2018 (5) TMI 2020 - AT - Service Tax

CENVAT Credit - input/input services - nexus with business activity - appellant s claim is that having included expenses in the cost of production, they are entitled to avail Cenvat Credit - HELD THAT - Hon ble Supreme Court, Hon ble High Courts and the Tribunal in various decisions have specifically held that any expenditure incurred by an assessee, if it forms part of the price of the final product, on which Excise Duty is paid, Cenvat Credit must be allowed on the said Service Tax, if the manufacturer can demonstrate that the said expenses are in relation to the manufacture of final product. The Central Excise Duty paid by the appellant on their finished goods is on ad-velorom which has been arrived at after considering all the expenses that had gone into manufacturing of the finished goods. In so far as the present facts of the case is concerned, it is not in dispute that the credit of Service Tax has been availed on services such as maintenance and repair of colony area which were received and used by the assessee for the purpose of manufacture of the final product and these cost formed part of the excisable value on which Excise Duty was discharged - The maintenance and repair service of various civil and electrical work, carpenter work has been availed at the school, colony and the club maintained by the appellant for its employees. However, Cenvat Credit of Service Tax Paid on service availed at the club premises cannot be allowed. The period involved is prior to 01/04/2011, when the definition of input service during the relevant period had wide ambit as it included the words activities related to business . The definition which included these words has been discussed in detail by various High Courts - the appellant, assessee is eligible for availing credit of Service Tax paid on the Services availed for the purposes of its business activities except the services availed in respect of the staff club. Appeal allowed in part.

Summary

Issues involved:
Availment of Cenvat Credit on Service Tax for business activities.

Analysis:

Issue 1: Availment of Cenvat Credit on Service Tax for business activities
The case involved the appellant, engaged in the manufacture of paper and paperboard, facing a Demand-cum-Show Cause Notice for alleged wrongful availment of Cenvat Credit on Service Tax during a specific period. The Adjudicating Authority disallowed the credit along with interest and imposed a penalty, which was upheld by the Ld. Commissioner (Appeals). The appellant contended that they were entitled to the credit as the expenses incurred were part of the cost of production. The Tribunal considered the definition of "input" and "input service" and various judicial precedents. It was noted that any expenditure forming part of the final product's price, on which Excise Duty is paid, should allow Cenvat Credit if related to the manufacture of the final product. The appellant had availed credit on services like maintenance and repair of colony areas used for manufacturing, which formed part of the excisable value. The Tribunal acknowledged the necessity of integrated townships for factories in remote locations to attract and retain personnel, linking such expenses to the manufacturing activity. The Tribunal allowed the credit on services related to business activities, except those at the staff club, for the period before 01/04/2011 when the definition of input service had a broader scope.

In conclusion, the Tribunal partly allowed the appeal, permitting the appellant to avail Cenvat Credit on Service Tax paid for services utilized for business activities, except for services at the staff club.

This judgment provides clarity on the eligibility of Cenvat Credit on Service Tax for expenses related to business activities, emphasizing the link between expenses, manufacturing, and excisable value. It underscores the importance of integrated townships for factories in remote locations and interprets the definition of input service in light of judicial interpretations.