2015 (7) TMI 930 - HC - Service Tax

CENVAT Credit - input services - inclusion part - Credit availed on Civil Construction service - inadmissible services or not - Held that - If, the said services were not covered by Rule 2(l), it would not have been necessary to introduce the amendment. It is clear, therefore, that prior to the amendment the setting up of a factory premises of a provider for output service relating to such a factory fell within the definition of input service . The amendment of 2011 is not retrospective and is not applicable to the respondents case. - Each limb of the definition of input service can be considered as an independent benefit or concession exemption. If an assessee can satisfy any one of the limbs of the above benefit, exemption or concession, then credit of the input service would be available. This would be so even if the assessee does not satisfy other limb/limbs of the above definition. To illustrate, input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products upto the place of removal. The Tribunal rightly did not agree with the Commissioner s findings that the services in question had been used for brining into existence an immovable property and not for the manufacture of the final product. The said services cannot be said to be remotely connected to the final product as observed by the Commissioner. - Decided against assessee.

Summary

Issues:
Challenge to order setting aside disallowance of Cenvat Credit
Interpretation of "input service" under Cenvat Credit Rules

The judgment pertains to an appeal challenging the order of the Customs, Excise and Service Tax Appellate Tribunal, which set aside the Commissioner's decision disallowing Cenvat Credit availed by the respondents amounting to Rs. 1,45,32,300. The issue revolved around whether the services for which the credit was claimed were admissible as "input services" under the Central Excise Act, 1944. The respondents, engaged in manufacturing metal-sheet components for motor vehicles, had availed Cenvat Credit for service tax paid on civil construction work and lease rental for the factory premises. The Commissioner held that these services did not qualify as input services, leading to the recovery demand and penalty imposition. The primary question was whether these services were directly or indirectly related to the manufacturing process.

The appellant contended that the Cenvat Credit for civil work and lease rental was inadmissible, emphasizing that the services were not directly linked to the manufacturing activity. The Commissioner, in disallowing the credit, argued that the definition of "input service" did not encompass services remotely contributing to manufacturing. It was highlighted that immovable property, like a factory, did not qualify as goods or services eligible for input credit. The Commissioner referred to a CBEC Circular and held that commercial or industrial construction services were not eligible as input services for immovable property not subject to central excise duty or service tax.

On the other hand, the respondents argued that the services in question were essential for the manufacturing process and fell within the definition of "input service." They contended that the civil construction work and lease rental directly or indirectly contributed to the manufacture of the final product, justifying the Cenvat Credit availed. The respondents' counsel highlighted the inclusive nature of the definition of "input service" and emphasized that the services were necessary for setting up the factory, a crucial aspect of the manufacturing process.

The High Court analyzed the provisions of the Cenvat Credit Rules, specifically Rule 2(l)(ii), which defines "input service." The Court agreed with the respondents' interpretation, stating that the civil construction work and lease rental for the factory premises qualified as input services under the rules. The Court emphasized that the services were directly or indirectly related to the manufacturing process and were essential for the manufacture of the final product. The Court referred to a Division Bench judgment of the Bombay High Court, supporting the broad interpretation of "input service" to include services contributing to the manufacturing process.

Ultimately, the High Court dismissed the appeal, upholding the Tribunal's decision in favor of the respondents. The Court concluded that the civil construction work and lease rental services were eligible for Cenvat Credit as they were directly or indirectly linked to the manufacturing activity. The judgment clarified the scope of "input service" under the Cenvat Credit Rules and emphasized the importance of a broad interpretation to include services essential for the manufacturing process.