2019 (2) TMI 569 - AT - Central Excise

CENVAT credit - input services - site supervision in connection with setting up of 33 KV line services - deletion of the word setting up from the inclusive part of input service definition w.e.f. 01/04/2011 - Held that - The substantial portion of the input service credit amounting to ₹ 3,17,246/- relates to the Terminal Bay for ensuring continuous power supply to the manufacturing unit from the State Electricity Board which is directly used for the manufacturing of the final product and therefore even after the amendment, these services fall in the definition of input service. It is now settle law that cenvat credit is available if the input services are used in or in relation to the manufacturing of final product and if the nexus of such services with manufacture is established. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of input services under CENVAT Credit Rules, 2004
- Eligibility of CENVAT credit on services related to setting up of factory
- Application of the definition of input service in relation to the manufacture of final products

Interpretation of Input Services under CENVAT Credit Rules, 2004:
The appeal was directed against the Commissioner(Appeals)'s order rejecting the appellant's appeal regarding the availment of CENVAT credit on input services. The Departmental officers audited the unit and found that the appellant availed credit on services like erection, commissioning, and installation services, which were deemed ineligible under Rule 2(l) of CENVAT Credit Rules, 2004. A show-cause notice was issued for recovery of wrongly availed credits, leading to disallowance and penalties. The appellant contended that the authorities narrowly interpreted the definition of input service. The authorized representative argued for the eligibility of credits on various services, including setting up of 33 KV Terminal Bay, software services, security services, freight inward service, and insurance service. The appellant cited the Bombay High Court judgment for a broader interpretation of input services.

Eligibility of CENVAT Credit on Services Related to Setting up of Factory:
The appellant justified the eligibility of CENVAT credit on services related to setting up the 33KV Terminal Bay for continuous power supply to the manufacturing unit. The representative argued that these services directly related to the manufacturing activity and fell within the definition of input service. The Tribunal noted that the services in question were used for the manufacturing of final products and had a direct nexus with the manufacturing process. The Tribunal emphasized that even after the amendment, services used in or in relation to the manufacturing of final products were eligible for CENVAT credit. The Tribunal highlighted the widening scope of the definition and the importance of establishing a nexus between the services and the manufacture of final products.

Application of the Definition of Input Service in Relation to the Manufacture of Final Products:
After considering both sides' submissions and reviewing the material, the Tribunal found that all the input services under question related to the factory used for manufacturing final products. The substantial portion of the credit amount was directly linked to ensuring continuous power supply, which was essential for the manufacturing process. The Tribunal reiterated that CENVAT credit was available for services used in or in relation to the manufacturing of final products, emphasizing the importance of the nexus between the services and the manufacturing process. Citing previous judgments, the Tribunal concluded that the impugned order was not sustainable in law and allowed the appeal, providing consequential relief to the appellant.

This detailed analysis of the judgment highlights the issues of interpretation of input services, eligibility of CENVAT credit on services related to setting up the factory, and the application of the definition of input service in relation to the manufacture of final products. The Tribunal's decision focused on the broader interpretation of input services and the nexus between the services and the manufacturing process, ultimately allowing the appeal and providing relief to the appellant.