2023 (2) TMI 940 - AT - Central Excise

Rejection of CENVAT Credit - input services - construction work - maintenance of garden - consulting service - transport charges - clearing and forwarding charges - godown charges - professional charges - audit and training fee - legal charges - analytical charges - staff welfare charges - period August, 2007 to July, 2008 - HELD THAT - Input services has been defined under Rule 2(l) of the Cenvat Credit Rules, 2004. The definition of input service is broadly in two parts i.e. main part and inclusive part. First part of the definition is restrictive in scope as it covers input services directly or indirectly used in relation to manufacture or clearance of final product. Whereas the latter part which is inclusive part of the definition expands the scope to such an extent that input services which are only remotely connected with the manufacture of goods will also get covered so long as these are related to the activities of business. Meaning thereby that inputs either directly or indirectly used in any activity concerned with or pertaining to the manufacture of finished goods, is eligible to be claimed as an input service. Professional Charges - Legal Charges - Audit Training Charges - HELD THAT - Since these services are interconnected therefore I am taking them together. This service pertains to the professional, legal and other charges paid for insurance of import and export material, DGFT license work, certificate of transfer pricing under Income Tax Act, handling of appellants legal matters, drafting, liasoning work, etc. Cenvat credit on these services have been denied on the ground of no-nexus . There is no dispute that professional service and legal service are one of the important services without which the operation of any establishment cannot be undertaken - Similarly, the Audit and training also are essential services as it has been brought to my notice that it pertains to fees paid for replying show cause notice and if that is so then its also eligible input service. Civil Construction Work - Analytical Charges for ETP Samples - Transport charges for transport of biomass used for treatment of water - HELD THAT - The Water (Prevention and control of Pollution) Act, 1974 casted an obligation on the appellant to maintain certain standards of effluent from their factory and when for certain activity the appellant is under statutory obligation, it cannot be said that the same is not in relation to manufacture - The Hon ble Supreme Court in the matter of INDIAN FARMERS FERTILISER COOP. LTD. VERSUS CCE., AHMEDABAD 1996 (7) TMI 141 - SUPREME COURT has laid down that the effluent treatment is essential and integral part of the process of manufacture in the plant and is part and parcel of the manufacturing process of that end product. Similarly the Analytical charges have been paid towards analysis of the effluent treatment plant sample and biomass is used for treatment of water before disposing it as waste which is also a statutory requirement as per Section 12 of the Factories Act, 1948. Therefore the services herein cannot denied to be input services and can very well said to be service used in or in relation to the manufacture and clearance of the final product. Maintenance of Garden - HELD THAT - Pollution Control laws require atleast one-third of the open space under green coverage which is also essential in order to control the pollution and the appellants are under statutory obligation to maintain the garden in compliance with pollution control laws. Therefore, this service also falls under the category of input services under Rule 2(l). Consulting Services - HELD THAT - This service has been denied on the ground that it is a type of welfare measure and could not be treated as an input services used in relation to the manufacture and clearance of final product - No doubt this service has been carried out in order to achieve the best utilisation of the employees, which in turn is going to enhance the production and therefore this service can be said to be used in relation to the business process and qualifying as input service. Cleaning and Forwarding Charges and Godown Charges - HELD THAT - This services have been utilised for outward transport of the goods from the factory premises to the place of removal which is the godown and situated at Zirakpur and Guwahati respectively. This service has been denied on the ground that the information provided by way of only two invoices is not enough proof to determine that all the clearance are undertaken from Guwahati and Zirakpur and that the godowns are outside the purview of the factory premises which is a place of removal and hence not admissible as input service. - In order to substantiate the claim the appellant has placed on record the copies of tax invoices / commercial invoices which establishes that the goods are transferred to the godown situated at Zirakpur and Guwahati and are sold from their and therefore, these are also admissible input service. Staff Welfare - HELD THAT - Under this head the expenses have been incurred for giving training to the staff / workers of the factory. There is no doubt that such periodical trainings are essential for any establishment and therefore eligible input service . Appeal allowed - decided in favour of appellant.

Summary

Issues:
1. Entitlement to Cenvat Credit on various input services under Rule 2(l) of Cenvat Credit Rules, 2004.

Analysis:

The appeal challenges the Commissioner (Appeals)- IV, Central Excise, Mumbai Zone-I's order upholding the Adjudicating Authority's decision to reject Cenvat Credit on specific input services and impose a penalty under Rule 15(3) of Cenvat Credit Rules, 2004. The primary issue revolves around whether the appellant, a manufacturer of excisable goods, is eligible for Cenvat Credit concerning services like construction work, maintenance of garden, consulting service, transport charges, and more under Rule 2(l) of the Cenvat Credit Rules, 2004.

The appellant, engaged in manufacturing Miscellaneous Chemicals, utilized Cenvat Credit totaling Rs 13,35,582/- on services, including those in question, from August 2007 to July 2008. Show cause notices were issued alleging inadmissible credit on input services, leading to an Order-in-Original disallowing a portion of the credit. The Commissioner's subsequent order upheld the disallowance and imposed a penalty of Rs 2000/- under Rule 15(3) of the rules.

The dispute arises from the interpretation of Rule 2(l) of the Cenvat Credit Rules, 2004, defining 'input service.' The definition comprises a restrictive main part and an inclusive part, expanding the scope to cover services remotely connected to manufacturing if related to business activities. The judgment meticulously analyzes each service in question:

1. Professional, Legal, and Audit Training Charges: These services are deemed integral to business operations, including statutory compliance, and are classified as 'input services' eligible for Cenvat Credit.

2. Civil Construction Work, Analytical Charges, Transport Charges: Obligations under environmental laws necessitate these services, making them essential for manufacturing processes and thus eligible for Cenvat Credit.

3. Maintenance of Garden: Statutory requirements for pollution control mandate garden maintenance, qualifying it as an 'input service' under Rule 2(l).

4. Consulting Services: Despite being a welfare measure, consultancy for restructuring salaries to enhance productivity is considered an 'input service' related to business processes.

5. Clearing and Forwarding Charges, Godown Charges: These services for outward transport and storage are admissible as 'input services' when substantiated with appropriate documentation.

6. Staff Welfare: Training expenses for staff are crucial for any establishment and are recognized as eligible 'input services.'

Ultimately, the judgment sets aside the impugned order, allowing the appeal with necessary consequential relief, if applicable, in accordance with the law.