2017 (9) TMI 25 - HC - Service Tax

CENVAT credit - input services - construction of a Dormitory - Whether the CESTAT is correct in allowing Cenvat credit in respect of construction services used in constructions of dormitory even when there is no co-relation between such input services and manufacture/clearance of finished goods as these services are more closely associated to welfare activity? - Held that - It is a jurisdictional issue which ought to have been examined by Revenue authorities, but not done - Tribunal has committed manifest error by misreading order of Commissioner as we find that with regard to situation of Dormitory, whether it is within precinct of factory or not, though there is contradictory stand taken by assessee and Revenue, but no specific finding has been recorded by Commissioner and Tribunal has proceeded on assumption that it is within the premises of Factory. This observation of Tribunal is patently erroneous - matter remanded for fresh consideration - appeal allowed by way of remand.

Summary

Issues:
1. Availability of Cenvat credit for construction of a dormitory.
2. Determination of whether the dormitory is within the precinct of the factory premises.

Analysis:
1. The appeal under Section 35G of the Central Excise Act, 1944 was filed concerning the allowance of Cenvat credit for the construction of a dormitory. The Tribunal had allowed the assessee's appeal regarding the Cenvat credit for the period up to September 2008. The substantial questions of law included the correlation between the construction services and the manufacture/clearance of finished goods, the correctness of the Tribunal's decision in allowing the appeal, and the disallowance of Cenvat credit taken on the construction of the dormitory. The main contention revolved around whether the services were closely associated with welfare activity or manufacturing processes.

2. During the argument, it was revealed that a fundamental issue was whether the dormitory was within the precinct of the factory premises. The availability of Cenvat credit hinged on this crucial fact. The Tribunal had assumed the dormitory was within the factory's precinct, but it was disputed whether this was the case. The Commissioner's order highlighted the dispute between the parties regarding the location of the dormitory, with the Revenue presenting evidence that it was constructed outside the factory premises. However, the Commissioner did not explicitly state his conclusion on the location of the dormitory, leading to a lack of clarity on this jurisdictional issue.

3. The High Court found errors in the Tribunal's and Commissioner's approach, noting that a specific determination on the dormitory's location within the factory premises was necessary before assessing the Cenvat credit eligibility. As both parties had conflicting claims on the dormitory's location, a definitive finding by the Revenue authorities was crucial. The Court emphasized that resolving this jurisdictional issue was paramount before delving into the nexus between the dormitory and business activities for Cenvat credit eligibility. Consequently, the High Court set aside the Tribunal's order and remanded the case for a proper examination of the dormitory's location within the factory premises.

4. The High Court left other questions open for future consideration, emphasizing the importance of first determining the dormitory's precise location. Once this crucial issue is resolved by the Tribunal, further proceedings can be pursued by the involved parties. Ultimately, the appeal was allowed based on the necessity of establishing the dormitory's position within the factory premises to determine the Cenvat credit eligibility accurately.