2017 (3) TMI 244 - AT - Service Tax

CENVAT credit - construction of residential quarters for the employees of the respondent company - input service or not? - Department claim that the definition only included the words setting up of factory and does not extend to the construction / setting up of residential colony for the employees of the factory - Held that - the period involved is prior to 01/04/2011 when the definition of input service during the relevant period had a wide ambit as it included the words activities related to business - the factory is located in an extremely remote location where it is the assessee/respondent who provides for the accommodation as well as other welfare activities like hospitals, schools etc. for the employees of the factory - following the judgment in the case of M/s. Reliance Industries Ltd. 2015 (11) TMI 100 - CESTAT MUMBAI , the respondent is eligible for credit - appeal dismissed - decided against Revenue.

Summary

Issues:
Department's appeal against Commissioner(Appeals) order allowing credit on service tax paid for construction of residential quarters for employees. Whether construction of residential colony for employees qualifies as input service for credit eligibility.

Analysis:

1. Definition of Input Service:
- Department argued that the definition of input service prior to 01/04/2011 did not extend to construction of residential colonies for employees, relying on various judgments. Contended that such activity is not directly or indirectly related to the manufacture of final products, hence credit not eligible.

2. Necessity for Residential Accommodation:
- Respondent explained the necessity of providing residential accommodation for employees due to remote factory location. Argued that cost of setting up residential colony was included in the cost of production, making them eligible for credit. Cited several judgments supporting their stance.

3. Interpretation of Previous Judgments:
- Respondent highlighted the inconsistency in previous judgments regarding the eligibility of credit for services related to residential colonies. Referred to judgments emphasizing the direct link between staff colonies and manufacturing activities, supporting their claim for credit.

4. Application of Precedents:
- Tribunal analyzed the precedents cited by both parties, emphasizing the importance of staff colonies for manufacturing activities. Rejected the argument that credit was only allowed for maintenance of staff colonies, stating that construction and maintenance are interconnected activities falling within the scope of input services.

5. Decision and Ruling:
- Tribunal dismissed the Department's appeal, holding that the construction of residential colonies for employees qualifies as an input service for credit eligibility. Emphasized the direct link between such facilities and manufacturing activities, following the precedent set by previous judgments. Miscellaneous application also disposed of accordingly.