SERVICE TAX CREDIT IS ADMISSIBLE ON REPAIRS AND MAINTENANCE SERVICES USED FOR RESIDENTIAL COLONY

[Mr. M. GOVINDARAJAN]

     Rule 3 of CENVAT Credit Rules, 2004 ('Rules' for short) provides that a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of various types of excise duties, service tax, education cess, higher education cess paid on any input or capital goods or any input service received by the manufacturer or service provider on or after 10^th day of September 2004.  Rule 3(4) provides that the credit may be utilized for the payment of-

Any duty of excise on any final product; or

·  Service tax paid on output service.

The CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty of tax relating to that month or quarter as the case may be.

     Rule 2(l) defines 'Input service' as any service-

Used by a provider of taxable service for providing an output service; or

·  Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal

And includes services used in relation to-

Setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises;

·  Advertisement or sales promotion;

·  Market research;

·  Storage up to the place of removal;

·  Procurement of inputs;

·  Activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.

Rule 14 provides where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Sec. 11 A and 11AB of Excise Act or Sec. 73 or 75 of the Finance Act, 1994 shall apply mutatis mutandis for effecting such recoveries.

     There arised many disputes in availing CENVAT credit leading to filing appeals before tribunals for getting redressal.   One such case we have to refer in this article is 'Manikargh Cement V. Commissioner of Central Excise and Customs, Nagpur' 2008 -TMI - 3506 - CESTAT, MUMBAI.   In this case the appellants are manufacturers of cement.   They availed CENVAT credit of Rs.1,07,943/- on account of repairs and maintenance of Civil construction etc., in their residential colony during the period from July 2005 to March 2006 which has been disallowed on the ground that repairs etc., were not input services used directly or indirectly or in relation to the manufacturer of the final products and clearance thereof from the place of removal as per Rule 2(l) of the CENVAT Credit Rules and penalty of Rs.10,000/- has been imposed upon the appellants.

     Aggrieved against the order the appellant filed this present appeal with the following contentions:

The factory situated at a remote place where no facilities were available for stay of their engineers and workmen, and it was therefore, necessary to construct a residential colony for the employees for being available on the spot in order to maintain continuity in the process of cement manufacture;;

The service provided is relatable to business and credit of service tax is admissible as the service in respect of repairs and maintenance, civil construction in relation to the residential colony are input services.

The tribunal after considering the arguments put forth by both the parties relied on the following decisions of High Courts/Tribunal:

ITAT V. B. Hill & Co., (P) Ltd., 1983 (143) ITR 185 - Allahabad High Court;

1. Greaves Cotton and Co. Ltd., V. Commissioner of Income Tax (2005) 279 ITR 42 - Bombay High Court;
2. Indian Rayon & Industries Ltd., V. Commissioner of Central Excise, Bhavnagar - 2006 -TMI - 620 - CESTAT, MUMBAI.

In the first case the Allahabad High Court held that expenditure incurred on restoration of buildings and residential quarters or factory was available as revenue expenditure for the reason that repairs and reconstruction enable the assessee company to carry on its business.

     In the second case the Bombay High Court held that expenditure incurred on maintenance of transit quarters used for accommodating employees visiting Bombay from outstations for business purpose was to be allowed in computing the income chargeable under the head 'Profit and gain of business or profession' under the provisions of Sec. 37(1) of Income Tax Act.

     In the third case the tribunal held that credit is admissible on service tax paid on mobile phones provided to employees to carry out business transactions.   Credit has been held to be admissible even though the telephones are not installed within the factory premises.

     The tribunal, in the light of the above decisions, held that the assessees were eligible to avail input service tax credit, set aside the impugned order and allowed the appeal.