Cenvat credit on residential colony security services turns on whether the expenditure forms part of production cost and is documented.

Security Agency Service used for an off-factory guest house and residential colony may qualify as an input service under the unamended Rule 2(l) of the Cenvat Credit Rules, 2004 where the expenditure forms part of the cost of production and relates to business. Prior decisions had treated services for staff residential colonies as eligible input services, but the claimed cost-of-production linkage was not supported by documentary records before the lower authorities. The order was therefore set aside and the matter remanded for de novo verification of the supporting evidence and the eligibility of Cenvat credit.

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Issues: Whether service tax paid on Security Agency Service used for an off-factory guest house and residential colony could be treated as input service for Cenvat credit, and whether the matter required remand for verification of inclusion of such expenditure in the cost of production.

Analysis: The unamended definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 was applicable to the relevant period, and its inclusive part covered activities relating to business. Services used for maintaining staff residential colonies had been treated as eligible input services in prior decisions. At the same time, the respondent's assertion that the expenditure on the disputed service formed part of the cost of production was not supported by documentary evidence before the lower authorities.

Conclusion: The service could merit Cenvat credit if the disputed expenditure formed part of the cost of production, but the absence of supporting records required remand for de novo verification. The impugned order was set aside and the matter was remanded to the adjudicating authority.

Ratio Decidendi: Where expenditure on a service used in relation to business forms part of the cost of production, the service may qualify as input service for Cenvat credit, subject to verification of supporting records.

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