results in the creation of immovable

property. It was submitted that so long as the nexus between the inputs

and the provision of output service is established, credit of duty paid on

inputs cannot be denied.

44. That in view of the above, it was submitted by Noticee that the cement and

steel used by them for the purpose of construction of port terminal qualify

as ‘inputs’ and accordingly credit of the Excise duty paid on such inputs

would be available to them and that they have not wrongly claimed the

credit, as alleged in the Show Cause Notice.

CENVAT CREDIT ON CUSTOM HOUSE AGENT CHARGES, & SURVEYORS FEES:

45. That it has been alleged in the SCN that they had wrongly taken Credit of

Service tax for the services provided to the importers by the CHA. It has

been alleged that these CHA services are separately notified services for

the purpose of Service tax and do not fall within the purview of Port

Services. It is further alleged that the imported goods cleared by the CHAs

25

are not related / belong to the tax payer as all the documents such as Bill

of Entries, Bill of Lading, Invoices and other related Import documents are

in the name of the Importer and not the Noticee. Thus, the service

rendered by CHA does not fall within the purview of “Input Service” as per

the Credit Rules.

46. That it has also been alleged that they had wrongly availed the Credit of

Service tax for the services rendered by the Surveyors in respect of survey

/ draft survey of the vessels before and after loading/unloading of cargo as

well as in respect of cargo stored in their storage tanks in their port

premises.

47. In this connection, Noticee submitted that they are registered under Port

Services for providing various port related services. That they invoice to its

customers as per agreed charges which is a lump sum consolidated

charge, which includes charges for all services provided either directly or

through various contractors or service providers including CHA services

and Surveyors services.

48. That they have entered into contracts with individual customers and these

contracts clearly stipulate that it is for clearance, storage, handling of

goods, upto the point of loading of the goods for the dispatch outside the

port. The contract stipulates a lump sum amount for the above services

which inter alia includes various services provided by the Noticee through

various contractors/service agents. Under these contracts, the obligation of

clearance of goods is on the Noticee. These services are rendered by the

Noticee through service agents / contractors like labour contractors, CHA,

Surveyor, handling contractors, transport agents, stevedore etc.

49. As regards CHA, they entered into agreements with its customers for

providing the entire gamut of port services, including CHA services. Since

they are not a CHA itself, it has appointed CHA’s to carry out the activities

in respect of customs formalities. In order to discharge its contractual

obligation, they in turn procure the services of other service providers. The

services from CHA are received by them. The CHA has a privity of

contract with them. The CHA is engaged by them. The essence of the

entire transaction is that they have entered into an agreement for providing

26

a wide range of services. One of the services was sub-contracted by it to

CHA’s for which the CHA had charged Service tax on the gross amount

charged by it to the client viz. them.

50. The relevant extracts of one such contract between themselves and Aditya

Marine Limited dated 12.10.2009, which was attached hereto as

Annexure B, is as follows:

“Scope of Work:

CLEARANCE of 1st DIESEL PILE HAMMER DELMAG VIDE B/E NO.

140411 DTD 25.08.09, INVOICE NO. 206 DTD 25.09.2009 AND DEBIT

NOTE NO. 275 DTD 25.09.09

….”

51. That they have entered into similar contracts with other CHA’s also

wherein it was clearly stipulated that the CHA’s are appointed for the

clearance of the Import and Export consignments of their clients.

52. The relevant extracts of the contract between themselves and one of its

customers i.e. Sai Siddhi Shipping for Customs Clearance, and attached

hereto as Annexure C, are reproduced hereunder for ready reference:

“Scope of Work

CUSTOMS CLEARANCE OF HYDRAULIC SYSTEM IMPORTED ON HSS

BASIS FROM FLSMIDTH MINERALS PVT. LTD. CHENNAI – 603103

FOR DAHEJ PROJECT VIDE BILL OF ENTRY NO. 869603 DTD.

10.11.2008, CUSTOMS DUTY: 7800703, THRU OUR CHA SAI SIDDHI

SHIPPING – MUMBAI, BILL NO. IMP/55/A DTD. 26.11.2008, RS.

91738.43 & IMP/55/B DTD. 26.11.2008 RS 2,05,000.00

…..”

53. It was submitted that they enter into similar kind of agreements with

various other customers for the clearance of goods at an all inclusive rate

which inter alia includes charges towards customs clearance. They

thereafter appoints CHAs for the purpose of clearance of the goods for its

customers.

54. It was submitted that the CHA Services was one of the services which was

required to be used by them for effectively carrying out its activities i.e. it is

27

necessary to run its day-to-day business. It was submitted that CHA

Services are services without which the goods cannot be cleared from the

Port area for home consumption or otherwise. Their responsibility inter

alia includes clearing of the goods from customs, storing the same if

required and dispatching the same to the customers (in case of import of

goods). In the absence of a CHA, they cannot provide the services of

clearing of goods for import and export, as they are not qualified and

authorised to do so. Therefore, it was submitted that CHA Services are

services which were essential and required by them for providing output

services and therefore qualify as an input service.

55. That the CHA raise their invoices on Noticee for the services rendered by

them (which essentially are in relation to goods and / or vessels within the

Port). The payments for such invoices are made by them and

subsequently they recover the same from its customers, on a lump sum

basis including Service tax on the lump sum amount. The Service tax

collected by them from its various customers is paid to the Department.

56. It was submitted that in their own case, they have succeeded before the

Hon’ble Tribunal, insofar as the question of availment of CENVAT Credit

on service tax paid for the services of CHAs and Surveyors is concerned.

[M/S Mundra Port & Special Economic Zone Ltd Vs CCE, Rajkot [ 2009

(13) S.T.R. 178]

57. It was submitted that since the services of the CHA qualify as “input

service”, the Cenvat credit of the Service tax paid on the said services

would be available to them and the same has been rightly availed by them.

CENVAT CREDIT ON RENT-A-CAB SERVICES:

58. That it has been alleged in the impugned Notice that they have wrongly

availed the Credit of Service tax paid to the Rent-a-Cab operators, who are

operating within the Port area and to the nearby cities as well as from the

port colony to the port for transporting of persons/employees/workers. It

has been alleged that Rent-a-Cab service has no relationship in respect of

“Input Service” as this was a facility given to their persons.

28

59. The invoices raised by them and the Rent-a-cab operator clearly states

that the vehicles would be plying within the Customs area and the Rent-a-

cab operator accordingly will observe the rules and regulations of

operating within the Customs area.

The copy of some invoices raised to Rent-a-cab Operators is attached

hereto and marked Annexure D.

60. It was submitted that the Rent-a-cab services are used by them mostly

within the Port premises and the extended infrastructure backup area. It is

submitted that in order to understand the need for Rent-a-Cab Services by

them, it would be useful to understand their setup and the operations.

61. That their premises were spread across an area of 70.63 hectares which

comprises of the berthing area, roads, storage, administrative building of

the Noticee, Customs offices and canteen etc. It was submitted that all the

space which houses the aforesaid facilities are spread over the length and

breadth of their premises. In order to ensure seamless and timely

movement of men and material required for the import and export of

goods, they use rent-a-cab services for commuting within the port area.

62. To illustrate, their administrative building was at a distance of

approximately 5 kms from the berthing area. Therefore, in order to

commute the distance, they use the services of Rent-a-cab operators. In

the absence of the Rent-a-cab services, the business would virtually come

to a standstill as it would result in inordinate delays in the movement of

goods for import / export of goods.

63. Further, it was submitted that foreign trade requires compliance with

various formalities including documentation, approvals from the

Government etc. It was submitted that a large number of such Government

offices were located outside their premises. Such offices were located upto

75 kms from their premises. They use Rent-a-cab services for commuting

distances to and from such Government offices, which in turn are directly

related to vessels and / or the import / export of goods. It was submitted

that without sufficient mobility of people, they would not be in a position to

timely and effectively discharge its obligations.

29

64. That it was an admitted position in the impugned Notice that the Rent-a-

cab services were used by them for transport of

employees/workers/persons within the port area and for transport to

nearby cities for statutory / regulatory compliances.

65. It was submitted that it has been held by the Hon’ble Tribunal in

Commissioner Of C. Ex., Nasik vs. Cable Corporation Of India Ltd.,

[2008 (12) S.T.R. 598 (Tri. - Mumbai)] that Rent-a-cab service is to be

considered as being used indirectly in relation to manufacture or as part of

business activity for promoting business as any facility given to employees

will result in greater efficiency and promotion of business and has thereby

allowed the availment of CENVAT Credit of service tax paid on the same.

66. It was submitted that the availment of CENVAT Credit has also been

similarly allowed by the Hon’ble Tribunal in the Noticee’s own case in M/S Mundra Port & Special Economic Zone Ltd Vs CCE, Rajkot (Supra)

and that the said order of the Hon’ble Tribunal has not been appealed by

the Department and has therefore attained finality.

67. In view of the above, it was submitted that Rent-a-cab services are

necessary to run the day-to-day business and are used by them for

providing output service. It was therefore submitted that Rent-a-cab

Services used by them qualify as an input service and accordingly the

Cenvat credit of Service tax paid on such services would be available to

them.

CENVAT CREDIT ON MOBILE PHONES:

68. That the impugned Notice has purported to rely on CBEC Circular No. 59/8/2003 dated 26.06.2003 (‘said Circular’), wherein it has been clarified

that credit in respect of Service tax paid on mobile phones would not be

available. The relevant extract of the said Circular is reproduced hereunder

for ready reference:

2.8 Credit Of Service Tax Paid On Telephones:

In regard to credit of service tax on telephone connection, queries

have been raised as to whether service tax credit would be admissible

on telephone sets installed only in the business premises. The answer

30

is in the affirmative, and credit will be allowed only on telephone sets

installed in the business premises. Mobile phones are not covered.

69. It was submitted that the said Circular was issued at the time when the

Service Tax Credit Rules, 2002 were in force which specifically provided

for availability of Credit on telephones installed at the site. The relevant

extract of the erstwhile Rule is as under:

“Rule 3(6) Service tax credit on the service provided in relation to

telephone connection shall be allowed only in respect of such

telephone connections which are installed in the premises from

where output service is provided.”

70. It was submitted that Rule 3(6) of the Service Tax Credit Rules 2002, was

now superseded by the Credit Rules. The newly introduced Credit Rules

do not contain any such provisions to restrict the Credit only to telephones

installed at offices. The Credit Rules provides for credit of Service tax paid

on all Input Services.

71. It was submitted that Mobile service was used for the purpose of day-to-

day business activities. It will be appreciated that without communication, it

was not possible to conduct any business. Thus, mobile phones used for

business purpose will form part of Input Services under the Credit Rules.

72. In addition to the above, it was submitted by Noticee that Rule 16(1) of the

Credit Rules specifically provides that Circulars issued prior to introduction

of the Credit Rules would be applicable, only if it is relevant under the new

Credit Rules. The relevant extract of Rule 16(1) of the Credit Rules is as

under:

“Any notification, circular, instruction, standing order, trade notice

or other order issued under the CENVAT Credit Rules, 2002 or

the Service Tax Credit Rules, 2002, by the Central Government,

the Central Board of Excise and Customs, the Chief

Commissioner of Central Excise or the Commissioner of Central

Excise, and in force at the commencement of these rules, shall,

to the extent it is relevant and consistent with these rules, be

deemed to be valid and issued under the corresponding

provisions of these rules.”

31

Thus, based on supplementary provision under Rule 16(1), it was

submitted that the said Circular was not relevant after the introduction of

the Credit Rules and clearly inapplicable and the purported reliance on the

same in the Show Cause Notice is erroneous.

73. Further, it was submitted that the issue was no longer res integra as the

Hon'ble Tribunal in the case of Indian Rayon Ltd. Vs. CCE, Bhavnagar [2006 (4) S.T.R. 79 (Tri.)] had specifically held that credit of Service tax

paid on mobile phones would be available as there is no bar under the

Credit Rules for availing the same. The relevant extracts of the said

decision is reproduced hereunder for ready reference:

3. The old Circular dated 20-6-2003 on which sole reliance has been placed by the lower appellate authority for denying the credit of Service Tax paid by the appellants was relevant under the old Service Tax Credit Rules, 2002 which required specifically the telephones to be installed in the premises of the Service Provider to be eligible for such credit. There is no such stipulation in the new Cenvat Credit Rules, 2004 and hence the old Circular cannot be pressed into service against the appellants. Moreover, the lower appellate authority was required to

decide the appeal strictly in terms of the legal provisions in force at

the material time, which in this case is December, 2004 to February,

2005, during which the Cenvat Credit Rules, 2004 were applicable.

4. I find that Rule 4(1) of the Cenvat Credit Rules, 2004 states that credit in respect of inputs may be taken on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service. But no such stipulation regarding receipt of input service, which is separately defined under the Rules, is provided. Sub-Rule (7) of Rule 4 of the Cenvat Credit Rules, 2004 merely provides that Cenvat credit in respect of inputs service shall be allowed on or after the date on which payment is made for the value of input service and the service tax paid or payable is indicated in the invoices, bills or challans. I do not find anywhere in the Rules any provision disallowing credit of service tax paid on mobile phones, which in any case is fast replacing fixed line phones in many establishments.

32

5. In the absence of any express prohibition, under the new Cenvat Credit Rules, 2004, I am of the view that Service Tax paid on Mobile Phone is available as credit to eligible Service providers of output service and manufacturers. Accordingly, the

impugned order is set aside and the appeal is allowed with

consequential benefit to the appellants.

(Emphasis supplied)

74. Reliance in this regard was also placed on the decision of the Hon’ble

Tribunal in the case of Excel Crop Care Ltd. Vs. CCE, Ahmedabad [2007 (7) STR 451 (Tri.–Ahmd.)] and Rajasthan Textile Mills Vs. CCE, Jaipur [2007 (7) STR 400 (Tri.–Del.)] wherein on similar facts, it was held

that Cenvat credit on mobile phones would be available to the assessee.

Similarly CENVAT Credit on service tax paid on mobile phones has been

allowed in the Noticee’s own case by the Hon’ble Tribunal in M/S Mundra Port & Special Economic Zone Ltd Vs CCE, Rajkot, (Supra).

WITHOUT PREJUDICE:

75. However, for the sake of good record and to put matters beyond doubt, but

without prejudice to the above, they wish to clarify that services inter alia

include Consulting Engineer Services, Maintenance and Repair Services,

Security Services, Construction Services, Banking Services, etc. are all

business related services and therefore ought not to be included in the

impugned Notice. Therefore, in view of the submissions above, they have

correctly availed of CENVAT Credit and the impugned Notice ought to be

withdrawn / set aside.

CENVAT CREDIT ON VARIOUS INPUTS/CAPITAL GOODS SUCH AS PAINT, PLASTIC SHEETS, GREASE, CABLE, FAN, ENGINE OIL, FURNACE OIL, ROPE WIRE, UPS, BITUMEN, TRANSFORMER, MS PIPE, PIPES, AIR COMPRESSOR, HDPE PIPES, ELECTRIC ITEMS, TRUCKS, EXCAVATOR, FILTERS, CRANES, GENERATOR, PUMP, FORKLIFTS, TRACTORS, JOURNAL PURCHASES ETC.

76. That it has been alleged in the impugned Notice that the aforesaid items

were not “inputs” and therefore credit of the duty paid on the same would

not be available to them.

33

77. It was submitted that the impugned Notice does not set out the reasons for

seeking to disallow the credit on the aforesaid items and was therefore bad

in law and deserved to be set aside.

78. That without prejudice to the above, it was submitted that the aforesaid

goods were ultimately used for providing output services viz. Port Service,

Storage and Warehousing Service and Cargo Handling Service by them

and therefore qualify as inputs. Accordingly, credit of duty paid on the

aforesaid goods would be available to them and they have rightly availed

the credit.

79. That the aforesaid goods and their use as inputs are described in detail

hereinbelow :

a. They use paint for maintenance of the tug, excavator, crane, tank

farm, liquid pipeline as erosion coatings on the said equipments.

Similarly, grease is used in order to maintain the equipments used

for handling of cargo. Engine oil is also used in order for the said

equipments to function.

b. The plastic sheets are used as inputs for covering bulk cargo lying

in the open area/godown eg. wheat, fertiliser, sugar etc. and for

covering open wagons of bulk fertilizer.

c. Furnace oil is used by the Noticee in Hotmix & Bitumen burner

which are used at the port. Bitumen is used in the Noticee’s open

godown facility (cargo storage in open godown) and internal Road in

port area.

d. Cables are purchased and used for bagging machine, power

transmission and electrical tower in the open area. The

transformer is used in mining equipments.

e. Rope wire is used by the Noticee in Cranes for lifting of Grab. Grab

is used for bulk coal and scrap cargo loading and unloading.

Electric items are used at the tank farm, backup yard, godown, etc.

f. The UPS is used for supply of electricity constantly at weighbridges,

port offices etc.

34

g. MS Pipes are used in tug berth, container terminal and pipes are

used for the open stack yard at the port.

h. Trucks are used for movement of project materials from one place

to another place. Excavators are used for loading and unloading of

sugars and fertilizers. Cranes are used in Port operations i.e. bulk

cargo loading and unloading.

i. Generators, pump and tractors are used in dredging activities at

the port.

CENVAT CREDIT ON SERVICES SUCH AS CARGO HANDLING, CLEARING & FORWARDING, BUSINESS AUXILIARY SERVICE, ERECTION, COMMISIONING OR INSTALLATION SERVICE, MANPOWER RECRUITMENT & SUPPLY, TECHINICAL TESTING & ANALYSIS SERVICE, CONSTRUCTION SERVICE, etc.

80. That it has been alleged in the impugned Notice that the aforesaid services

are not “input service” and therefore credit of the tax paid would not be

available to them.

81. It was submitted that the impugned Notice does not set out the reasons for

seeking to disallow the credit on the aforesaid services and is therefore

bad in law and deserves to be set aside.

82. Without prejudice to the above, it was submitted that the aforesaid services

were ultimately used for providing output service under clause (i) of Rule

2(l). They are required for the day to day running of the business of the

Noticee of providing support services. Apart therefrom, the third part of the

definition of “Input service” specifically provides for activities relating to

business and thereafter specifies certain activities. Since the term used is

“activities relating to business such as…” it implies that it is an illustrative

list and all activities that are legitimately used for business would qualify as

an input service.

83. Cargo Handling and Clearing & Forwarding Services stand on a footing

identical to the services of Customs House Agents and Surveyors

rendered to the port in order for the port to function in a smooth manner.

35

Contracts similar to those entered into for the service of Customs House

Agent have been entered into for the above services also. It was submitted

that the aforesaid services were used for providing output service and

therefore they were entitled to credit in respect of the same.

84. That the said contract entered into for Clearing & Forwarding and Cargo

Handling makes it very clear that the services are received solely for the

use of the port. The payments for the said services are made by them to

the service provider directly. Annexed hereto and marked Annexure E was a copy of a sample contract between themselves and the Cargo

Handling & Clearing & Forwarding Agents. The relevant extracts from the

sample contract with M/s Khwaja Travels services is as follows:

“Annexure I – Scope of work/remuneration:

A. Scope of Work:

1. Transportation of coal from jetty to back-up storage yard.

B. Remuneration:1. Transportation of coal from Jetty to Stack Yard : Rs. 22.00 PMT2. Loading of Coal for Road Dispatch : Rs. 07.50 PMT”

85. It was submitted that the availment of CENVAT Credit on service tax paid

on Clearing & Forwarding Services has been allowed by the Hon’ble

Tribunal in Metro Shoes Pvt. Ltd. Versus Commissioner Of Central Excise, Mumbai-I, [2008 (10) S.T.R. 382 (Tri. - Mumbai)].

86. That they submit that services like handling of coal are also rendered to

the port as the port would be completely unable to function if these

services were not so rendered. The service so rendered, was therefore,

related to the output service. These services are paid for by them and

there is Privity of Contract between themselves and the handlers.

Therefore, the service tax paid by them was available to them as Credit.

Hereto annexed and marked Annexure F was a copy of a sample contract

between themselves and the Coal Handler. The relevant extracts from the

sample contract with M/s SeaStem Limited is as follows:

“Annexure I –

Scope of work:

The contractor shall arrange to deploy all the necessary equipments on

board, coal stack yard to discharge cargo from ship, stack the cargo at the

36

plot under supervision of any inspection agency appointed by the

clients/APPPL’s representative and will subsequently load into

trucks/dumpers in order to effect delivery either by rail or road. Therefore

the scope of work includes but is not limited to the following jobs.

D. BY ROAD DISPATCFH LOADING The contractor shall deploy necessary equipments for loading of

trucks/dumpers for by-road dispatch from Coal Stack Yard as and when

the trucks/dumpers of the customer arrive at the port. The contractor shall

complete the loading activity as per the instructions of operations

personnel and within specified time limit.”

87. That they also uses the services of various agencies for the jobs of soil

investigation in the port area in order that machinery can be installed at the

port so that the Noticee can perform the functions required of a port. In the

case of soil testing, the contractors provide the machines and carry out the

surveys required by them in order to ensure that the jetty may be built in a

specific location. The contractor is then compensated by them as per the

contract. Hereto annexed and marked Annexure G is a copy of one such

contract. The relevant extracts from the sample contract with M/s Geo

Tech Soil Testing Laboratory is as follows:

“Scope of work: Soil Investigation for Pile Foundation for Adani Petronet

(Dahej) Port Pvt. Ltd. at Dahej

Special Terms & Conditions:

1.0 SCOPE AND NATURE OF WORK

1.01 The Contractor shall carry out the Soil Investigation for Pile

Foundation for Adani Petronet (Dahej) Port Pvt. Ltd. at Dahej as

mentioned in Annexure –I at Dahej, with all necessary

machineries, equipment, tools and tackles, labour, etc. with skill

and diligence without causing any harm to the property of Owner.

The Contractor shall mobilize the necessary trained manpower

for the execution of the works and as directed by the Engineer-in-

Charge and complete the works directed by the

Site-in-Charge/Engineer-in-Charge on issuance of the Work

37

Order or handing over of clear site by Owner whichever is

earlier.”

88. That they also receive the services of contractors who maintain the

machinery installed at the port. The smooth functioning of the machinery

is integral to the functioning of the port. They take credit of the service tax

paid for the services of the said technicians received at the port. Hereto

annexed and marked Annexure H was a sample copy of one such

contract. The detailed service item description of the contract provides the

work scope of Tata Projects Limited as “Inspection, Witnessing, Test and

Certification of Material & Equipments on Man-day basis (8 hours per

day)”.

89. Noticee submitted that any equipment hired by them are for use in the port

and form part of the final output service provided by them. Credit claimed

on business auxiliary service of equipment hiring was therefore available to

them. Hereto annexed and marked Annexure I is a copy of one such

contract. The detailed service item description of the contract provides the

work scope of Shethia Erectors and Material Handlers Ltd. as “Hire

charges for 400MT crane for Mobilization and installation in position

required plant and equipment as hydraulic/mechanical rig etc necessary

for bored cast in situ piling work”.

90. That they crave leave to produce further documents showing the true

nature of all services listed hereinabove on which the Department seeks to

deny credit that has been correctly taken by them.

91. It was submitted that the aforesaid services were used for the purpose of

business and therefore qualify as an input service. Accordingly, credit of

Service tax paid on the aforesaid services would be available to them and

they have rightly availed the credit.

ISSUE NO LONGER RES INTEGRA - STANDS DECIDED IN NOTICEE’S OWN CASE:

92. Without prejudice to the above, it was submitted that insofar as the Cenvat

credit in respect of Mobile phones, CHA Fees, Surveyors Fees and Rent-

a-cab Services, Professional Fees and Air conditioners are concerned, the

issue stands decided in favour of them vide Order

38

No.A/2122/WZB/AHD/08 dated 8th May 2008 / 30th September 2008

reported in 2009 (13) STR 178, passed by the Hon’ble Tribunal wherein

after considering the factual and legal submissions made by them, the

Hon’ble Tribunal held that the aforesaid services qualify as input services

and accordingly, the Cenvat credit of Service tax would be available to

them.

93. It was submitted that the said Order of the Hon’ble Tribunal is an Order

which is inter se between the parties involved and consequently was

binding on both the sides, especially as the same has attained finality in

respect of the said issues. Consequently, the demand in respect of

Cenvat credit on Mobile phones, CHA Fees, Surveyors Fees; Rent-a-cab

Services, Professional Fees and Air conditioners deserves to be set aside

on this ground alone.

INTEREST:

94. For reasons stated hereinabove, since no tax is payable by them, interest

under Section 75 also cannot be recovered from them.

PENALTY:

95. It was submitted that it was their bona fide belief that they were eligible to

take credit of Excise duty and Service tax paid on inputs / capital goods

and input services and that the issue involved in the present case relates

to interpretation of statutory provisions and in the absence of any

contemptuous conduct or deliberate defiance on the part of the Noticee, no

penalty under Section 76 or Section 77 of Section 78 was called for or

warranted in the facts and circumstances of the case.

96. That the Hon’ble Tribunal in the following cases has held that no penalty

ought to be imposed where the Service tax is not paid or registration not

obtained or returns not filed on account of bona fide belief:

a) Star Neon Singh Vs. Commissioner [2002 (141) ELT 770 (Tri-

Del.)]

b) Flyingman Air Courier Pvt. Ltd. Vs. CCE, Jaipur [2004 (170) ELT

417 (Tri-Del.)]

39

c) ETA Engineering Ltd. Vs. Commissioner [2004 (174) ELT 19 (Tri-

LB)]

97. It was submitted that the present issue has arisen due to a disputed

interpretation of the law and not due to malafide intention to evade tax and

therefore no penalty can be imposed in the present case.

98. It was submitted that it has been held by the Hon’ble Tribunal in Wiptech Peripherals Pvt. Ltd. vs. Commissioner Of Central Excise, Rajkot, [2008 (12) S.T.R. 716 (Tri. - Ahmd.] that there is no justification to impose

a penalty where the matter was of an interpretational nature.

99. That it has been similarly held by the Hon’ble Tribunal in Sanghi Industries Ltd. vs. Commissioner Of Central Excise, Rajkot, [2008 (12)

S.T.R. 495 (Tri. - Ahmd.)]; Metro Shoes Pvt. Ltd. Versus Commissioner Of Central Excise, Mumbai-I [Supra] and A.G. Shibu Versus Commissioner Of Cus., C. Ex. & S.T., Cochin, [2008 (10) S.T.R. 317

(Tri. - Bang.)] and the ratio of all the above decisions is applicable and

binding, insofar as the aspect of imposition of penalty is concerned.

100. That it was further submitted that, in any event, once penalty was imposed

under Section 76 of the Act, no penalty can be imposed under Section 78

of the Act since failure to pay tax cannot once again be subjected to

penalty under Section 78 of the Act which is specifically in respect of

penalty for intention to evade payment of service tax or suppression or

concealment of the value of taxable services or for furnishing inaccurate

value of services.

101. Further, under Section 78 of the Act, penalty was imposable only if the

assessee has intended to evade payment of Service tax by way of fraud,

collusion, willful mis-statement or suppression of facts. In the present case,

there was no suppression of facts by them inasmuch as they were served

with a Show Cause Notice dated 13th April, 2007, 14th October 2008 and

21st April, 2009 on identical issues in respect of a prior period. It is a settled

legal position that where subsequent show cause notices are issued to an

assessee when the Authorities had all the relevant knowledge at the time

of issue of first show cause notice on same / similar set of facts, then there

40

is no suppression of facts by them and consequently the abovementioned

penalty is not imposable. The relevant extracts of the said decisions are

reproduced hereunder:

Nizam Sugar Factory Vs. CCE, AP [2006 (197) E.L.T. 465 (S.C.)]9. Allegation of suppression of facts against the appellant cannot be

sustained. When the first SCN was issued all the relevant facts were

in the knowledge of the authorities. Later on, while issuing the

second and third show cause notices the same/similar facts could

not be taken as suppression of facts on the part of the assessee as

these facts were already in the knowledge of the authorities. We

agree with the view taken in the aforesaid judgments and

respectfully following the same, hold that there was no suppression

of facts on the part of the assessee/appellant.

ECE Industries Ltd. Vs. CCE, Delhi [2004 (164) E.L.T. 236 (S.C.)]5. In our view, the principles laid down in above case fully apply

here. As earlier proceedings in respect of same subject matter were

pending adjudication it could not be said that there was any

suppression and the extended period under Section 11A was not

available.

6. To this extent the impugned judgment requires to be and is set

aside. Ordered accordingly.

7. It must also be mentioned that as there is no suppression, penalty

cannot be imposed.

(Emphasis supplied)

Devans Modern Breweries Ltd. Vs. CCE, Chandigarh [2006 (202) E.L.T. 744 (SC)]

10. So far as point of penalty is concerned, Section 11AC of the Act

reads as follows:

“11AC. Penalty for short-levy or non-levy of duty in certain cases’ — Where any duty of excise has not been

levied or paid or has been short-levied or short-paid or

erroneously refunded by reasons of fraud, collusion or any

wilful mis-statement or suppression of facts, or contravention

41

of any of the provisions of this Act or of the rules made

thereunder with intent to evade payment of duty, the person

who is liable to pay duty as determined under sub-section (2)

of Section 11A, shall also be liable to pay a penalty equal to

the duty so determined.”

11. A bare reading of the above section shows that penalty can be

levied only if the excise duty has not been levied or paid or has been

short-levied or short-paid or erroneously refunded by reasons of

fraud, collusion or any wilful misstatement or suppression of facts or

contravention of any of the provisions of the Act or the rules made

thereunder with intent to evade payment of duty.

12. This Court in the case of Collector of Central Excise v. H.M.M.

Limited reported in 1995 (76) E.L.T. 497 (S.C.) also held that the

limitation for extended period is not invokable unless show cause

notice puts assessee to notice specifically as to which of the various

commissions or omissions stated in the proviso to Section 11A(1) of

the Act had been committed. In para 2, this Court observed as

follows:

“...Therefore, in order to attract the proviso to Section 11A(1) it

must be alleged in the show cause notice that the duty of

excise had not been levied or paid by reason of fraud,

collusion or wilful mis-statement or suppression of fact on the

part of the assessee or by reason of contravention of any of

the provisions of the Act or of the Rules made thereunder with

intent to evade payment of duties by such person or his agent.

There is no such averment to be found in the show cause

notice. There is no averment that the duty of excise had been

intentionally evaded or that fraud or collusion had been

noticed or that the assessee was guilty of willful mis-statement

or suppression of fact. In the absence of such averments in

the show cause notice it is difficult to understand how the

Revenue could sustain the notice under the proviso to Section

11A(1) of the Act….”

13. Having gone through the show cause notices, we do not find that

assessee was put to notice as to which of the various commissions

or omissions stated in the proviso to Section 11A(1) of the Act had

42

been committed by it and only general show cause notices were

issued.

14. In view of the foregoing reasons, we accept these appeals on

the points of limitation and penalty;…”

(Emphasis supplied)

102. That in view of the settled legal position as set out above, it was submitted

that there was no suppression of facts by them and consequently Section

78 (which is pari materia to Section 11A of the Central Excise Act, 1944)

was not invocable. Since Section 78 of the Act was not invocable in the

present case, there was no question of imposition of any penalty under

Section 78 of the Act on the Noticee.

103. In view of the above submissions, they requested that the SCN be

withdrawn / dropped.

104. Further, they submitted that one of their group company namely M/s. Adani

Port & SEZ Ltd. had filed an Appeal before the Hon’ble Gujarat High Court

vide Appeal No. 3876 dated 05.12.2008 against the Order No.

A/2122/WZB/AHD/08 dated 8th May 2008 / 30th September 2008 passed by

the Customs, Excise and Service Tax Appellate Tribunal; Ahmedabad

(“the Tribunal) to the extent the Tribunal has disallowed Cenvat credit of

Excise duty paid on cement and steel used in construction of the jetty and

the port terminal for utilization towards payment of Service tax by the

Noticee under the taxable service of “Port services”. Since the matter was

already pending before the Hon’ble High Court, they prayed that the

adjudication of present SCN be kept in abeyance, till the issues in dispute

are finally decided by the Hon’ble High Court and added that adjudication

of the present Show Cause Notice may result in multiplicity of proceedings

and must be avoided. Further, no prejudice whatsoever will be caused to

the Department, if the matter is kept in abeyance, pending the outcome of

the proceedings before the Hon’ble Gujarat High Court.

105. That they wished to be heard in person. Notice of such hearing may kindly

be sent sufficiently in advance to enable them to appear and make their

submissions.

43

PERSONAL HEARING :

106. The noticee was granted a personal hearing on 17.01.2012,

wherein they were represented by Ms. Richa Gandhi, ACA. In the hearing

she asked for some more time to prepare a summary of cenvat credit

availed itemwise and also to prepare the arguments accordingly. The next

date of hearing was fixed on 15.02.2012. On 15.02.2012, Shri Hardik

Modh, Advocate and Ms. Richa Gandhi presented themselves wherein

they requested for some more time. Accordingly, the next hearing was

granted on 28.02.2012. On 28.02.2012, Shri Hardik Modh, Advocate for

the noticee, charts giving reconciliation & details of Cenvat Credit availed

on inputs, input services and capital goods. He further requested that the

adjudication of the case be kept in abeyance, the reason being that in

identical case of MPSEZ, both the department as well as the assessee are

in appeal before the Supreme Court and the Gujarat High Court. The

department’s appeal in pending in SC in respect of cenvat credit on input

services and capital goods , which has been allowed by the CESTAT and

the High Court. The assessee was in appeal before the High Court against

order of the CESTAT denying the Cenvat credit on inputs. He submitted

the copy of the order by the CESTAT and HC in that case. He further

submitted that in case their request for keeping the case pending was not

considered, one opportunity of P.H. be given to them.

106.1 In the next hearing on 5.02.2013, after the change in adjudicating

authority, Shri Modh and Ms. Richa Gandhi reiterated the submissions to

the undersigned, made in their reply dated 14.02.2012 and gave further

written submission seeking adjournment for a month in view of similar

matter in case of M/s MPSEZ which was listed on 16th Jan 2013 and which

was likely to come up before the Hon’ble High Court in a short time. They

gave case laws in their favour. The noticee was granted another hearing

on 30.08.2013, which was attended by Shri Hardik P Modh, Advocate

alongwith Shri Nirav H Patel, Shri Piyush B Gandhi, Shri Bharat R Dixit

and Shri Haresh Bhava. They reiterated the submissions made in their

written reply. Further they gave a compilation of case laws in their favour

and requested to decide the case based on the same.

DISCUSSIONS AND FINDINGS

44

107. I have carefully gone through the show cause notice, the defence reply,

the records available and the discussions with the noticee at the time of

personal hearing.

108. On going through the SCN, I find that the noticee has availed Cenvat

credit on (i) inputs, (ii) input services and (iii) Capital goods. The subject SCN

proposes to deny the Cenvat Credit availed, on above, on the grounds that they

do not fall under the category of inputs, input services and capital goods for the

provision of output services namely ‘Port Services’ but used in the construction of

Port , which is an exempted service.

109. I find that the noticee has contended in their defence that the Cement &

Steel as well as the input services such as CHA Services, Rent-a-cab services,

Mobile phones, Cargo Handling, Clearing & Forwarding Services, Business

Auxiliary Services, Erection , Commissioning and Installation Services,

Manpower Recruitment, Supply, Technical Testing & Analysis Services, and

various inputs and capital goods such as Paint, Plastic sheets, Grease, Cable,

Fan, Engine Oil, Furnace Oil, Rope Wire, UPS, Bitumen, Transformers, MS

Pipes, Pipes, Air compressor, HDPE Pipes, Electric Items, Trucks, Excavators,

Filters, Cranes, Generator, Pumps, Forklifts, Tractors, Journal Purchases etc., on

which cenvat credit has been availed, have been used for the purpose of

business i.e for providing output services and therefore would fall under the

purview of ‘PORT SERVICES’, and thus cenvat credit is admissible.

110. In view of the above arguments put forth by the noticee, I proceed to

analyze the facts of the case, as under:

(a) The construction of the jetties at the Dahej Port started from

January 2007 onwards, as also admitted by Shri Anish Shah,

Associate Manager of M/s. Adani Petronet of noticee and

confirmed by Shri Manoj Chanduka, Associate Vice President of

M/s. Adani Petronet, in their statements dated 21.10.2010. A Sub

Concession Agreement for construction of Dahej Port for

developing Solid Cargo Terminal was signed between Noticee

and Gujarat Maritime Board on January 03, 2007.

(b) Shri Anish Shah, Associate Manager and Shri Manoj Chanduka,

Associate Vice President admitted in their statements dated

21.10.2010, that the inputs, the input services and the capital

45

goods have been used for and in relation to the construction of

the Port.

(c) The noticee awarded the contracts to a firm/company, who in turn

carried out the project/work and raised invoices (inclusive of

payment of Excise duty or Service Tax, as the case may be ), on

the noticee, who then availed the cenvat credit. Therefore, the

Cenvat credit has not been availed by the noticee on the so

called input, input services or capital goods, but on the invoices

issued by the contractors appointed by them for carrying out the

construction of port and it is obvious that these contractors had

issued invoices for recovery of amounts from the said noticee for

construction work. Hence, the Cenvat credit has been taken by

the noticee on the construction services provided to them by

these contractors.

111. Thus, the basic issue to be decided in the present case is whether the Cenvat credit is admissible on:

(i) Steel and Cement as “inputs”,

(ii) Inputs- Excise Duty /Capital Goods

(iii) Input services such as

(a) CHA Services,

(b) Rent-a-cab

(c) Mobile phone/telephone

(d) Surveyor service

(iv) Other Input Services such as (a) Cargo Handling, (b) Clearing & Forwarding Services, (c) Business Auxiliary Services, Erection (d) Commissioning and Installation Services, (e) Manpower Recruitment, Supply, (f)Technical Testing & Analysis Services etc.

112. Cenvat Credit availed on Cement & Steel as “Inputs” .

112.1 The noticee has submitted that :

- Cement and Steel were used for construction of jetty within the port

which was done to enable them to expand their capacity and handle

more ships, thereby increasing their business. Therefore, Cement and

Steel qualified as “inputs” within the definition as provided under Rule

46

2(k) of Cenvat Credit Rules, 2004 and accordingly, Cenvat credit of

duty paid thereon was available to them.

- the credit of duty paid on inputs cannot be denied so long as the nexus

between the inputs and the provision of output service is established.

112.1.1 In this regard, I find from the definition of “input” and “input service”

as defined under Cenvat Credit Rules, 2004 that both the definitions are separate

and having different clauses. The clauses of “input service” cannot be borrowed

in the matter of “input” for justification of admissibility of Cenvat credit on the

goods which are not input as per its definition. Therefore, the admissibility of

Cenvat credit on input is decided by the definition of “input” only. In the present

case, cement and steel were used for construction of jetty as alleged in the SCN

which is also confirmed by the noticee in their written submission. The

construction of jetty in port area is categorised under the service viz.

“Construction Service – Commercial and Industrial service” and the construction

of port is exempted by virtue of Notification No. 16/2005-ST dated 07.06.2005 as

substituted by Notification No. 25/2007-ST dated 22.05.2007 and the said service

is not provided by the noticee as their output service. Further, I find that the said

goods were not used for providing the output service viz. “Port Service” by the

said noticee as brought out in the SCN that the noticee started providing “Port

Services” only w.e.f. September 2010. Therefore, I hold that the said goods i.e.

cement and steel cannot be treated as “input” for the said noticee, being a

service provider. Further, the same cannot be considered as “capital goods” as

the cement and steel is not covered under the definition of “capital goods”. My

above view is supported by the following decisions /judgments:-

112.1.2 Larger bench decision in the case of M/s VANDANA GLOBAL LTD.

Versus COMMISSIONER OF C. EX., RAIPUR reported in 2010 (253) E.L.T. 440

(Tri. - LB). The Hon’ble Tribunal dealt on the issue in great detail and came to the

following conclusions in Paras 49 and 51:

“49. In the light of the foregoing findings, we answer the questions referred to the Larger Bench as follows :-(a) The term “capital goods” has been defined in the Cenvat Credit Rules, which in turn have been framed under the rule making powers conferred under Section 37(2) of the Act. The said Section refers to credit of duty paid on goods used in, or in relation to the manufacture of excisable goods. Hence, ‘capital goods’ defined in the Cenvat Credit Rules

47

in the context of providing credit of duty paid, have to be excisable goods. Whether a particular plant or structure embedded to earth can be considered as excisable goods or not has to be determined in the light of the decisions of the Hon’ble Supreme Court on the issue, which is no longer res integra.(b) Goods like cement and steel items used for laying ‘foundation’ and for building ‘supporting structures’ cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the Cenvat Credit Rules for the impugned period.****51. In view of our opinion as above, we also hold that the view taken by the Division Bench in the case of Bhushan Steel and Strips Ltd. (supra) is not the correct view in law.”

112.1.3 Further, the Central Board of Excise and Customs vide Circular

issued from F.No.267/11/2010-CX8 dated the 8th July, 2010, has provided

clarification on the issue of availment of Cenvat credit on cement, angles,

channels, CTD or TMT bars and other items used for construction of factory

shed, building or laying of foundation or making of structures for support of

capital goods as under : 

“Subject: Availability of Cenvat credit on inputs used in the manufacture of capital goods-reg.

         I am directed to invite your attention to the landmark judgement of

the CESTAT Larger Bench in the case of Vandana Global Ltd. V/s CCE,

Raipur [2010-TIOL-624-CESTAT-DEL-LB] delivered on 30.04.10, on

admissibility of credit on capital goods and inputs and to state that the

Tribunal has ruled that ‘capital goods’ defined in the CENVAT Credit

Rules, in the context of providing credit of duty paid, have to be excisable

goods. Whether a particular plant or structure embedded to earth can be

considered as excisable goods or not has to be determined in the light of

settled decisions of Supreme Court on the issue. The Tribunal has further

ruled that goods like cement and steel items used for laying ‘foundation’

and for building ‘supporting structures’ cannot be treated as either inputs

for capital goods or as inputs in relation to the final products and therefore,

no credit of duty paid on the same can be allowed under the CENVAT

Credit Rules. It has also been stated by Tribunal that amendment to

Explanation 2 to Rule 2(k) of CENVAT Credit Rules, 2004 inserted vide

48

Notification No. 16/2009-CE (NT) dated 07.07.09, is clarificatory in nature

and has retrospective effect.

2.    Attention is also drawn to the Tribunal’s judgement in the case of

Vikram Cement V/s CCE, Indore [2009(242)ELT545(Tri-Del)], where the

Tribunal held that credit on welding electrodes used for repair and

maintenance, is not available as input. It may also be noted that in the

case of Vikram Cements V/s CCE, Indore [2005(187)ELT145(SC)], it has

been conclusively held by the Apex Court that the definition of capital

goods is not inclusive and only the items covered under the definition and

used in the factory of the manufacturer can be treated as capital goods.

3.     It thus follows from the above judgements that credit on capital goods

is available only on items, which are excisable goods covered under the

definition of ‘capital goods’ under CENVAT Credit Rules, 2004 and used in

the factory of the manufacturer. As regards ‘inputs’, they have to be

covered under the definition of ‘input’ under the CENVAT Credit Rules,

2004 and used in or integrally connected with the process of actual

manufacture of the final product for admissibility of Cenvat credit. The

credit on inputs used in the manufacture of capital goods, which are further

used in the factory of the manufacturer is also available, except for items

like cement, angles, channels, CTD or TMT bars and other items used for

construction of factory shed, building or laying of foundation or making of

structures for support of capital goods. Further, credit shall also not be

admissible on inputs used for repair and maintenance of capital goods.”

112.1.4 In this regard, I also note that in the case of M/s Mundra Port &

Special Economic Zone Limited , the Hon’ble CESTAT order dated 30/09/2008

reported in 2009 (13) STR 178 (Tri-Ahmd.), disallowed the Cenvat credit on

Cement and steel used for construction jetty and port. The findings of CESTAT

are contained in para 7 which is reproduced below:-

“7. Having observed as above, we proceed to find out the true meaning and

interpretation of the expression “used for providing a output service”. A plain

and simple English meaning of the above would be the goods which are

required for providing a output service. Admittedly jetty is required for

providing the port service in the same manner as any office building etc. is

required for providing any other output service. The question is as to whether

cement and steel, which are the disputed goods in the present case, are

required for providing port service or can be said to be used for providing port

49

service. The cement and steel have undoubtedly been used in the

construction of jetty and port building by the contractor, which service is itself

liable to service tax, though the same is exempted under the Notification. As

such, it can be safely concluded that the cement and steel stand used for

providing the output service of construction of building and not used in

providing the port service, such an interpretation would lead to unwarranted

results and the definition cannot be so stretched so as to include the use of

cement and steel as used for providing the output service of port services. If

such a wide meaning is given to the above expression then the cement and

steel used for construction of any building which houses the office etc. would

become eligible inputs for the purposes of providing output services. As such,

we do not agree with the ld. Advocate that such cement and steel can be held

to be eligible inputs used for providing the output port service. Accordingly,

confirm the demand on this count.”

112.1.5 In view of the above I find that Cement and steel used in the

construction of the Dahej Port are neither Inputs nor Capital Goods, and

therefore Cenvat credit on the excise duty paid by them on cement and steel is

not admissible and therefore required to be recovered from them. I also rely on

the decision of the Hon’ble High Court of Rajasthan in the case of Union of India

Vs. Hindustan Zinc Ltd reported at 2009 (16) STR 234 (Raj) on the matter.

112.1.6 In view of the discussion at paras 112.1 to 112.1.5 supra, I hold that

the Cenvat credit availed by the noticee on ‘Steel and Cement’ for the period

from April 2007 to September 2010, is not admissible to them.

Cenvat credit on Inputs- Excise Duty, Inputs-Capital Goods.

113. The noticee have in their defence reply submitted that the SCN

does not set out the reasons for disallowing the credit on the aforesaid items and

is therefore bad in law and deserves to be set aside. They further submitted that

aforesaid goods are ultimately used for providing output service viz. Port Service,

Storage and Warehousing Service and Cargo Handling Service by the Noticee

and therefore qualify as inputs/capital goods. Accordingly, credit of duty paid on

the aforesaid goods would be available to them and the same has been rightly

availed by them. I find that the noticee has described their use of “inputs/capital

goods” in Para 81 of their defence reply , as under :

a. They used paint for maintenance of the tug, excavator, crane, tank farm,

liquid pipeline as erosion coatings on the said equipments. Similarly,

50

grease was used in order to maintain the equipments used for handling of

cargo. Engine oil was also used in order for the said equipments to

function.

b. The plastic sheets were used by the noticee as inputs for covering bulk

cargo lying in the open area/godown eg. wheat, fertiliser, sugar etc. and for

covering open wagons of bulk fertilizer.

c. Furnace oil was used by them in Hotmix & Bitumen burner which are used

at the port. Bitumen was used in their open godown facility (cargo storage

in open godown) and internal Road in port area.

d. Cables were purchased and used for bagging machine, power

transmission and electrical tower in the open area. The transformer was

used in mining equipments.

e. Rope wire was used by them in Cranes for lifting of Grab. Grab was used

for bulk coal and scrap cargo loading and unloading. Electric items are

used at the tank farm, backup yard, godown, etc.

f. The UPS was used for supply of electricity constantly at weighbridges, port

offices etc.

g. MS Pipes were used in tug berth, container terminal and pipes were used

for the open stack yard at the port.

h. Trucks were used by them for movement of project materials from one

place to another place. Excavators were used for loading and unloading of

sugars and fertilizers. Cranes were used in Port operations i.e. bulk cargo

loading and unloading.

i. Generators, pump and tractors were used in dredging activities at the

port.

114. In this regard, it is important to determine the nature and use of the

“inputs/capital goods” to arrive to the solution as to whether the Cenvat credit

could be available on them. I find from the list mentioned at Para 113 supra, that

51

the inputs/capital goods are being used for maintenance, repairs of the

machines/machines installed in the Port area and for other general uses in the

Port area. Now, the Construction of the port is an exempted service in terms of

Notification No. 16/2005-ST dated 07.06.2005 as substituted by Notification No.

25/2007-ST dated 22.05.2007. Thus, as the construction of the Port is

immovable property and exempted service falling under “Commercial or industrial

construction service” as referred to in sub-clause (zzq) of clause (105) of section

65 of the Finance Act, 1994 any inputs/machines used in or in relation to

running/maintaining of the Port , cannot be said to be inputs/capital goods used

for providing Port Services. This fact is fortified by the landmark judgement of

M/s BHARTI AIRTEL LTD. Versus COMMISSIONER OF CENTRAL EXCISE,

PUNE reported at 2013 (29) STR 0401 (Tri-Mum.). The Hon’ble Tribunal in the

said case examined the issue of whether the immovable, non-marketable and

non-excisable structure viz. tower can be considered as “goods” for providing

output service and whether its components can be held to be inputs. In Paras 38

to 40, the Hon’ble Tribunal examined the issue in detail, and concluded as

under :

“38. If  the towers and parts thereof are not capital goods falling under

Rule 2(a)(A) of the CENVAT Credit Rules, 2004, it is argued, they are liable

to be recognized as ‘inputs’ under Rule 2(k). We have examined this

alternative plea also. The appellant and their counsel are now claiming

under clause (ii) of the definition of ‘input’, which reads thus : “all goods,

except light diesel oil, high speed diesel oil, motor spirit commonly known

as petrol, and ‘motor vehicles, used for providing any output service”. The

argument is that there is no place for Chapters, Headings and sub-headings

of the CETA Schedule in the definition of “input” and therefore the tower

should be held to be input used for providing output service. Relying on

Explanation 2, the learned counsel has argued that, in case the tower is

held to be capital goods, the components used for its fabrication and

erection would stand covered by the definition of input. Contextually, it has

also been argued that the amendment which was brought to the explanation

by Notification No. 16/2009-C.E. (N.T.), dated 7-7-2009 did not have

retrospective effect to defeat the appellant’s contention that the various

items used for making the tower for support to antennas are covered by the

definition of ‘input’. The learned JCDR has, on his part, placed heavy

reliance on the Tribunal’s Larger Bench decision in Vandana Global case

wherein the said amendment was held to have retrospective effect. We

have carefully considered all these submissions. Looking at the definition of

52

‘input’ referred to by both sides, we note that all “goods” (except motor

vehicles and certain petroleum products) used for providing any output

service are within the ambit of the definition of “input”. If any item has to be

brought within the ambit of this definition, it has to be, firstly, “goods” and,

secondly, “used for providing any output service”. The first requirement in

this case is not met by the towers which are admittedly immovable

structures and ipso facto non-marketable and non-excisable. In our view,

the following points made by C.B.E. & C. in Circular No. 58/1/2002-CX.,

dated 15-1-2002 are relevant to this context :

(iii) Where change of identity takes place in the course of construction

or erection of a structure which is an immovable property, then

there would be no manufacture of “goods” involved and no levy of

excise duty.

(v) If items assembled or erected at site and attached by foundation to

earth cannot be dismantled without substantial damage to its

components and thus cannot be reassembled, then the items would

not be considered as moveable and will, therefore, not be excisable

goods.

(vii) When the final product is considered as immovable and hence not

excisable goods, the same product in CKD or unassembled form

will also not be dutiable as a whole by applying Rule 2(a) of the

Rules of Interpretation of the Central Excise Tariff… …

The appellant’s counsel submitted that towers in CKD condition

falling under sub-heading 7308 20 of the CETA Schedule were procured

and brought to the sites and assembled and erected there for installation of

antennas aloft. That, upon such assembly and erection, they became

immovable structures is an admitted fact. On these facts, there is no

question of holding the towers to be “goods” and, for that matter, to be

“inputs” under Rule 2(k).

39. Explanation 2, prior to its amendment, says that “input includes goods

used in the manufacture of capital goods which are further used in the

factory of the manufacturer”. Obviously, it is applicable only to a

manufacturer of final product who manufactures capital goods out of duty-

paid materials and uses such capital goods captively for the manufacture of

final product in the factory. The explanation is intended to enable him to

treat the said duty-paid materials as ‘inputs’ for the purpose of CENVAT

53

Credit. It is not applicable to providers of taxable services. Further, to our

mind, the amending Notification No. 16/2009-C.E. (N.T.) intended to

exclude certain specified materials (cement, angles, channels, CTD bars,

TMT bars etc.) which would otherwise have been covered by Explanation 2

as it stood prior to the amendment. In this view of the matter, the

amendment is also not applicable to a provider of output service. We can

analyse as follows the exclusion clause added to Explanation 2 by

Notification No. 16/2009 :-

but shall not include cement, angles, channels, CTD bar or TMT

bar and other items

used for ---construction of factory shed, (a)

(b) building or laying of foundation or making of structures for

support of capital goods.

Both sides seem to have understood the last segment (“building or laying of

foundation or making of structures for support of capital goods”) of the

amended explanation as applicable to both manufacturer of goods and

provider of taxable services. In our view, had it been the intention of the

legislative authority to include a provider of taxable services also in

explanation 2, it would have been clearly reflected in the text of the

explanation. As the inclusion clause of the explanation is expressly

applicable only to manufacturer, the exclusion clause which only seeks to

carve out certain exceptions must be applicable only to manufacturer in the

conspicuous absence of any reference to service provider. Therefore we

hold that Explanation 2 is applicable only to manufacturers of excisable

goods and not to providers of taxable services, both prior to 7-7-2009 and

after that date. In other words. Explanation 2 has no impact on the issue at

hand. In the result, the iron & steel materials used for fabricating and

erecting the towers cannot be held to be ‘inputs’ on the basis of anything

contained in Explanation 2.

40.The learned counsel for the  appellant has relied on a line of decisions

in support of his plea for holding towers to be ‘inputs’ used for providing

mobile telephone service. In the case of Godfrey Phillips India Ltd., the

word ‘input’ used in Notification No. 201/79-C.E., dated 4-6-1979 was

examined by the Bombay High Court and was held to have a wider

meaning than the word ‘ingredient’. In the case of Hindustan Sanitaryware

and Industries, the question considered by the Supreme Court was whether

54

moulds of plaster of paris which were used for manufacture of sanitaryware

could be treated as ‘inputs’ within the meaning of this term used in

exemption Notification No. 217/86-C.E., dated 2-4-1986 as amended by

Notification No. 82/87-C.E. In these and similar cases cited by the learned

counsel, the commodities considered were all goods which were found to

have been used, one way or another, in or in relation to the manufacture of

the final products. The cited decisions are not applicable to the present

case where the issue under consideration is whether the immovable, non-

marketable and non-excisable structure viz. tower can be considered as

“goods” used for providing output service and whether its components can

be held to be inputs on the basis of Explanation 2 (vide supra). We have

answered these questions against the appellant for definite reasons. Our

reasons pertaining to the appellant’s case are not relevant to the cases

cited by the learned counsel, nor are the grounds on which those cases

were decided relevant to the appellant’s case.”

115. In the present case, the noticee is not a manufacturer but a service

provider. The definition of “inputs/capital goods” must be read differently in

respect of a manufacturer and a service provider. For a manufacturer, Cenvat

credit may be allowed when “inputs/capital goods” are used in the manufacture

directly or indirectly, whereas for a service provider, Cenvat credit may be

allowed only when “inputs/capital goods” are used directly for providing output

service. The noticee has used the said inputs/capital goods in relation to the

construction of the Port only, which is an exempted service, and therefore the

output service is absent. They have not used these services for providing Port

Services, as discussed in the foregoing paras. The subject items namely PAINT,

PLASTIC SHEETS, GREASE, CABLE, FAN, ENGINE OIL, FURNACE OIL,

ROPE WIRE, UPS, BITUMEN, TRANSFORMER, MS PIPE, PIPES, AIR

COMPRESSOR, HDPE PIPES, ELECTRIC ITEMS, TRUCKS, EXCAVATOR,

FILTERS, CRANES, GENERATOR, PUMP, FORKLIFTS, TRACTORS,

JOURNAL PURCHASES etc. are either machinery or have been used for repairs

and maintenance of port. Hence, the same cannot be considered as

inputs/capital goods for them under Rule 2(k)/Rule 2(a) of CCR, 2004, and

consequently the Cenvat credit is also not admissible to them.

116. The main issue is as to whether Cenvat credit can be allowed on inputs

such as machines, parts of machine or the inputs used for the maintenance or

repair of the machines installed in the port area. I find that in the case of M/s

55

MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD reported in 2009 (13)

S.T.R. 178 (Tri. - Ahmd.) which was maintained by Hon’ble High Court of Gujarat

as reported at 2011 (21) S.T.R. 361 (Guj.), the Hon’ble judges on the question

as to what constitutes or does not constitute an output service for the said

service provider, dwelt as under :

“7…….. we proceed to find out the true meaning and interpretation of the

expression “used for providing a output service”. A plain and simple

English meaning of the above would be the goods which are required for

providing a output service. Admittedly jetty is required for providing the port

service in the same manner as any office building etc. is required for

providing any other output service. The question is as to whether cement

and steel, which are the disputed goods in the present case, are required

for providing port service or can be said to be used for providing port

service. The cement and steel have undoubtedly been used in the

construction of jetty and port building by the contractor, which service is

itself liable to service tax, though the same is exempted under the

Notification. As such, it can be safely concluded that the cement and steel

stand used for providing the output service of construction of building and

not used in providing the port service, such an interpretation would lead to

unwarranted results and the definition cannot be so stretched so as to include the use of cement and steel as used for providing the output service of port services. If such a wide meaning is given to the above

expression then the cement and steel used for construction of any building

which houses the office etc. would become eligible inputs for the purposes

of providing output services. As such, we do not agree with the ld.

Advocate that such cement and steel can be held to be eligible inputs used

for providing the output port service. Accordingly, confirm the demand on

this count”

117. It is thus evident that for goods to be qualified as inputs, it is necessary

that they should invariably be consumed during the provision of output services.

In the instant case, I find that the “inputs/capital goods” have been consumed

during the provision of Construction of Dahej Port which is exempted, and not

under ‘Port Services’, as claimed by the noticee, and hence they do not qualify

as “Inputs” or “Capital goods” for output services provided by the noticee.

117.1. In view of the above discussion, I hold that the Cenvat credit availed

by the noticee on ‘Inputs/Capital Goods’, as discussed in Paras 112 to 117,

56

amounting to Rs. 22,95,72,597/- for the period from April 2007 to September

2010 is not admissible and is required to be disallowed and recovered from them

under Rule 14 of Cenvat Credit Rules, 2004 read with Section 73 of the Finance

Act, 1994.

Cenvat credit availed on service tax paid on ‘Input services’ like

CHA Service, Rent-a-cab service, Surveyor service, Tele/Mobile

phone and on ‘Other Input Services’ like Cargo Handling,

Clearing & Forwarding Services, Business Auxiliary Services;

Erection , Commissioning and Installation Services, Manpower

Recruitment Supply; Technical Testing & Analysis Services etc.

118. It is alleged in the Show Cause Notice that the noticee have availed

Cenvat credit of service tax on various categories of services which are not their

valid input service as per Rule 2 (l) of Cenvat Credit Rules, 2004. In their defence

dated 14.02.2013/18.02.2013, the noticee contended that :

- the aforesaid services such as CHA Service, Rent-a-cab service,

Surveyor service, Tele/Mobile phone and on Other Input Services

like Cargo Handling, Clearing & Forwarding Services, Business

Auxiliary Services, Erection , Commissioning and Installation

Services, Manpower Recruitment & Supply, Technical Testing &

Analysis Services etc. are ultimately used for providing output

service under above Rule.

- These are required for the day to day running of business of the

noticee for providing support service.

- the third part of the definition of “input service” specifically provide

for an activity relating to business and thereafter specify certain

activities.

- aforesaid services are used for purpose of business and therefore

qualify as “inputs service”.

118.1 In this regard, I find that the noticee is contending that the CHA

Services was one of the services which was required to be used by them for

effectively carrying out its activities i.e. it is necessary to run its day-to-day

business. It was submitted by them that CHA Services are services without which

57

the goods cannot be cleared from the Port area for home consumption or

otherwise. Their responsibility inter alia includes clearing of the goods from

customs, storing the same if required and dispatching the same to the customers

(in case of import of goods). In the absence of a CHA, they cannot provide the

services of clearing of goods for import and export, as they are not qualified and

authorized to do so. Therefore, it was submitted that CHA Services are services

which were essential and required by them for providing output services and

therefore qualify as an input service. I do not find any merit in the said

explanation. I find that the services such as CHA or the Surveryors, have been

used in or in relation to the construction of the Port only, which is an exempted

service. My credence is further fortified by the Service Orders submitted as

Annexure ‘B’ [SO No. 5700010362 dated 12.10.2009] by the noticee. In the

Service Orders, the Scope of work is mentioned as under :

“ Clearance of 1st diesel Pile Hammer Delmag vide BE No. 140411……..”

“Clearance of 2nd diesel Pile Hammer Delmag vide BE No. 140685…”

And at Annexure ‘C’, at [ SO No. 5700004541 dated 8.12.2008 ], the Scope of

work mentions as :

“The Hydraulic System Imported on HSS Basis from Flsmidth Minerals

Pvt. Ltd. Chennai for Dahej Port….”

118.2 Thus , it becomes clear the CHA services has been used in relation

to the construction related activity of the Dahej Port; the Diesel Plier Hammer

meant to drive piles (poles) into soil to provide foundation support for buildings

or other structures, and the Hydraulic System is meant for the Dahej Port. Here

the output service is “‘Construction of Port’ which is an exempted service,

classified under “Commercial or Industrial Construction Services” referred to in

sub-clause (zzq) of clause (105) of section 65 of the Finance Act, 1994. Thus, as

the CHA services have been used for construction of the port and not for

providing port services, the said Services, firstly do not qualify as “input services”

under the provision of Rule 2(l) of CCR, 2004 and secondly since their output

service i.e. “Construction of Port’ is an exempted service, the cenvat credit

cannot be availed in terms of Rule 3(1) as well as under 6(1) of CCR,2004. Thus

the noticees contention that these services have been used for provision of “Port

Services” is untenable. On the plea that they have succeeded in M/s Mundra

Port & Special Economic Zone Ltd Vs CCE, Rajkot [ 2009 (13) S.T.R. 178], I find

that the said ratio is not applicable here as I am convinced that the said services

have been used in relation to the construction of the Port , as reasoned above,

and therefore are not integrally connected to the Port Services.

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118.3 The noticee has further contended that Credit of service tax paid on

mobile phones would be available to them particularly in view of their own case in

M/s Mundra Port & Special Economic Zone Ltd, Rajkot (supra). However, I find

that it is evident that the mobile phones were used prior to the operation of the

Dahej Port, and were therefore used in relation to the activities related to the

construction of the said Port, and therefore cannot be input services for providing

Port Services. Thus the instant case is fundamentally different to case of M/s

Mundra Port & Special Economic Zone Ltd (supra) and that decision is not

applicable here.

118.4 With respect to Rent-a-cab services, it was submitted by the noticee

that the Rent-a-cab services were used by them mostly within the Port premises

and the extended infrastructure backup area. It is submitted that in order to

understand the need for Rent-a-Cab Services by them, it would be useful to

understand their setup and the operations. That their premises were spread

across an area of 70.63 hectares which comprises of the berthing area, roads,

storage, administrative building , Customs offices and canteen etc. It was

submitted that all the space which houses the aforesaid facilities are spread over

the length and breadth of their premises. In order to ensure seamless and timely

movement of men and material required for the import and export of goods, they

use rent-a-cab services for commuting within the port area. I observe that only

one Bill No. 564 dated 08.09.2008 has been submitted by them as Annexure ‘D’,

which clearly mention the date to be 8.09.2008 and the journey was from

Bharuch to Ahmedabad and back. Thus it is clear that the Rent-a-cab operators

were used by the noticee for transferring the personnel to and from the port area

and thus were used in service in relation to the construction of the Port only.

Thus, it is clear that these services were used in relation the construction the port

and not for providing Port Services. Thus the said Services do not qualify as

“input services” under Rule 2(l) of CCR, 2004 and the cenvat credit cannot not be

availed as the output service is “‘Construction of Port’ which is an exempted

service under the provision of Rule 3(1) of CCR,2004 as well as under Rule 6(1)

of CCR, 2004. The case law in Commissioner Of C. Ex., Nasik vs. Cable Corporation Of India Ltd., [2008 (12) S.T.R. 598 (Tri. - Mumbai)], cited by them

in their defence, is not applicable, as I find that such rent-a-cab has not been

used as a ‘Port Services’, but was used for the construction of the Port.

Therefore the issues are different.

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118.5 In case of Clearing & Forwarding , and Cargo Handling, the noticee

has submitted a ‘Contract for Transportation of Coal’ between themselves and

M/s Khwaja Travels Services , dated 2.08.2010, shown as Annexure ‘E’ and with

M/s SeaStem Limited also dated 2.08.2010, shown as Annexure ‘F’ in their reply.

118.6 I find that M/s Khwaja Travels are owners of Dumpers, Machinery

and have skilled people enrolled with them, who/which are required for

transportation of coal at the Port, ,shown at Point B of Page 2 and, also at Para

I at Page 7 of the Agreement dated 2.08.2010 , wherein it is mentioned that the

contractors shall confine its operations to the Port . Also, I find that M/s

SeaStem Travels has a similar contract. I find that these agreements were

executed in August 2010. However, apart from these contracts , the noticee has

not submitted any evidence which proves that these services are used for their

business and providing output service viz. “Port Service”. As per Rule 9 (6) of

Cenvat Credit Rules, 2004, the burden of proof regarding admissibility of Cenvat

credit lies upon the service provider of output service taking Cenvat credit which

the noticee has failed to do. Thus, in absence of evidences regarding the

manner in which, I have to go by the evidences available on record, and thus

cannot allow the same.

118.7 Further, the noticee has submitted a Service Order No. 5700003707

dated 16.09.2008 in respect of M/s Geotech Soil Testing Laboratory, as

Annexure ‘G’. I find that the said SO clearly mentions the following :

“SCOPE OF WORK : Soil investigation for Pile Foundation for Adani

Petronet (Dahej) Port Pvt Ltd. at Dahej “

118.8 Thus, it is clear that the noticee has used Technical Testing &

Analysis Services in the relation to the construction and related activity of the

Dahej Port only, and not for providing Port Services. Thus, as these services

have been used for construction of the port and not for providing port services,

the said Services do not qualify as “input services” under Rule 2(l) of CCR, 2004

and secondly the cenvat credit cannot not be availed as the output service is

“Construction of Port’ which is an exempted service, under the provision of Rule

3(1) of CCR,2004 as well as under Rule 6(1) of CCR, 2004.

118.9 With respect to Annexure ‘H’ and ‘I’ submitted by the noticee, I find

Annexure ‘H’ containing SO No. 5700004348 concerns ‘Inspection services’ by

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M/s Tata Projects Limited for Dahej’ and which commenced on 1.04.2007 and

completed on 30.04.2009; and Annexure ‘I’ contains Erection and installation

charges of Plant & Equipment. In this connection, I find that Annexure ‘H’ are

relating to inspection of materials and equipments installed in Dahej Port , and

therefore are used in relation to the construction of the Port only and not for

providing Port Services , the said Services do not qualify as “input services”

under Rule 2(l) of CCR, 2004 and the cenvat credit cannot not be availed as the

output service is “Construction of Port’ which is an exempted service and thus

the cenvat credit is not available under the provision of Rule 3(1) of CCR,2004 as

well as under Rule 6(1) of CCR, 2004.

118.10 I find that Annexure ‘I’ are concerning ‘Erection and Installation’ of

machinery & equipment at the Port. In this case too, as these services were used

in relation the construction the port and not for providing Port Services, the said

Services do not qualify as “input services” under Rule 2(l) of CCR, 2004 and the

cenvat credit cannot not be availed as the output service is “‘Construction of Port’

which is an exempted service, under the provision of Rule 3(1) of CCR,2004 as

well as under Rule 6(1) of CCR, 2004.

119. Further, I find that the noticee in their reply , Para 82 onwards, have

made a general submission that the services such as Consulting Engineer

Services, Maintenance and Repair Services, Security Services, Construction

Services, Banking Services, Manpower Recruitment, Supply, were used in “

activities relating to business “ , and for providing output service viz. “Port

Service”. As per Rule 9 (6) of Cenvat Credit Rules, 2004, the burden of proof

regarding admissibility of Cenvat credit lies upon the service provider of output

service taking Cenvat credit which the noticee has failed to do . Thus, in

absence of evidences regarding the manner in which these ‘other input services’

namely, Consulting Engineer Services, Maintenance and Repair Services,

Security Services, Construction Services, Banking Services, Manpower

Recruitment, Supply etc. were been used, I have to go by the evidences

available on record. I find that the case namely M/s Coca Cola India P Ltd Vs.

CCE reported at 2009 (242) ELT 168 (Bom) , quoted by the noticee cannot be

made applicable to this issue as the actual consumption of the services have not

been brought on record by the noticee. I find that the case laws of M/s DCM

Shriram Consolidated Ltd reported at 2006(4)S.T.R. 610 (Commr. Appeal) and

M/s Victor Gaskets India Limited reported at 2008(10)STR 369(Tri-Mum), cited

by the noticee, are also not applicable as the said services, such as CHA, Rent-

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a- Cab or Mobile Phones, do not qualify as “input services” under Rule 2(l) of

CCR, 2004 in the first place.

120. Further, on going through the ABB judgement [2009(15) STR 23 (Tri.-LB), I find that Hon’ble CESTAT has at para 2 & 3 of the Order referred to

Cenvat Credit Rules, 2004 and the condition where the Cenvat credit cannot be

disallowed if the assessee satisfies any one of the following :-

(a) Any service used by the manufacturer, whether directly or indirectly, in

or in relation to the manufacture of final products,

(b) Any service used by the manufacturer whether directly or indirectly, in

or in relation to clearance of final products from the place of removal,

(c) Services used in relation to setting up, modernization, renovation or

repairs of a factory, or an office relating to such factory,

(d) Services used in relation to advertisement or sales promotion, market

research, storage upto the place of removal, procurement of inputs,

(e) Services used in relation to activities relating to business and outward

transportation upto the place of removal.

120.1 Further, at para 24 of the said order, Hon’ble CESTAT has further

held that the definition of “input service’ has to be interpreted in light of the

requirements of business and it cannot be read restrictively so as to confine only

upto factory or upto depot of manufacture.

120.2 A conjoint reading of the above, reveals that except for (d) and (e)

all the other relate to manufacture. As regards (d) and (e) the conditions are

relating to post manufacturing activity whereas in the instant case the noticee

had availed Cenvat credit on services which had no relation to the “Port Service”.

I find that the services in question are not integrally connected with the Port

Service and other Warehousing Services.

120.3 In view of the above discussion, the benefit of Cenvat credit on

‘Input Services’ and ‘Other Input Services’ namely, CHA Service, Rent-a-cab

service, Surveyor service, Tele/Mobile phone and on Other Input Services like

Cargo Handling, Clearing & Forwarding Services, Business Auxiliary Services;

Erection , Commissioning and Installation Services, Manpower Recruitment

Supply; Technical Testing & Analysis Services etc. amounting to Rs.

12,44,87,626/- is not admissible to the noticee. Accordingly, the Cenvat credit

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availed amounting to Rs. 12,44,87,626/- for the period from April 2007 to

September 2010 on the input services, is not admissible to the noticee and is

required to be disallowed and recovered from them under Rule 14 of Cenvat

Credit Rules, 2004 read with Section 73 of the Finance Act, 1994.

Impositon of Penalty

121. As regards the allegation of suppression of facts and invoking the

extended period in the show cause notice, I find that the noticee has contended

that there was no suppression of facts by them inasmuch as they were served

with a Show Cause Notice dated 13th April, 2007, 14th October 2008 and 21st

April, 2009 on identical issues in respect of a prior period. However, it is found

that these show cause notices being referred by the noticee were issued to M/s

Adani Port & Special Economic Zone { Formerly M/s Mundra Ports & SEZ Ltd.}

and not to them and also the facts of the case are different. Therefore, the ratio

of the judgment laid down in the case of Nizam Sugar (supra) is not applicable to

the facts of the present case.

122. On the issue of suppression, I find that Shri Anish Shah, Associate

Manager of the noticee, in his statement dated 21.10.2010, had categorically

stated that the civil construction works of the port was given to M/s. Simplex

Infrastructure Ltd. on contract basis. He further stated that that the said

contractors, who had constructed the port, had not charged Service Tax from

them in view of the fact that such construction of the port was an exempted

service in terms of Notification No. 16/2005-ST dated 07.06.2005 as substituted

by Notification No. 25/2007-ST dated 22.05.2007. Therefore, it was evidently

clear that the inputs, input services and capital goods on which they had availed

Cenvat credit, were actually used by the independent contractors for construction

of port which was an exempted specified service in terms of the aforesaid

notification. The aforesaid very same fact stated by Shri Anish Shah, Associate

Manager of the noticee, revealed that they were fully aware that the inputs, input

services and capital goods were being used in or in relation to the construction of

port, which was an exempted service, and also that such goods and services were not being used in or in relation to the provision of output services, i.e. Port Services for which they had obtained registration. Thus it was evidently

clear that Cenvat credit on inputs, input services and capital goods used for

construction of port was not available to them.

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123. I further observe that in the present system of self-assessment documents

like invoices and other transaction details are not supplied to the Department.

Moreover, the noticee had deliberately availed the credit under “Port Services” ,

wherein in reality the services, the inputs and the capital goods were not used in

or in relation to the Port Services and thus the intention will have to be believed

as that of evasion by way of suppression or misdeclaration. Once the details

have been wrongly submitted to the Department, it amounts to mis-declaration or

suppression which is rightly invoked in the case before me. I, therefore, conclude

that the element of suppression with intent to evade payment of service tax is

conspicuous by the peculiar facts and circumstances of the case as discussed

above. The noticee have in their defence submitted that the present issue has

arisen due to a disputed interpretation of the statutory provisions and therefore

no penalty can be imposed in the present case and have in support to their

contention relied on the following decisions.

a. Wiptech Peripherals Pvt. Ltd v/s CCE, Rajkot [2008(12)STR 716 (Tri.-Ahmd].

b. Sanghi Industries Ltd. v/s CCE, Rajkot [2008(12)STR 495 (Tri.-Ahd)]c. A.G.Shibu v/s Commissioner of Cus, C.Ex. &ST, Cochin[2008(10) STR

317 (Tri.-Bang)]d. Nizam Sugar Factory v/s CCE, AP [20069197)ELT 465(SC0].e. ECE Industries Ltd. v/s CCE, Delhi [2004(164) ELT 236(SC)].f. Devans Modern Breweries Ltd v/s CCE, Chandigarh [2006(202) ELT

744(SC)].

123.1 Further, they have submitted that insofar as the Cenvat credit in

respect of Mobile phones, CHA Fees, Surveyors Fees and Rent-a-cab Services,

Professional Fees and Air conditioners are concerned, the issue stands decided

in favour of them vide Order No. A/2122/WZB/AHD/08 dated 30 th September

2008, reported in 2009 (13) STR 178 in case of M/s Mundra Port & Special

Economic Zone Ltd, passed by the Hon’ble Tribunal wherein after considering

the factual and legal submissions made by them, the Hon’ble Tribunal held that

the aforesaid services qualify as input services and accordingly, the Cenvat

credit of Service tax would be available to them.

123.2 I find that in case of M/s Mundra Port & Special Economic Zone

Ltd (supra) , the facts were different and thus the Hon’ble Tribunal held

accordingly. In the instant case, I have dwelt in detail in the Paras 112 to 114.2

supra, as to why the services of CHA , Rent-a-cab Services , Mobile Phones,

Clearing & Forwarding , Cargo Handling, Technical Testing & Analysis Services,

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Erection , Commissioning & Installation Services and other host of services, do

not qualify as input services. Further, as regard the judgements quoted by the

noticee, I find that they do not have any relevance to the present case and hence

the ratio of the judgements cannot be made applicable to the instant case.

124. In the instant case, I am convinced that had the investigation not been

carried out by the Directorate General of Anti Evasion, Ahmedabad Zone, the

wrong availment of Cenvat Credit by the noticee would have gone undetected.

Therefore, this is a case of deliberate misdeclaration and suppression of vital

information with a willful intention to evade payment of service tax as a result for

such wrong availment of credit. Accordingly, the invoking of extended period

under Section 73(1) of the Act in the case before me is fully justified.

125. Therefore, in view of the above discussion, I conclude that the wrongly

availed cenvat credit of Rs.35,40,60,223/- is recoverable from the noticee under

Section 73 of the Finance Act, 1994 along with interest as applicable under under

Rule 14 of the Cenvat Credit Rules, 2004 read with Section 75 ibid.

126. As regards imposition of penalty under Rule 15(3) of the Cenvat Credit

Rules, 2004 read with Section 78 of the Finance Act, 1994, I find that as the

noticee had suppressed the facts with intention to wrongly avail the Cenvat credit

and as is also evident in the statements dated 21.10.2010 of Shri Anish Shah,

Associate Manager of the noticee and confirmed by Shri Manoj Chanduka,

Associate Vice President of the noticee, penalty u/s 78 of the said Act is

mandatorily imposable as has been held by the Apex court in the case of

Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan Spinning &

Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, I hold that penalty is

imposable on the noticee under Rule 15(3) of the Cenvat Credit Rules, 2004 read

with Section 78 of the Finance Act, 1994.

126. In view of the above discussion and findings, I pass the following order :-

O R D E R

(i) I confirm the demand for recovery of wrongly availed Cenvat credit amounting to total Rs. 35,40,60,223/- [Rupees Thirty Five Crores Forty Lakhs Sixty Thousand Two Hundred Twenty Three only] under Rule 14 of Cenvat Credit Rules, 2004 read with Section 73 of the Finance Act, 1994 against M/s Adani Petronet (Dahej) Port Private Limited, Ahmedabad.

(ii) I order for recovery of interest on the above said wrongly availed Cenvat credit from M/s Adani Petronet (Dahej) Port Pvt. Ltd., Ahmedabad at the rates applicable from time to time

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under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 75 of the Finance Act, 1994,

(iii) I impose penalty of Rs.35,40,60,223/- [Rupees Thirty Five Crores Forty Lakhs Sixty Thousand Two Hundred Twenty Three only] under Rule 15(3) of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 on M/s Adani Petronet (Dahej) Port Pvt. Ltd., Ahmedabad. They shall be eligible for the benefit of reduced penalty in terms of proviso to Section 78, if the entire amount of Cenvat credit confirmed at (i) above along with interest amount confirmed at (ii) above is paid within 30 days of the receipt of this order, the said reduced penalty of 25% of Rs. 35,40,60,223/- shall be available only if the said 25% of Rs. 35,40,60,223/- is also paid within 30 days of the receipt of this order.

(Tejasvini P. Kumar)Commissioner

Service Tax, Ahmedabad.

F.No.STC/4-108/O&A/10-11 Dt. 24.12.2013.

To

M/s Adani Petronet (Dahej) Port Pvt. Ltd.,Adani House,Near Mithakhali Circle,Navrangpura,Ahmedabad.

Copy to:

(i) The Chief Commissioner of Central Excise & Service Tax, Ahmedabad Zone, Ahmedabad.

(ii) The Assistant Commissioner, Service Tax, Division II, Ahmedabad.(iii)The Superintendent, Service Tax, Range VIII, Division-II, Ahmedabad.(iv) Guard File.

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