2010 (3) TMI 402 - AT - Service Tax

Cenvat Credit of Service Tax- The respondent availed credit of Service Tax of Rs. 9,78,547/- on the basis of construction of compound wall . It was alleged that construction of compound wall was not falling under the definition of input service as the respondents have not used the service for providing any output service as well as the said service is not used by the respondents directly or indirectly in or in relation to the manufacture of final products and for the clearances of final products. Held that- the construction of compound wall is necessary to run the factory or not depends on the activity taken over by the manufacturer or as per their requirement for manufacturing activity. Thus, the compound wall is an integral part of the factory. Hence, the credit taken over the input service by the respondent on the construction of the compound wall is eligible to the respondent.

Summary

Issues:
Entitlement to avail input service credit of Service Tax paid on construction of compound wall.

Analysis:
The appeal was filed by the Revenue against the order of Commissioner (Appeals) regarding the availing of CENVAT credit of Service Tax on the construction of a compound wall. The main issue in this case was whether the respondents were entitled to avail input service credit for the Service Tax paid on the construction of the compound wall. The Revenue argued that the compound wall was not necessary for the factory's operation, citing relevant cases to support their contention. On the other hand, the respondents contended that the compound wall was essential for running the factory to prevent goods outside the wall from being deemed removed without paying Central Excise duty. They relied on specific cases to support their argument.

The adjudicating authority had denied the input service credit, stating that the compound wall was not related to the manufacturing process. However, the appellate authority allowed the credit based on the broader interpretation of the term "precinct" from a Supreme Court decision. The Commissioner (Appeals) also referred to a Supreme Court case emphasizing the integral connection of processes with the ultimate production of goods. In this case, it was found that the compound wall was necessary for the factory's operation, as per the site plan filed for registration, making it an integral part of the factory. Therefore, the credit taken by the respondents for the construction of the compound wall was deemed eligible, and the appeal by the Revenue was rejected.