2015 (6) TMI 407 - AT - Service Tax

Denial of CENVAT Credit - Security services - Held that - Credit has been taken in respect of services which were availed in the residential colony/club house of the appellant - what is permitted is the input services which are integrally connected with the manufacturing of the final product, and residential colony for the employees and the clubs are welfare activity for the staff undertaken by the appellant while carrying the business but has no nexus with the business of the manufacturing the final product. Under these circumstances, the appeals filed by the appellant are devoid of any merits. - However, penalty is set aside - Decided partly in favour of assessee.

Summary

Issues:
1. Availment of credit of service tax on various services provided at a housing colony and club room attached to a manufacturing unit.
2. Interpretation of the nexus between services rendered at the residential colony/club house and the business activity.
3. Applicability of the Hon'ble High Court judgments in Ultra Tech Cement Ltd. and Manikgarh Cement cases.
4. Imposition of penalty under Section 11AC read with Rule 15(2) of CENVAT Credit Rules.

Analysis:

Issue 1:
The appellant availed credit of service tax on security services, repair of mixer, civil work, furniture/wooden partition, and telephone lines provided at the residential colony and club room from November 2005 to September 2010. A demand was raised, and subsequent appeals were filed against the orders confirming the demand for the period October 2010 to March 2011.

Issue 2:
The appellant contended that the residential colony and club room were essential for the functioning of the factory, citing judgments like Ultra Tech Cement Ltd. and ITC Ltd. The appellant argued that the services were integrally connected with the business of manufacturing the final product. However, the Revenue argued that the services provided at the residential colony did not qualify as input services under the CENVAT Credit Rules.

Issue 3:
The Hon'ble High Court of Bombay in the Manikgarh Cement case emphasized the necessity of establishing a nexus between the services rendered at the residential colony and the business activity to qualify as input services. The court held that services for the benefit of employees, like repairs and maintenance at the residential colony, do not have a direct connection with the business activity of the assessee.

Issue 4:
The Tribunal considered the conflicting interpretations by different authorities on the issue of availing credit for services provided at residential colonies. Despite dismissing the appeals on merit, the Tribunal decided not to impose a penalty under Section 11AC read with Rule 15(2) of CENVAT Credit Rules due to the disputes and varying views on the issue during the relevant period.

Overall, the Tribunal dismissed the appeals, emphasizing the importance of establishing a direct nexus between services provided at residential colonies and the manufacturing business to qualify for CENVAT credit. The judgment highlighted the need for clarity on what constitutes input services and the significance of consistent interpretations in tax matters.