2010 (11) TMI 266 - AT - Service Tax

Credit of service tax paid - Demand along with interest and penalties - The original authority has denied the credit of service tax paid in respect of repair and maintenance services received for the staff colony, gardening service, security service provided in the wind farms, swimming pool maintenance and civil works undertaken at auditorium, shopping complex etc., on the ground that the same have no nexus with the manufacture of cement by the respondents - As per the case of CCE, Chennai v. Sundaram Brake Linings, this Bench has examined in great detail the tests required for entitlement to credit of tax paid on input service for paying excise duty on manufactured goods in the light of the Hon ble Supreme Court s decision in the case of Maruti Suzuki Ltd. v. CCE Held that when the laid down tests are applied to the impugned services, it is clear that they have no nexus with the manufacturing of the finished goods viz., cement and hence, the respondents are not entitled to credit of service tax paid on such services - The impugned Order in Appeal is set aside - The duty demand and the demand of interest are concerned - Penalty imposed by the original authority, the same is set aside considering the disputed nature of the issue involved.

Summary

Issues:
Denial of credit of service tax for various services related to staff colony, gardening, security, swimming pool maintenance, and civil works in manufacturing activity of cement.

Analysis:
The original authority denied the credit of service tax for services like repair and maintenance, gardening, security, swimming pool maintenance, and civil works, stating they lacked nexus with cement manufacturing. The lower appellate authority, however, allowed the credit based on a Tribunal decision. The department appealed, arguing the services were unrelated to manufacturing. The department cited a Bombay High Court decision overturning the Tribunal's ruling in a similar case. The department contended that the services were not connected to manufacturing activity.

The respondent argued that services related to the staff colony were essential for the manufacturing activity to run smoothly, especially in a remote area. The consultant for the respondent emphasized the importance of amenities for workers in maintaining factory operations. The Tribunal noted that the earlier decision relied upon by the lower appellate authority had been reversed by the Bombay High Court. The Tribunal referred to the Bombay High Court's decision in another case, applying the Supreme Court's ruling regarding establishing a nexus between services and business to claim CENVAT credit.

Additionally, the Tribunal referenced a detailed order in another case, outlining the tests required for claiming tax credit on input services for excise duty payment. Applying the tests to the impugned services, the Tribunal found no nexus with cement manufacturing. Consequently, the Tribunal set aside the lower appellate authority's decision, restoring the original order on duty demand and interest. However, the penalty imposed by the original authority was overturned due to the disputed nature of the issue.

In conclusion, the Tribunal emphasized the importance of establishing a direct connection between services rendered and the manufacturing business to claim credit. The judgment highlighted the need for services to be integrally connected with the business activity to qualify as input services for tax credit purposes.