2016 (5) TMI 89 - AT - Service Tax

Admissibility of Cenvat credit - Service tax paid in respect of various service provided in relation to the maintenance of health of factory workers - Held that - employees were working in a situation calling for medical necessity and safety controlling of pollution and health hazards. Law need not necessarily codify each and every item as input used in or in relation to manufacture. The basic principle being use of input in or in relation to manufacture such test is to be applied to consider allowance of CENVAT credit of the service tax paid on the input utilized and having relevance to the output manufactured. The present case is within such parameter of law for which the appellant deserves consideration. Therefore the service tax paid in respect of health care service provided to the factory workers shall be admissible as CENVAT credit. CENVAT credit claimed on guest house has no relevance to output service so the appellant shall not get any CENVAT credit of service tax if any on such count. Imposition of penalty - Held that - as the appellant have succeeded on merits there shall be no penlaty on health service. So far as guest house maintenance service is concerned there appears no deliberate intention of appellant to cause any evasion. Therefore penalty on such issue is also waived. - Decided partly in favour of appellant.

Summary

Issues:
1. Admissibility of service tax paid on health care service for factory workers as CENVAT credit.
2. Relevance of CENVAT credit claimed on guest house maintenance service.
3. Applicability of penalty on health service and guest house maintenance service.

Analysis:
1. The judgment addresses the admissibility of service tax paid on health care service for factory workers as CENVAT credit. The learned counsel argued that maintaining the health of workers in hazardous situations is essential under statute and employment conditions. It was highlighted that controlling pollution, ensuring safety measures, and addressing health hazards are integral to manufacturing activities. The tribunal agreed that such expenses are not alien to manufacturing and fall within the ambit of utilizing inputs "in or in relation to manufacture." Consequently, the service tax paid on health care services for factory workers was deemed admissible as CENVAT credit, leading to the appellant's success on this issue.

2. Regarding the CENVAT credit claimed on guest house maintenance service, the tribunal found that it lacked relevance to the output service. As a result, the appellant was not entitled to any CENVAT credit for service tax paid on this account. The judgment differentiated between the admissibility of credits based on their direct connection to the manufacturing process, emphasizing the necessity of a clear link between the input and the output service.

3. The judgment also considered the applicability of penalties on the health service and guest house maintenance service issues. It was noted that since the appellant succeeded on the merit of the health service issue, no penalty was imposed in that regard. Similarly, for the guest house maintenance service, where there was no deliberate intention to evade taxes, the penalty was waived. The tribunal emphasized that in cases involving interpretation of law, the extended period of limitation should not be automatically attracted, showcasing a balanced approach to penalty imposition based on the circumstances of each issue.

In conclusion, the appellate tribunal partially allowed the appeal, granting relief on the admissibility of CENVAT credit for health care services while denying the same for guest house maintenance services. Penalties were waived due to the appellant's success on the health service issue and the absence of deliberate evasion in the guest house maintenance service context.