Input service credit for factory modernization supports prima facie stay and waiver of the tax demand.

Services used for setting up, modernization, renovation or repairs of a factory may fall within the definition of input service under the Cenvat Credit Rules, 2004. On that basis, credit taken for services connected with modernization of factory premises was found to disclose a prima facie case in favour of the assessee. A Board circular dealing with commercial or industrial construction and works contract services in the context of renting of immovable property was not treated as controlling for services used in factory modernization. The assessee was therefore considered entitled, at the prima facie stage, to stay of the demand and waiver of the demanded amount pending appeal.

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Issues: Whether service tax paid on services used for construction or modernization of a factory building qualified as input service under the Cenvat Credit Rules, 2004, and whether the assessee was entitled to stay and waiver of the demanded amount.

Analysis: The definition of input service was read to include services used in relation to the setting up, modernization, renovation or repairs of a factory. The credit claimed was connected with services used for modernization of the factory premises, and therefore a prima facie case existed in favour of the assessee. The Board circular relied upon dealt with commercial or industrial construction service or works contract service used for construction of immovable property in the context of renting of immovable property service, and was not treated as governing services used for setting up or modernization of a factory.

Conclusion: The assessee was held entitled, at the prima facie stage, to claim the credit and to obtain stay of the impugned demand with waiver of the demanded amount pending disposal of the appeal.

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