2011 (4) TMI 1397 - HC - Central Excise

Cenvat credit of the Service tax - transportation services provided by the assessee to their staff for pick up and drop from the residence to the factory and vice-versa Held that - Service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacturer directly or indirectly in or in relation to the manufacturer of final products or used in relation to activities relating to business - If any of the test is satisfied then the service falls under input service and the manufacturer is eligible to avail Cenvat credit and the Service tax paid on such credit - Transportation/Rent-a-Cab service is provided by the assessee to their employees in order to reach their factory premises in time which has a direct bearing on manufacturing activity - in favour of the assessee

Summary

Issues:
1. Entitlement of Cenvat credit on Service tax paid for transportation services.
2. Interpretation of Rule 2(1) of the Cenvat Credit Rules, 2004.
3. Eligibility of Cenvat credit for transportation services under Rule 3 and Rule 9.

Analysis:

Issue 1: The appeal concerns the entitlement of Cenvat credit on Service tax paid for transportation services provided by the assessee to their staff for pick up and drop from residence to the factory and vice versa. The Tribunal allowed the credit, which was disputed by the revenue.

Issue 2: The assessee, engaged in manufacturing motor vehicle parts, availed Cenvat credit for duty paid on inputs, capital goods, and input services, including transportation services. The dispute arose when the assessing officer considered the availed input Service tax on transportation services as wrongful, leading to a series of appeals.

Issue 3: The Tribunal, relying on precedent, held that the assessee was entitled to Cenvat credit for transportation services based on the decision in Stanzen Toyotetsu Private Limited v. C.C.E. The substantial question of law revolved around whether transportation services qualify as an input service under Rule 2(1) of the Cenvat Credit Rules, 2004, and if Cenvat credit for Service tax on such services is eligible under Rule 3 and Rule 9.

The Court, in a similar case, emphasized that transportation services provided to employees for reaching the factory premises in time directly impact manufacturing activities. Denying Cenvat credit for such essential transportation facilities would be unjustified, considering it as a basic necessity crucial for manufacturing activity. The Court clarified that for availing Cenvat credit, the service must be used directly or indirectly in relation to manufacturing final products or business activities, and if met, the manufacturer is eligible for the credit.

Consequently, the Court ruled in favor of the assessee, affirming their entitlement to Cenvat credit on Service tax paid for transportation services. This judgment aligns with the interpretation that transportation services facilitating manufacturing activities qualify as input services under the Cenvat Credit Rules.