CENVAT Credit on Cryogenic Storage Tanks and Fabrication Inputs: Key Takeaways from CESTAT Hyderabad Ruling
The decision in Ellenbarrie Industrial Gases Ltd Vs Commissioner of Central Excise by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, provides significant clarity on the availability of CENVAT credit on storage tanks and related materials used for providing output services. The Tribunal has extensively examined the interplay of the Cenvat Credit Rules 2004, the concept of capital goods and inputs, and the scope of extended limitation and penalties.
This analysis distills the essential findings of the order and explains their practical implications for assessees engaged in manufacture as well as provision of taxable services such as erection, commissioning and “Supply of Tangible Goods Service”.
Background of the Dispute
Nature of business and credit availed
The assessee is engaged in:
- Manufacture of industrial gases (e.g., liquid Nitrogen, Oxygen), and
- Provision of taxable services such as:
- Erection and commissioning services, and
- “Supply of Tangible Goods Service”.
In the course of business, the assessee:
- Purchased cryogenic storage tanks on which excise duty was paid and took CENVAT credit treating them as capital goods.
- Used items such as:
- SS coils, sheets and plates
- MS items (structural materials)
- Cement and bars
for fabrication, installation and erection of such cryogenic storage tanks at customer premises, and availed CENVAT credit on these materials.
- Also took CENVAT credit on welding electrodes.
A Show Cause Notice dated 13.09.2012 proposed to deny credit on:
- Cryogenic storage tanks;
- Inputs used in fabrication/installation of those tanks; and
- Welding electrodes.
Extended period and penalties were also invoked.
Findings of the Adjudicating Authority
The order-in-original dated 09.01.2013 disallowed the credit primarily on the following grounds:
Cryogenic storage tanks:
- Treated as capital goods that would be eligible for credit only if used inside the factory of the manufacturer of excisable goods under
Rule 2(a)of the Cenvat Credit Rules 2004 (CCR). - Since the tanks were installed at customers’ premises, not in the assessee’s own factory, the adjudicating authority held that credit was inadmissible.
- Treated as capital goods that would be eligible for credit only if used inside the factory of the manufacturer of excisable goods under
SS coils, sheets, plates, cement and bars:
- Used for fabrication and erection of storage tanks at client premises.
- The authority held that once tanks are fabricated and embedded to earth, they become immovable property, hence not “goods”, and therefore no CENVAT credit could be allowed either on the storage tanks or on the materials used for fabrication and foundation.
Welding electrodes:
- Credit was denied as well.
Extended limitation:
- Invoking the proviso to
Rule 9of CCR, the authority reasoned that assessee bears responsibility to ensure only eligible credit is taken. - Any contravention was treated as sufficient basis for extended period and imposition of penalty.
- Invoking the proviso to
The assessee challenged this order before CESTAT Hyderabad.
Assessee’s Contentions Before CESTAT
On cryogenic storage tanks
The assessee argued that:
- It never claimed the cryogenic storage tanks as capital goods used in the factory for manufacture of excisable goods.
- Instead, the tanks were capital goods used for providing output services, namely:
- “Supply of Tangible Goods Service”, and
- Erection/commissioning services.
- Under the Cenvat Credit Rules, capital goods used for providing output services are also eligible for credit.