2009 (5) TMI 357 - AT - Service Tax

Cenvat Credit-Input services- The respondents are engaged in the manufacture of cement. They availed Cenvat Credit in respect of (i) consultancy services received for designing and engineering in relation to installation of fly ash handling storage and loading system (ii) services received for coal/fly ash handling services (iii) services received for supervision and regulating the tankers of fly ash in FSP area on input services during the period from January 2005 to December 2005. the lower authority held that the above input services were used outside the factory premises and therefore the assessee was not eligible for credit. In the light of the decision of GTC Industries Ltd. 2008 -TMI - 31592 - CESTAT MUMBAI and on the basis of the decision of Commissioner(Appeals) that there is no provision for denial of credit on the ground that the service is rendered outside the factory premises held that appeal filed by revenue rejected.

Summary

Issues:
- Eligibility of Cenvat Credit on input services used outside factory premises.

Analysis:
The case involved the eligibility of Cenvat Credit on input services used outside the factory premises by a cement manufacturer. The Original Authority denied the credit and imposed a penalty, which was set aside by the Commissioner (Appeals), leading to an appeal by the revenue. The revenue argued that since the services were used outside the factory premises, the respondents were not eligible for credit, citing rule 2(l) of the Cenvat Credit Rules, 2004. The respondents, on the other hand, relied on precedents like the GTC Industries Ltd. case, Cable Corporation of India Ltd. case, and Manikgarh Cement case to support their position that credit should be allowed regardless of the location of service provision.

The revenue contended that services used by the manufacturer must be in relation to the manufacture of final products, and services rendered at the power plant premises could not be considered related to the final product's manufacture. They emphasized that the "inclusion" clause of rule 2(l) indicates that activities should be within the factory premises for credit eligibility. However, the Tribunal held that services provided outside the factory premises could still be considered in relation to the procurement of inputs, emphasizing that excise duty taxes value addition on goods, while service tax taxes value addition through services.

The Tribunal analyzed the definition of "input service" under rule 2(l) of the Cenvat Credit Rules, 2004, which includes services used directly or indirectly in or in relation to the manufacture of final products. It was noted that coal and fly ash, essential for manufacturing final products, were transported by service providers like M/s. Dahej Harbour and M/s. Translinks. The Tribunal considered the cost of production, including material consumed, direct expenses, and other costs, where services related to procurement of raw materials were part of the production cost. Relying on precedents and the cost inclusion principle, the Tribunal upheld the Commissioner (Appeals)' decision to allow credit on these services.

In conclusion, the Tribunal found no reason to interfere with the Commissioner (Appeals)' order, rejecting the revenue's appeal and affirming the eligibility of Cenvat Credit on input services used outside the factory premises for the manufacture of final products.