2016 (9) TMI 363 - AT - Central Excise

Cenvat credit - Man Power Services - service used for the purpose of cleaning of appellant s canteen during the period from October 2008 to March 2013 - service provider collected a consolidated amount towards housekeeping which also included the amount paid to the services used for cleaning of canteen - nexus to the manufacturing activity - Held that - canteen is an integral part of the factory and clean maintenance of the factory including its precincts are a statutory requirement under Section 11 of the Factories Act, 1948. Therefore, this service has to be treated as a service used by the manufacturer in or in relation to the manufacture of final product as without complying with the said provisions of the Factories Act, 1948, manufacturing operations are not possible. Without the factory including the canteen, being clean and tidy, the efficiency would get drastically reduced. Further, it should be borne in mind that housekeeping is crucial for safe workplaces. It can also help an employer avoid potential fines for non-compliance due to bad housekeeping, which would in turn affect productivity. In view of this the appellants are eligible for credit. Invokation of extended period of limitation - Held that - authorities have failed to appreciate that the appellants are regularly filing their ER-1 returns and in the return filed for the relevant period in terms of Rule 7 of Cenvat Credit Rules, 2004 they have shown the credit availed in respect of Service Tax paid for services rendered by M/s. Servocraft HR Solutions Pvt. Ltd; that having knowledge about the availment of credit from the return, which is acknowledged by the authority, extended period of limitation, cannot be invoked on the ground of suppression. Also penalty imposed are set aside. - Decided in favour of appellant

Summary

Issues involved:
1. Eligibility of CENVAT Credit for cleaning services.
2. Application of extended period for invoking demand.

Analysis:

Issue 1: Eligibility of CENVAT Credit for cleaning services
The appeal was filed against the order confirming a demand of input service credit related to cleaning services of the appellant's canteen. The appellant argued that cleaning of factory premises is a statutory requirement under the Factories Act, essential for the manufacturing process. They relied on case law to support their claim, asserting that cleaning services are integral to the manufacturing process. The appellant also argued that there is no need for a one-to-one correlation for availing credit, citing relevant Supreme Court decisions. The Tribunal agreed with the appellant, emphasizing the importance of maintaining cleanliness in the factory premises for efficient operations and compliance with statutory requirements. The Tribunal held that the cleaning services were essential and directly related to the manufacturing process, making the appellant eligible for credit.

Issue 2: Application of extended period for invoking demand
The appellant contended that the show cause notice was time-barred as it related to a period from 2008-09 to 2012-13. They argued that the conditions for invoking the extended period under Section 11A were not met, as there was no non-levy, short-levy, non-payment, or erroneous refund of duty. The appellant cited various case laws to support their argument on limitation issues. The Tribunal agreed with the appellant, noting that they had been regularly filing their returns and disclosing the credit availed. As the department had knowledge of the credit availed through the filed returns, the extended period of limitation could not be invoked on the grounds of suppression. The Tribunal set aside the penalties imposed and allowed the appeal on both merits and limitation.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal on the eligibility of CENVAT Credit for cleaning services and on the limitation issue. The penalties imposed were also set aside.