2009 (6) TMI 63 - AT - Service Tax

Cenvat credit of the service tax paid on security service received in the off-factory residential colony belonging to the assessee Cenvat credit of the service tax paid on security service received in the off-factory residential colony belonging to the assessee Held that - the orders of the lower appellate authority granting CENVAT credit to the assessee in respect of security services arranged by the company in the off-factory residential colony cannot be sustained and the same are set aside to the extent the above benefit was given

Issues:
1. Disallowance of CENVAT credit on security service.
2. Correct interpretation of the definition of "input service."
3. Application of the rule of ejusdem generis.
4. Deciphering the principle of allowing CENVAT credit on taxable services.
5. Imposition of penalties on the assessee.

Issue 1: Disallowance of CENVAT credit on security service
The original authority disallowed CENVAT credit on security service to the assessee under rule 14 of the CENVAT Credit Rules, 2004. The authority also ordered recovery of interest under section 11AB of the Act and imposed a penalty on the assessee under rule 15 of the same Rules. The Commissioner (Appeals) allowed the appeals of the assessee, leading to the revenue's present appeals. The question at hand is whether the lower appellate authority was correct in allowing CENVAT credit for the service tax paid on security services. The revenue argued that security service does not meet the requirements of the definition of "input service" under the CENVAT Credit Rules, while the respondent contended that since "security" is specifically mentioned in the inclusive part of the definition, CENVAT credit should be admissible. The case revolves around the correct interpretation of the definition of "input service."

Issue 2: Correct interpretation of the definition of "input service"
The definition of "input service" includes services used by a provider of taxable service for providing an output service or used by the manufacturer directly or indirectly in relation to the manufacture of final products. The inclusive part of the definition lists various services eligible for CENVAT credit, including security. However, the provision of security at the residential colony was deemed not directly related to the business of manufacturing and clearing excisable products. The judgment highlighted the need for the services mentioned in the inclusive part to satisfy the parameters of the main part of the definition, indicating that the two parts are not independent of each other.

Issue 3: Application of the rule of ejusdem generis
The application of the rule of ejusdem generis was discussed concerning security services provided in a place unconnected with the business activities of the manufacturer. The judgment emphasized that security, in such cases, would not qualify as an "input service" within the inclusive part of the definition, even without reference to the main part. The judgment also referenced the Draft Credit Rules of 2004 to support this interpretation.

Issue 4: Deciphering the principle of allowing CENVAT credit on taxable services
The judgment analyzed the principle of allowing CENVAT credit on taxable services, as outlined in the Draft Credit Rules of 2004. The principle covered three cases where credit would be allowed, none of which applied to the respondent's case involving security services in the off-factory residential colony.

Issue 5: Imposition of penalties on the assessee
The judgment addressed the imposition of penalties on the assessee by the original authority. The penalties were set aside considering the interpretation of the relevant provisions of the CENVAT Credit Rules in favor of the revenue. The judgment concluded that penalties should not be imposed on the assessee in such circumstances, and the orders of adjudication were restored save for the penalties.

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