Input service credit for employee transport to factory was allowed due to direct nexus with manufacturing activity.

Service tax paid on van hire charges used to transport employees to and from the factory qualified as input service credit under the Cenvat scheme because the service had a direct nexus with the business of manufacture and an integral connection with carrying on manufacturing activity. Transporting employees to the factory enabled production to proceed, so the assessee was entitled to Cenvat credit. The demand, interest and penalty were therefore unsustainable.

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Issues: Whether service tax paid on van hire charges for transporting employees to and from the factory qualified as input service credit under the Cenvat scheme.

Analysis: Credit is admissible where the service has a nexus with the assessee's business and an integral connection with manufacture. Transporting employees to the factory enables the manufacturing activity to be carried on and therefore bears a direct nexus with the business of manufacture of final products.

Conclusion: The assessee was entitled to Cenvat credit on the van hire charges, and the demand, interest and penalty were unsustainable.

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