2015 (11) TMI 100 - AT - Service Tax

Denial of CENVAT Credit - construction service, repairs and maintenance service, security service, manpower recruitment and supply service, works contract service etc - services utilized for residential colony/township of the appellant factories - Held that - Appellant has various factories which are situated in remote areas. In order to run the factories smoothly, without any stoppages, they had constructed township/residential colonies near factory premises and accommodated the employees working in such factories. It is a fact, that appellant had produced Cost Accountant s certificate indicting that the expenses incurred for setting up of the township/colony and various expenses incurred for maintenance and upkeep of such factory was charged to balance sheet/profit and loss account as expenses and the said expenses were considered as cost of production was produced before the adjudicating authority, as well as the first appellate authority and both the lower authorities did not controvert the said certificate in any way nor both the lower authorities have directed for special audit of the records of the appellant as provided under Section 14AA of the Central Excise Act, 1944. Expenses which were incurred by the appellant for setting up of the township/colony for their employees is expenses which is in relation to the business activity of the appellant which is manufacturing final products i.e. petroleum products. It is also noted that while arriving at the price of the finished goods manufactured in these factory premises appellant had considered the expenses and included the same while arriving at the cost of production of the final products manufactured in those factory premises. It would mean that setting up of residential colony/township is in relation to the business activity of the appellant which is manufacturing of petroleum products and clearing the same on payment of excise duty. The Central Excise duty paid by the appellant on their finished goods is on advalorem which has been arrived at after considering all the expenses that had gone into manufacturing of the finished goods which included the cost of setting up of township and the residential colony. Intention of the legislature is to provide for credit in respect of the inputs, capital goods and input services which are used in or in relation for manufacture of the final products and that duty is paid only on the value addition which takes place. This intent of the legislature clearly comes out in a press note dated 12.8.2004 which was issued by the Ministry of Finance when the draft Cenvat Credit Rules, was circulated for inviting comments from trade and industry. If the cost of various services availed if it forms part of the assessable value of the goods manufactured and sold by the Appellant, there was no reason to deny cenvat credit of the duty/taxes paid on various inputs/inputs services availed, for undertaking the business operations. Issue seems to be now squarely covered by the judgement of the Hon ble High Court of Bombay in the case of Coca Cola India Pvt Ltd. We find strong force in the contentions raised by the learned Counsel that the Hon ble High Court in the case of Manikgarh Cement (2010 (10) TMI 10 - BOMBAY HIGH COURT ) had not decided the issue, as it was never raised before them i.e. cost of setting up of the township/colony and the maintenance cost thereof is included in the cost of production for arriving at assessable value of the final products. It is settled law that a decision is an authority only on the proposition that it decides and not what was not urged or considered therein or what can be said to be logically flowing from see Mittal Engineering Works (P) Ltd. (1996 (11) TMI 66 - SUPREME COURT OF INDIA), Fiat India Pvt. Ltd. - 2012 (8) TMI 791 - SUPREME COURT In view of this we hold that the ratio as laid down by the Hon ble High Court of Bombay in the case of Coca Cola India Pvt. Ltd. (2009 (8) TMI 50 - BOMBAY HIGH COURT) is specifically on the point raised by the appellant before the lower authorities as well as before us. - Impugned order is liable to be set aside - Decided in favour of assessee.

Issues Involved:
1. Availment of CENVAT credit on services used in residential colonies/townships.
2. Interpretation of 'input services' under CENVAT Credit Rules.
3. Inclusion of township-related expenses in the cost of production.
4. Applicability of judicial precedents (Coca Cola India Pvt. Ltd. and Manikgarh Cement).

Detailed Analysis:

1. Availment of CENVAT Credit on Services Used in Residential Colonies/Townships:
The core issue is whether the appellant can avail CENVAT credit for service tax paid on services like construction, repairs, maintenance, security, and manpower recruitment used in residential colonies/townships for employees. The lower authorities had concluded that these services were not eligible for CENVAT credit as they were used in residential townships, not directly related to manufacturing activities. Consequently, show-cause notices were issued, and demands were confirmed along with interest and penalties.

2. Interpretation of 'Input Services' under CENVAT Credit Rules:
The appellant argued that the services in question qualify as 'input services' under Rule 2(l) of the CENVAT Credit Rules, 2004, as they are related to business activities. The appellant contended that the residential colonies were essential for smooth factory operations, especially in remote areas, and thus should be considered as part of the business activity. The appellant supported this argument with a Cost Accountant's certificate indicating that the expenses for the townships were included in the cost of production of the final goods.

3. Inclusion of Township-Related Expenses in the Cost of Production:
The appellant presented evidence, including Cost Accountant's certificates, showing that the expenses for setting up and maintaining residential colonies were included in the cost of production of the final goods. This inclusion was not disputed by the lower authorities. The appellant relied on the precedent set by the High Court in the case of Coca Cola India Pvt. Ltd., which held that if expenses form part of the price of the final product on which excise duty is paid, CENVAT credit must be allowed.

4. Applicability of Judicial Precedents:
The appellant cited the Coca Cola India Pvt. Ltd. case, where it was held that any expenditure forming part of the price of the final product should be eligible for CENVAT credit. The appellant argued that the case of Manikgarh Cement, relied upon by the lower authorities, did not consider whether the cost of residential colonies was included in the cost of production. The appellant also referenced the Supreme Court's judgments in Ispat Industries and Mittal Engineering Works, which support the principle that decisions are authoritative only on the propositions they decide.

Conclusion:
The Tribunal found merit in the appellant's arguments, noting that the expenses for residential colonies were indeed part of the cost of production and thus related to the business activity of manufacturing petroleum products. The Tribunal also recognized that the lower authorities did not dispute the Cost Accountant's certificates or direct a special audit. The Tribunal concluded that the ratio of the Coca Cola India Pvt. Ltd. case applied, allowing CENVAT credit for services used in residential colonies as they formed part of the cost of production. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.

Final Order:
The impugned order is set aside, and the appeal is allowed with consequential relief, if any. (Pronounced in Court on 15/10/15)

← Previous Next →