2011 (5) TMI 132 - HC - Service Tax

Input Service cenvat Credit security service at residential quarters of workers scope of input services Rule 2(l) of CCR - Respondent assessee, manufacturer of soda ash, has provided residential quarters for its workers. - In such residential quarters, the assessee also provided security services. Can such security services be stated to be service used by the manufacturer directly or indirectly in or in relation to the manufacture of final product? Held that - Our answer has to be in the negative. We do not see any connection between the security service provided by the manufacturer in the residential quarters maintained for the workers as having any direct or indirect relation in the activity of manufacture of the final product. This is also the view of the Bombay High Court in the case of Manikgarh Cement (2010 -TMI - 78189 - BOMBAY HIGH COURT). - the act of providing residential quarters by the manufacturer to its employees was voluntary. Providing further security service in such residential quarters was also an act voluntary in nature. Benefit of cenvat credit denied.

Summary

Issues:
1. Whether service tax credit on security services utilized in a residential colony is admissible under the Cenvat Credit Rules, 2004?
2. Whether the security service provided by the manufacturer in the residential quarters maintained for the workers falls under the definition of 'input service' as defined in the Cenvat Credit Rules?

Analysis:

Issue 1:
The Revenue appealed against the CESTAT judgment questioning the admissibility of service tax credit on security services in a residential colony. The High Court considered the applicability of the Cenvat Credit Rules, 2004, and relevant case laws. The Tribunal allowed the appeal, citing the necessity of the residential colony for business continuity. The Revenue contended that there was no nexus between the business activity and the service provided, relying on the decision of the Bombay High Court in a similar case. The respondent argued that the definition of 'input service' is broad enough to include various services used in relation to the business. The High Court analyzed the definition of 'input service' and concluded that the security service in the residential quarters did not directly or indirectly relate to the manufacture of the final product, aligning with the Bombay High Court's view in a previous case.

Issue 2:
The High Court delved into whether the security service provided by the manufacturer in the residential quarters for workers qualified as an 'input service' under the Cenvat Credit Rules. Despite the broad definition of 'input service,' the Court found no direct or indirect connection between the security service and the manufacturing activity. Drawing parallels with a case involving electricity generation, the Court emphasized that the security service did not fall within the scope of activities related to manufacturing the final product. While the respondent relied on a case regarding catering services, the Court distinguished the voluntary nature of providing residential quarters and additional security services from mandatory canteen facilities, ultimately ruling in favor of the Revenue. The High Court allowed the Revenue's appeal, setting aside the Tribunal's judgment.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, relevant case laws, and the court's reasoning leading to the final decision.