2025 (2) TMI 551 - AT - Central Excise

Cenvat Credit - services related to setting up and expansion of the factory building under the Cenvat Credit Rules 2004 - outdoor catering services provided to employees under the statutory obligation of the Factories Act 1948 - insurance services for factory buildings and employees - air travel agent services used for international travel of expatriate employees in relation to business activities. Whether the appellant is eligible to Cenvat Credit on these impugned services up to 31.03.2011 under the un-amended definition of input services as provided in Rule 2(l) of Cenvat Credit Rules? - HELD THAT - Cenvat Credit on construction of the factory building has been denied only on account of lack of nexus between the construction services and the manufacturing of the goods. In this regard it is to be noted that the construction relates to the setting up of the factory which in turn is directly used for manufacturing and is directly covers under the inclusive part of the definition of input service . Moreover during the relevant period construction service was included in the definition of input service and it is only after 01.04.2011 that it has been specifically excluded from it. Reference made to the decision of the Hon ble Punjab Haryana High Court in the case of CCE vs. Bellsonica Auto Components India P Ltd 2015 (7) TMI 930 - PUNJAB HARYANA HIGH COURT wherein the Hon ble Punjab Haryana High Court has held The Tribunal rightly did not agree with the Commissioner s findings that the services in question had been used for brining into existence an immovable property and not for the manufacture of the final product. The said services cannot be said to be remotely connected to the final product as observed by the Commissioner. Outdoor catering service for the employees - HELD THAT - This service is also covered under the definition of input service prior to 01.04.2011 because the outdoor catering service is an activity relating to appellant s business and hence is included in means clause of Rule 2(l) and moreover under the Factories Act 1948 also it is a statutory obligation. Further as regards reversal of recovered amount by the appellant the appellant is liable to pay interest on that portion which will be calculated by the original authority and the appellant would be liable to pay the same. Cenvat Credit on insurance services - HELD THAT - The learned Commissioner has allowed 50% of the Cenvat Credit availed in relation to insurance of the building but has denied the Cenvat Credit on insurance of the employees amounting to Rs.1, 21, 261/-. The insurance policies procured for group health insurance of the employees are also included in means clause of Rule 2(l) as the health insurance of the employees is an activity relating to business and it has been held in the cases relied upon by the learned Consultant for the appellant that this activity is an input service . Cenvat Credit on air travel agent service - HELD THAT - The said service was used for international travel of expats for visiting their home country as well as for purchasing plants machineries tools dies and attending technical training at Japan office of the appellant which is used in relation to manufacture of final product. During the relevant time Rule 2(l) of the Cenvat Credit Rules explicitly covers input services used by the manufacturer directly or indirectly in relation to manufacture or clearance of final products as held in the cases relied upon by the learned Consultant for the appellant. Conclusion - The services directly or indirectly related to manufacturing activities or statutory business obligations qualify as input services under the Cenvat Credit Rules. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

• Whether the appellant is entitled to Cenvat Credit on services related to the setting up and expansion of the factory building under the Cenvat Credit Rules, 2004.
• Whether the appellant can claim Cenvat Credit for outdoor catering services provided to employees as part of statutory obligations under the Factories Act, 1948.
• The eligibility of Cenvat Credit on insurance services for factory buildings and employees.
• The entitlement to Cenvat Credit for air travel agent services used for international travel related to business activities.

ISSUE-WISE DETAILED ANALYSIS

Setting up and Expansion of Factory Building

• Relevant Legal Framework and Precedents: The definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004, during the relevant period, included services used in relation to setting up, modernization, renovation, or repairs of a factory. The Tribunal referenced the case of CCE vs. Bellsonica Auto Components India P Ltd, which supported the inclusion of construction services as input services.
• Court's Interpretation and Reasoning: The Tribunal interpreted that services related to the setting up of the factory building are directly used for manufacturing and thus fall under the inclusive part of the definition of 'input service'. The Tribunal noted that the denial of credit was based on a lack of nexus between construction services and manufacturing, which was not supported by the definition applicable during the relevant period.
• Key Evidence and Findings: The Tribunal found that the construction services were used for setting up the factory, which is directly related to manufacturing activities.
• Application of Law to Facts: The Tribunal applied the unamended definition of 'input service' to conclude that the appellant is entitled to Cenvat Credit for construction services used for setting up the factory.
• Treatment of Competing Arguments: The Tribunal dismissed the reliance on the judgment of Vandana Global Limited by the Commissioner, as it was overruled by a higher court and not applicable to 'input services'.
• Conclusions: The Tribunal held that the appellant is entitled to Cenvat Credit on construction services for the period prior to 01.04.2011.

Outdoor Catering Services

• Relevant Legal Framework and Precedents: The Tribunal considered the statutory obligation under Section 46 of the Factories Act, 1948, which mandates the provision of canteen services, and the inclusion of such services as 'input services' under Rule 2(l) of the Cenvat Credit Rules.
• Court's Interpretation and Reasoning: The Tribunal reasoned that outdoor catering services are related to the business of the appellant and fall within the 'means' clause of the definition of 'input service'.
• Key Evidence and Findings: The Tribunal acknowledged the statutory obligation and the indirect use of catering services in manufacturing activities.
• Application of Law to Facts: The Tribunal applied the definition of 'input service' to conclude that catering services are eligible for Cenvat Credit.
• Treatment of Competing Arguments: The Tribunal recognized the appellant's reversal of the amount collected from employees but held that interest is payable on that amount.
• Conclusions: The Tribunal allowed the Cenvat Credit on outdoor catering services but required the appellant to pay interest on the reversed amount.

Insurance Services

• Relevant Legal Framework and Precedents: The Tribunal considered the definition of 'input service' and previous judgments supporting the inclusion of insurance services as input services.
• Court's Interpretation and Reasoning: The Tribunal found that insurance services for factory buildings and employees are related to the business activities of the appellant and fall within the 'means' clause of the definition of 'input service'.
• Key Evidence and Findings: The Tribunal noted the integral role of factory buildings and employee health insurance in the business operations of the appellant.
• Application of Law to Facts: The Tribunal applied the definition of 'input service' to conclude that insurance services are eligible for Cenvat Credit.
• Treatment of Competing Arguments: The Tribunal rejected the Commissioner's denial based on the immovable nature of factory buildings and personal consumption of employees.
• Conclusions: The Tribunal allowed Cenvat Credit on insurance services for both factory buildings and employees.

Air Travel Agent Services

• Relevant Legal Framework and Precedents: The Tribunal considered the definition of 'input service' and relevant case law supporting the inclusion of travel services as input services.
• Court's Interpretation and Reasoning: The Tribunal found that air travel agent services used for business-related international travel are covered under the 'means' clause of the definition of 'input service'.
• Key Evidence and Findings: The Tribunal noted that the travel services were used for official purposes related to manufacturing activities.
• Application of Law to Facts: The Tribunal applied the definition of 'input service' to conclude that air travel agent services are eligible for Cenvat Credit.
• Treatment of Competing Arguments: The Tribunal dismissed the Commissioner's argument regarding personal use, as the travel was for business purposes.
• Conclusions: The Tribunal allowed Cenvat Credit on air travel agent services.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reaffirmed the broad interpretation of 'input service' to include services that are directly or indirectly related to manufacturing activities, upholding the eligibility for Cenvat Credit on such services.
• Final Determinations on Each Issue: The Tribunal set aside the impugned order, allowing the appeals, except for the interest payment on the reversed amount for outdoor catering services.