2013 (4) TMI 593 - AT - Central Excise

Entitlement of Cenvat Credit construction activity - AR argued that both construction of workers quarters and vastuwall have no relationship with the manufacturing activity and, therefore, Cenvat Credit with respect to construction of workers quarters and vastuwall is not admissible. Held that - applying the ratio laid down by the Hon ble Apex Court in the case of Maruti Suzuki Limited vs. CCE, Delhi 2009 (8) TMI 14 , we hold that unless the nexus is established between the services rendered and the business carried on by the assessee, the benefit of CENVAT Credit is not allowable. It is held that workers quarters and the vastuwall made inside the factory have no relationship with the manufacturing activity of the appellants and accordingly credit taken with respect to construction of same will not be covered within the definition of input service as defined under Rule 2(1). Matter remanded to the Original Adjudicating Authority for quantification of the above demand. So far as imposition of penalty is concerned, as issues were under litigation. Therefore, penalty under Rule 15(2) read with Section 11AC cannot be invoked and is accordingly set-aside.

Summary

Issues involved:
- Admissibility of Cenvat Credit for construction of workers quarters, go-down, and Vastuwall within factory premises.

Analysis:
1. The appeal addressed whether the appellant could claim Cenvat Credit for construction activities like workers quarters, go-down, and Vastuwall between May 2009 to July 2009. The appellant argued that since the constructions were within the factory premises, they were eligible for the credit, citing various judgments supporting their stance.

2. The respondent contended that the construction of workers quarters and Vastuwall did not relate to manufacturing activities, thus making the Cenvat Credit inadmissible. The respondent relied on judgments from CESTAT New Delhi and the High Court of Judicature at Bombay to support their argument, emphasizing the need for a clear nexus between the services rendered and the business activities.

3. The tribunal analyzed the precedents cited by both parties. It was established that a direct connection between the services availed and the business conducted by the assessee was crucial for Cenvat Credit eligibility. While the construction of go-downs within the factory premises was deemed admissible as they were used for storage related to manufacturing activities, the workers quarters and Vastuwall were found to lack such a connection, rendering the credit inadmissible.

4. Consequently, the tribunal ruled that Cenvat Credit for the go-down construction was permissible, while the credit for workers quarters and Vastuwall was not. The matter was remanded to the Original Adjudicating Authority for quantification of the demand related to workers quarters and Vastuwall, with the decision confirmed along with interest.

5. Regarding the imposition of penalties, the tribunal noted that the issues surrounding the case were subject to litigation and dispute, leading to the setting aside of penalties under Rule 15(2) of the Cenvat Credit Rules, 2004, in conjunction with Section 11AC.

In summary, the judgment clarified the criteria for admissibility of Cenvat Credit for construction activities within factory premises, emphasizing the necessity of a direct nexus between the services rendered and the business operations to determine credit eligibility.