2014 (8) TMI 700 - AT - Central Excise

CENVAT Credit - input services - services used for construction of the railway siding - Nexus with manufacturing activity - Held that - During the period of dispute, that is, during period from June 2008 to March 2010, the definition of input service covered the services used in relation to - procurement of inputs and also the activities relating to business . It is not disputed that the appellant have a captive power plant in their factory which uses coal and coal is transported to the factory by railways and for this purpose only, a railway siding was constructed at railway station Namli on Ratlam - Chittor Section. The construction of railway siding at railway station Namli is only to facilitate the transportation of coal to the appellant s factory and, therefore, this service has to be treated as service used in or in relation to procurement of input. The transportation of coal, which is necessary for generation of electricity in the captive power plant, is in my view, integrally connected with the business of manufacturing of the final product and therefore the services received for construction of railway siding have to be treated as services used in or in relation to procurement of inputs and also the activities relating to Business of manufacture of the final product. In view of the above discussion, I hold that the service in question is covered by the definition of input services and would be eligible for Cenvat credit - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of Cenvat credit for engineering consultancy service received for construction of railway siding at a distant location.
2. Interpretation of 'input service' and 'activities relating to business' under Cenvat Credit Rules, 2004.
3. Nexus between services received and manufacture of final product.

Analysis:
1. The appellant, engaged in manufacturing manmade fabrics with a captive power plant, received engineering consultancy services for constructing a railway siding at a distant location to facilitate coal transportation for power generation. The Department disallowed Cenvat credit on the grounds of lack of nexus with the final product's manufacture. The Assistant Commissioner and Commissioner (Appeals) upheld the disallowance. The appellant contended that the construction of the railway siding was integral to the procurement of coal, a crucial input for power generation, and thus eligible for Cenvat credit.

2. The appellant argued that the construction of the railway siding was an activity directly related to the business of manufacturing the final product, citing precedents like Maruti Suzuki Ltd. vs. Commissioner and CCE, Nagpur vs. Ultratech Cement Ltd. The appellant emphasized that the definition of 'input service' includes services integral to the manufacturing business, whether directly or indirectly related to the final product. The appellant relied on judgments highlighting the broad interpretation of 'activities relating to business' under the Cenvat Credit Rules, 2004.

3. The Tribunal analyzed the definition of 'input service' during the relevant period, emphasizing services used in relation to procurement of inputs and activities relating to business. Considering the captive power plant's reliance on coal transported via the constructed railway siding, the Tribunal found a direct nexus between the service received and the business of manufacturing the final product. Citing the Bombay High Court's ruling in CCE, Nagpur vs. Ultratech Cement Ltd., the Tribunal concluded that the service for constructing the railway siding was indeed an input service eligible for Cenvat credit. Consequently, the impugned order disallowing the credit was set aside, and the appeal was allowed.