2011 (11) TMI 516 - HC - Service Tax

Cenvat credit - Input services - service tax credit on the input services pertaining to maintenance of its staff colony, plantation and godown for the period October, 2005 to January, 2007. - held that - the phrase input service has been given the widest amplitude. The definition by its very nature is an inclusive one and the words used therein leave no room to doubt that all services used in relation, directly or indirectly, to the manufacture of final products and clearance of such products upto the place of removal are covered. The inclusive part of the definition manifests that services used in relation to the setting up of the factory or office or premises, including its modernization, renovation, repair etc., and also services used in relation to advertisement, sales promotion, market research, procurement of inputs and all activities relating to the business would also fall within the ambit of input services . The staff colony, provided by the respondent Company, being directly and intrinsically linked to its manufacturing activity could not therefore be excluded from consideration. Consequently, the services which were crucial for maintaining the staff colony, such as lawn mowing, garbage cleaning, maintenance of swimming pool, collection of household garbage, harvest cutting, weeding etc., necessarily had to be considered as input services falling within the ambit of Rule 2( l ) of the CENVAT Rules, 2004. .As regards the plantation activity, the same had an obvious nexus with the manufacturing activity of the respondent Company. - Cenvat Credit allowed.

Summary

Issues:
- Entitlement to input service tax credit for maintenance of staff colony and plantation
- Interpretation of Rule-2(l) of the CENVAT Credit Rules, 2004

Analysis:

Issue 1: Entitlement to input service tax credit for maintenance of staff colony and plantation
The respondent Company, engaged in manufacturing paper and paper boards, claimed service tax credit for maintaining its staff colony, plantation, and godown. The excise authorities issued Show Cause Notices challenging this claim. The respondent justified the credit by explaining the necessity of providing residential accommodation in a remote area for its employees to ensure a conducive working environment. The authorities initially disallowed the credit, leading to recovery orders and a penalty. However, the CESTAT overturned these decisions, emphasizing the direct link between the staff colony and the manufacturing activity. The CESTAT held that services like lawn mowing, garbage cleaning, and maintenance activities for the colony were integral to the manufacturing process, falling within the ambit of Rule 2(l) of the CENVAT Rules, 2004.

Issue 2: Interpretation of Rule-2(l) of the CENVAT Credit Rules, 2004
The CESTAT analyzed the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, which includes services used directly or indirectly in the manufacture and clearance of final products. The definition encompasses activities related to factory setup, modernization, procurement of inputs, and other business functions. The CESTAT highlighted the broad scope of the definition, emphasizing that all services connected to manufacturing activities are covered. In this case, the CESTAT found that the plantation activity undertaken by the respondent Company, aimed at ensuring a steady supply of raw material (wood), was directly linked to the manufacturing process. The CESTAT concluded that the respondent Company was entitled to avail input service credit for the maintenance of its plantation and staff colony, dismissing the revenue's appeals.

In conclusion, the CESTAT's decision upheld the respondent Company's entitlement to input service tax credit for maintaining its staff colony and plantation, based on the direct nexus of these activities with the manufacturing process. The judgment reaffirmed the inclusive nature of the definition of "input service" under the CENVAT Credit Rules, 2004, emphasizing the wide range of services covered under the rule.