CENVAT credit is unavailable for works contract services used to construct or set up office premises.

M/s HCL Technologies Ltd. was centrally registered for providing various taxable information technology and business-related services and availed CENVAT credit on input services under the CENVAT Credit Rules, 2004.

An audit for April 2011 to March 2015 alleged that the appellant had wrongly availed credit of ₹93,75,625 on services received at BPO branches in Chennai, Hyderabad and Gurgaon before those premises were included in its centralised registration, and on certain civil, painting, pipeline and debris-removal services.

A further credit claim of ₹1,12,35,549 relating to works contract services used for setting up or constructing BPO offices at Gurgaon, Chennai, Hyderabad and Noida was also disputed.

The department issued a show-cause notice proposing recovery of total CENVAT credit of ₹2,06,11,174, along with interest and penalties under Rule 14 of the CENVAT Credit Rules, 2004 and Sections 75, 77 and 78 of the Finance Act, 1994.

The Principal Commissioner confirmed the entire demand, interest and equivalent penalty under Rule 15(3) read with Section 78, and imposed an additional penalty of ₹10,000 under Section 77.

Whether CENVAT credit could be denied merely because the input services were received at premises that were not included in the appellant’s centralised service-tax registration.

Whether CENVAT credit was admissible on works contract services used for construction or setting up of the appellant’s BPO branches.

Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 could be invoked.

Whether interest under Section 75 of the Finance Act, 1994 was recoverable on the credit held to be inadmissible.

Whether penalties under Sections 77 and 78 of the Finance Act, 1994 were imposable.

The Tribunal applied Rule 2(l) of the CENVAT Credit Rules, 2004, defining “input service,” and Rule 14, concerning recovery of CENVAT credit wrongly taken or utilised, read with Sections 73, 75, 77 and 78 of the Finance Act, 1994.

Relying on Commissioner, Service Tax v. Samsung India Electronics Pvt. Ltd., affirmed by the Allahabad High Court, it held that non-registration of the premises is not, by itself, a valid ground to deny credit where the services are otherwise eligible; registration at the premises was not a condition precedent under Rule 3.

Under Rule 2(l), as amended with effect from 1 April 2011 and 1 July 2012, the service portion of works contract and construction services used for construction or execution of a building, civil structure or part thereof was excluded from “input service.”

The Tribunal relied on Larsen & Toubro Ltd. v. State of Karnataka, as explained by the Supreme Court in Larsen & Toubro Ltd., 2015 (39) S.T.R. 913 (S.C.), for the distinction between works contracts and contracts for services simpliciter.

The extended limitation period requires a legally sustainable finding of fraud, collusion, wilful misstatement, suppression or deliberate contravention with intent to evade tax; mere departmental discovery during audit is insufficient.

Interest under Section 75 is compensatory and mandatory where an amount legally payable remains unpaid.

Following Rajasthan Spinning & Weaving Mills Ltd., penalty provisions requiring deliberate deception cannot be sustained without the requisite finding of fraud or intent to evade.

The Tribunal held that the credit relating to services received at unregistered premises could not be denied solely on that ground.

The appellant was centrally registered, had filed ST-3 returns and had disclosed the relevant credit; therefore, the department’s objection based only on non-inclusion of the branches in the registration certificate was unsustainable.

However, the credit of ₹1,12,35,549 relating to works contract services was treated differently.

The adjudicating authority had recorded a factual finding that the services were used for construction or setting up of BPO branches, and the appellant produced no sufficient evidence to establish that they were confined to repair, renovation or modernisation of existing premises.

The inclusive portion of Rule 2(l) could not override the specific exclusion of construction-related works contract services.

On limitation, the Tribunal found that the appellant had declared the disputed credit in its ST-3 returns and had also filed refund claims under Rule 5.

The adjudicating authority merely relied on detection through audit and did not identify any specific act of suppression or deliberate contravention by the appellant.

Consequently, invocation of the extended period was held unsustainable, and the demand was confined to the normal period, namely April 2014 to March 2015.

Since the works contract credit for the surviving period was inadmissible, interest under Section 75 was upheld in respect of that amount.

The Section 78 penalty was set aside because the extended-period ingredients and deliberate intent to evade had not been established.

The Section 77 penalty was also set aside because the appellant was already registered and had disclosed its taxable services; mere non-inclusion of particular premises in the centralised registration did not establish the alleged contravention of Section 69.

The demand relating to CENVAT credit on services received at unregistered premises was set aside.

The demand relating to works contract services used for construction or setting up of BPO branches was upheld, but only for the normal limitation period covering 2014–2015.

As the year-wise computation was unavailable, the matter was remanded to the original authority for re-quantification of the surviving demand and consequential interest.

Interest under Section 75 was upheld on the confirmed amount, while penalties under Sections 77 and 78 were set aside.

The adjudicating authority was directed to complete the re-quantification within three months of receiving the Tribunal’s order.