2018 (11) TMI 1748 - HC - Central Excise

CENVAT credit - input services - statutory compliances - Whether an activity carried out in compliance of statutory requirement under a particular Act alone would make the said activity/service as input service under Rule 2(l) of the Cenvat Credit Rules, 2004 especially when such service/activity has no nexus in or integral connection to the manufacture of final product? HELD THAT - The decision in the case of Millipore India Pvt. Ltd. 2011 (4) TMI 1122 - KARNATAKA HIGH COURT , was taken note of by the Division Bench of this Court in the case of Rane TRW Steering Systems Ltd. 2015 (4) TMI 704 - MADRAS HIGH COURT , and it was held that when the employer spends money to maintain factory premises in an eco-friendly manner based upon the directives issued by the Statutory Authorities, the tax paid on such services would form part of the costs of the final product, that the same would fall within the ambit of input services and that the assessee is entitled to claim the benefit. The Tribunal rightly decided the issue in favour of the assessee - appeal dismissed - decided in favor of assessee.

Summary

Issues:
Appeal under Section 35G of the Central Excise Act, 1944 against a common order passed by the Tribunal - Interpretation of Rule 2(l) of the Cenvat Credit Rules, 2004 regarding input services - Entitlement to Cenvat credit for maintaining green belt area as per statutory requirements.

Analysis:
The High Court heard appeals by the Revenue against a common order of the Tribunal. The main issue was whether an activity carried out in compliance with statutory requirements would qualify as an input service under Rule 2(l) of the Cenvat Credit Rules, 2004, even if it lacked a direct connection to the manufacture of the final product. The assessee contended that maintaining plantations as per directions under the Water Act was erroneously considered as gardening services. The Tribunal considered the precedent set by the Division Bench in a similar case and the decision of the Karnataka High Court in Commissioner v. Millipore India Pvt. Ltd. The Court held that expenses incurred to fulfill statutory obligations in an eco-friendly manner would be part of the final product's costs, making the tax paid on such services eligible for Cenvat credit. Consequently, the appeal by the Revenue was dismissed.

The Court referenced the Millipore India Pvt. Ltd. case in another judgment and reiterated that expenses for maintaining factory premises as per statutory directives would constitute input services, entitling the assessee to claim benefits. The Court agreed with the Tribunal's decision in favor of the assessee, emphasizing that spending on statutory compliance in an eco-friendly manner would be part of the final product's costs. As a result, the appeal by the Revenue was dismissed, and the substantial question of law was answered in favor of the assessee without any costs being awarded.