2022 (3) TMI 912 - AT - Central Excise

CENVAT Credit - input services - maintenance and repair work of the residential colony - denial on the ground that the said service has no nexus with the manufacture of final product - HELD THAT - Admittedly the residential colony was constructed adjacent to the factory because of the reason that the factory manufacturing cement which runs round the clock is located at a remote place which is away from the city. Unless the residential colony is constructed near the factory the appellant will not be in a position to get the proper/ adequate manpower for running its plant/ activities. Considering the aforementioned activities and the legistature intent behind the cenvat scheme the Hon ble Andhra Pradesh High Court in the case of COMMISSIONER OF CUS. C. EX. HYDERABAD-III VERSUS ITC LIMITED 2011 (11) TMI 516 - ANDHRA PRADESH HIGH COURT has held that cenvat credit of service tax paid on the taxable services used in the residential complex shall be available to the manufacturer. In the Ruling in the case of CCE VERSUS MANIKGARH CEMENT 2010 (10) TMI 10 - BOMBAY HIGH COURT the Hon ble Bombay High Court have considered the eligibility of Cenvat credit of Service Tax on account of repairs maintenance civil construction etc. used in the residential colony was disallowed on the ground that such service is not covered under the definition of input service. The Hon ble High Court also observed that the extension of residential colony may be a welfare activity while carrying on business. Such explanation may be available under the Income Tax Act however to qualify as an input service it should have nexus with the business of the assessee. With respect to Hon ble Bombay High Court it is found that the aforementioned observations are not in tune with the language and spirit of Rule 2(l) of Cenvat Credit Rules. The rules specifically provides for allowing Cenvat credit of any service used by manufacturer whether directly or indirectly in or in relation to the manufacturer of final products and clearance of the final product up to the place of removal. In facts and circumstances hereunder the assessee provides and maintains the facility of residential colony adjacent to the factory. It cannot get the service of competent staff and personnel for running the factory which is run round the clock and the employees have to work in shifts. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of cenvat credit on maintenance and repair work of residential colony.
2. Nexus between residential colony construction and manufacture of final product.
3. Applicability of judgments on cenvat credit eligibility.

Analysis:
Issue 1: The appeal challenges the denial of cenvat credit on maintenance and repair work of a residential colony by the Commissioner of Central Excise & Central Goods and Service Tax, Jodhpur. The appellant argues that the residential facilities near the factory are essential for continuous manufacturing activities, emphasizing the need for proper staff and labor. The appellant cites judgments supporting the eligibility of cenvat credit for such services.

Issue 2: The Tribunal examines the nexus between the residential colony construction and the manufacture of the final product. It notes that the factory is located in a remote area, necessitating the construction of the residential colony to ensure the availability of manpower for plant activities. Citing the legislative intent and a judgment of the Hon'ble Andhra Pradesh High Court, the Tribunal concludes that the construction of the residential colony is directly linked to the manufacturing activity, making the cenvat credit eligible.

Issue 3: The Tribunal distinguishes judgments cited by the Revenue, emphasizing that the case at hand involves the nexus between the residential colony construction and the final product manufacture. It highlights the Andhra Pradesh High Court's decision, which explicitly connects the construction of a residential colony to the manufacturing process. The Tribunal sets aside the impugned order, allowing the appeal in favor of the appellant based on the established nexus between the residential colony and manufacturing activities.

Additionally, the Tribunal addresses a ruling by the Bombay High Court regarding the eligibility of cenvat credit for services related to repairs, maintenance, and civil construction in a residential colony. It disagrees with the High Court's observations, emphasizing the broad language of Rule 2(l) of the Cenvat Credit Rules, which allows credit for services used directly or indirectly in or in relation to manufacturing final products. The Tribunal highlights the necessity of the residential colony for operational efficiency and staff availability, ultimately allowing the appeal based on the specific circumstances of the case.