2016 (11) TMI 940 - AT - Service Tax

CENVAT credit - rental services - eligible input services - Held that - I find that the appellant has availed the credit of service tax paid under Renting of immovable property service , being rent paid for the premises at Tamil Nadu Warehousing Corporation for undertaking the manufacturing processes and the resulted goods were returned to the appellant s factory and cleared on payment of duty. It is also not disputed that the service provider has discharged service tax liability on renting of immovable property. Both unit-1 and unit-2 share some legal entity and the intermediate products are received back by unit-1 for the manufacture of final products. Therefore, renting of immovable property is having direct nexus in the manufacture of final products at unit-1. Rule 2(l) of CCR, 2004 clearly mentions that the service utilised in or in relation to the manufacture of final products is eligible as an input service. Hence, the benefit of Cenvat credit on input service cannot be denied to the appellant - appeal allowed.

Summary

Issues:
1. Eligibility of credit on service tax paid for renting premises.
2. Interpretation of Rule 2(l) of Cenvat Credit Rules, 2004.
3. Applicability of Notification No. 214/86-C.E. on job worker operations.
4. Nexus between renting of premises and manufacture of final products.

Analysis:

Issue 1: Eligibility of credit on service tax paid for renting premises
The appellant, a manufacturer of various ceramic products, availed credit on service tax paid for renting premises at unit-2. The adjudicating authority and the Commissioner (Appeals) disallowed the credit, citing the service as not an input service under Rule 2(l) of Cenvat Credit Rules, 2004. However, the appellant argued that the rented premises were used for processing materials sent from unit-1, with final products cleared from unit-1 after payment of duty. The Tribunal found a direct nexus between renting of premises and the manufacture of final products, allowing the appeal and granting consequential relief.

Issue 2: Interpretation of Rule 2(l) of Cenvat Credit Rules, 2004
The Tribunal analyzed Rule 2(l) of Cenvat Credit Rules, 2004, which defines input service as a service utilized in or in relation to the manufacture of final products. It concluded that since the rented premises at unit-2 were directly involved in the manufacturing process of final products at unit-1, the service tax paid on renting of immovable property qualified as an input service eligible for Cenvat credit.

Issue 3: Applicability of Notification No. 214/86-C.E. on job worker operations
The appellant contended that unit-2, operating as a job worker under Notification No. 214/86-C.E., processed materials without payment of duty. The Tribunal noted that while the goods manufactured at unit-2 were exempted from duty, the final products were cleared from unit-1 after payment of duty. This distinction supported the argument that the rented premises at unit-2 were utilized for manufacturing final products at unit-1, justifying the credit on service tax paid.

Issue 4: Nexus between renting of premises and manufacture of final products
The Tribunal emphasized the shared legal entity between unit-1 and unit-2, where intermediate products processed at unit-2 were received back by unit-1 for the manufacture of final products. This direct connection established the renting of immovable property as having a significant role in the manufacturing process at unit-1, thereby upholding the eligibility of Cenvat credit on the service tax paid for renting premises.

In conclusion, the Tribunal set aside the earlier orders, allowing the appeal and providing relief to the appellant based on the direct nexus between the rented premises at unit-2 and the manufacture of final products at unit-1.