2014 (12) TMI 1139 - AT - Service Tax

Denial of CENVAT Credit - Manpower supply service - cleaning of the yard within the factory - weighment of sugar cane - cane area survey and sugar can development - Held that - As regards cleaning of the yard within the factory as per the provisions of the factories act provision of Section 11 of the Factories Act it is the responsibility of a manufacturer to keep the factory premises neat and clean therefore the cleaning of the factory has to be treated as activity in or in relation to manufacture of the final product. Therefore the Cenvat credit in respect of this activity would be admissible. - As regards the weighment of sugar cane and its unloading at the factory this activity has to be treated as activity in relation to manufacture of sugar and molasses. Therefore I hold that Cenvat credit would be admissible in respect of this activity also and the same has been wrongly denied. As regards the cane area survey and sugar can development by educating the farmers and by other means the purpose of this activity is to ensure supply of good quality sugar cane which is a must for any sugar manufacturing business. In view of this this activity has to be treated as having nexus with manufacturing business of the appellant - question of eligibility for Cenvat credit of the activities of sugar cane area survey and sugar cane development has to be seen on the basis as to whether these activities have nexus with the business of manufacture of sugar. In my view while these activities may not have nexus with manufacture of sugar these activities certainly have nexus with the business of manufacture of sugar as the supply of good quality sugar cane with good sugar recovery is a must for the business of manufacture of sugar. Therefore I hold that the Cenvat credit in respect of these activities would be admissible. Any expenditure incurred by a manufacturer is deemed to be included in the price charged by him from his customers and therefore the manufacture is not required to prove that the expenses incurred by him on various inputs and input services used in the manufacture of the final product has been included in the price charged by him. - the impugned order is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of Cenvat credit on manpower supply services used for various activities in a sugar mill.

Analysis:
The case involved a sugar mill appellant taking Cenvat credit on manpower supply services utilized for different tasks related to the sugar manufacturing process. The Department contended that these services lacked nexus with the actual manufacture of sugar and molasses, thus rendering them ineligible for Cenvat credit. The Additional Commissioner upheld this view, leading to an appeal to the Commissioner (Appeals) and subsequently to the CESTAT.

Cleaning of Factory Yard:
The appellant argued that cleaning the factory yard is essential as per the Factories Act, making it a necessary activity in or in relation to the manufacture of the final product. The CESTAT agreed, ruling that Cenvat credit for this activity should be allowed.

Weighment of Sugar Cane and Unloading:
Regarding the weighment and unloading of sugar cane at the factory, the CESTAT determined that these activities are directly related to the manufacture of sugar and molasses. Thus, Cenvat credit for these tasks was wrongly denied and should be permissible.

Cane Area Survey and Sugar Cane Development:
The most contentious issue revolved around the cane area survey and sugar cane development activities. The appellant argued that these tasks were crucial for ensuring the supply of good quality sugar cane, which is vital for sugar manufacturing. Citing relevant case law, including the judgment of the Bombay High Court, the appellant contended that these activities had a close nexus with the business of manufacturing sugar. The CESTAT concurred, emphasizing that the definition of 'input service' under the Cenvat Credit Rules is broad and covers services integral to the business of manufacturing the final product. Therefore, Cenvat credit for these activities should be allowed.

Evidence of Cost Inclusion:
The Department raised concerns about the lack of evidence showing that the cost of these services was included in the price of the final product. However, the CESTAT clarified that manufacturers are not required to prove such inclusion, as any expenses incurred are deemed to be part of the final product's price.

In conclusion, the CESTAT set aside the impugned order, allowing the appeal and ruling in favor of the appellant based on the detailed analysis and interpretation of the nexus between the activities and the manufacturing process of sugar and molasses.