2016 (12) TMI 381 - AT - Central Excise

Denial of CENVAT credit - manpower supply services - reimbursement of statutory contribution to PF and ESI for manpwoer supply service - whether the appellant is eligible for credit availed on man power recruitment service engaged for carrying out maintenance of railways tracks? - Held that - It is not disputed that the appellant used railway track for transportation of finished goods/bulk cement and also for inward transportation of inputs. Therefore it is evident that railway tracks are integrally connected for carrying out the activity of manufacture. The denial of credit stating that the manpower service used for maintenance of railways tracks does not have nexus with the manufacturing activity is against all cannons of reasoning. Further, the first part of definition of input service states,- input service means any service - used by a manufacturer, whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products upto the place of removal . Therefore, any services used directly or indirectly in or in relation to the manufacture of final products would fall within the definition of input services. Since transportation of inputs into the factory as well as transportation of finished goods is an indispensable activity in the process of manufacture it can be concluded without doubt that manpower services used for maintenance of railway tracks qualify as an input service and is eligible for credit. The service tax paid on reimbursable part of the consideration paid towards manpower supply services is denied for the reason that such contributions are for the personal use of the employee. It has to be stated that such contributions are mandatory and the appellant can avail the services only by making payment of such mandatory obligations. Further, such payments cannot be considered as primarily for personal use or for consumption of employees because the employees in this regard are supplied by the contractor and they do not fall under the category of employees of the appellant. In CST, Mumbai Vs Reliance Capital Asset Management Ltd. 2015 (3) TMI 560 - CESTAT MUMBAI , the Tribunal has held the above service to be eligible for credit. Denial of credit is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Eligibility of Cenvat credit on manpower supply services for maintenance of railway tracks.
2. Denial of Cenvat credit on service tax paid on reimbursement of statutory contributions to PF and ESI for manpower supply services.

Issue 1: The appellant, engaged in cement manufacturing, availed Cenvat credit on manpower supply services for maintaining railway tracks. The department issued a show cause notice proposing to deny the credit. The appellant argued that such services are integral to manufacturing as railway tracks are used for transportation of inputs and finished goods. The definition of input services includes services directly or indirectly related to manufacturing. The appellant relied on a previous case where credit was allowed for similar services. The tribunal held that services for maintaining railway tracks are essential for manufacturing and qualify as input services eligible for credit.

Issue 2: The denial of service tax credit on PF and ESI reimbursement for manpower supply services was challenged. The appellant argued that the contributions are mandatory and not for personal use, as the employees are supplied by the contractor. The appellant paid service tax on the reimbursable part as per circular guidelines. The tribunal cited a case where similar services were deemed eligible for credit. Various court decisions were referenced to support the broad interpretation of input services. The tribunal concluded that the denial of credit was unjustified, setting aside the impugned order and allowing the appeal with consequential reliefs.