2016 (12) TMI 15 - AT - Central Excise

CENVAT credit - commercial construction services used for the construction of annealing sheds, pickling sheds, EB room, wire drawing room, compound wall, rest room, toilet, security room, overhead tank, road laying etc - whether the allegation that assessee had contravened the provisions of Rule 2 (l) and Rule 3 of CCR 2004 by availing credit on ineligible input services as the said services have not been used for providing any output service as well as the said services are not used by the respondents directly or indirectly, in or in relation to the manufacture of final products and for clearances of final products, is justified? Held that - the processing of goods was in relation to manufacture implies not only production but the various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes through which the raw material is subjected, the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Whether any particular process is so integrally connected with the ultimate production of goods but for that, process, manufacture or processing of goods would be impossible or commercially inexpedient, that process is the one in relation to the manufacture. There is no warrant for limiting the meaning of expression in the manufacture of goods through the process of production of goods. I find that the construction of compound wall, rest room, toilet, security room, overhead tank, road laying activity project work or CC work, painting work, annealing sheds, pickling sheds, EB room, wire drawing room are all necessary to run the factory or not depends on the activity undertaken by the manufacture or as per the requirement of their manufacturing activity. In this case, from the facts, it emerges that all the constructions are integral part of the factory and hence credit taken over the input services by the respondents is eligible. I also find that in view of the clarification issued by the Board s circular dt. 29.4.2011 cited (supra) and in view of the fact that the services have been rendered and billed prior to 1.4.2011 for which payment has also been paid on 1.12.2007 i.e. prior to 1.4.2011. Hence in this view of the matter also, the input service tax credit is eligible as clarified by the above mentioned Board s circular. CENVAT credit allowed - appeal disposed off - decided against Revenue.

Summary

Issues:
Entitlement to avail input service credit of service tax paid on construction in the factory premises.

Analysis:
The case revolved around the entitlement of the respondents to avail input service credit of service tax paid on construction in the factory premises. The Revenue contended that certain constructions like compound wall, rest room, toilet, security room, overhead tank, and road laying activities were not necessary for the manufacturing activities, thus ineligible for credit. The appellant argued that these constructions were integral for smooth factory operations, emphasizing security and necessity. The Revenue cited a Board's clarification to support their stance. However, the appellant referenced a Board's circular and relevant case laws to support their claim of necessity and indirect support to manufacturing activities.

The Tribunal analyzed the submissions and legal provisions to determine the eligibility of input service credit. It noted that the law does not permit availing service tax credit on every construction service and highlighted the importance of constructions directly or indirectly related to the manufacturing process. Referring to a Bombay High Court judgment, the Tribunal emphasized that processes integral to the production of goods, even if not directly involved in production, are eligible for credit. It concluded that the constructions in question were essential for factory operations based on the manufacturing activity undertaken by the respondents. Additionally, the Tribunal considered the payment date and the Board's circular clarifying credit eligibility for services rendered before a certain date. It upheld the Commissioner (Appeals) order, rejecting the Revenue's appeal based on the integral nature of the constructions to the manufacturing process and the relevant legal clarifications.

In the final judgment pronounced on 07.09.2016, the Tribunal affirmed the eligibility of input service tax credit for the constructions in question, emphasizing their necessity for factory operations and compliance with the Board's circular. The Tribunal also addressed the Revenue's corrigendum issue, concurring with the Commissioner (Appeals) decision and ultimately rejecting the Revenue's appeal.