CENVAT credit nexus test governs input-service eligibility; pre-2007 written-off inputs need not be reversed, with penalty remanded.

CENVAT credit on inputs written off before 11-5-2007 could not be reversed because the reversal requirement under Rule 3(5B) applied only from that date, so denial of credit on that ground was unsustainable. Credit was allowed on pest control, sewage disposal plant AMC, air-conditioner AMC in the instrumentation room, computer AMC and online auction services because those services had a sufficient nexus with manufacture or clearance; credit was denied on canteen facility, as the statutory obligation under the Factories Act did not arise, and on air travel agent service for lack of proof of business nexus. The penalty question was remanded for fresh consideration.

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Issues: (i) Whether CENVAT credit on inputs written off in the accounts prior to 11-5-2007 was liable to be reversed. (ii) Whether CENVAT credit was admissible on pest control, AMC for sewage disposal plant, AMC for air conditioners in the instrumentation room, canteen facility, AMC for computers, air travel agent service and online auction service. (iii) Whether the penalty imposed under Rule 15 read with Section 11AC required fresh consideration.

Issue (i): Whether CENVAT credit on inputs written off in the accounts prior to 11-5-2007 was liable to be reversed.

Analysis: The requirement to reverse credit on written-off inputs was introduced only by insertion of Rule 3(5B) in the CENVAT Credit Rules, 2004 with effect from 11-5-2007. For the period prior to that date, there was no embargo on availment of credit merely because the inputs had been written off in the books.

Conclusion: The denial of CENVAT credit on written-off inputs was unsustainable and the assessee succeeded on this issue.

Issue (ii): Whether CENVAT credit was admissible on pest control, AMC for sewage disposal plant, AMC for air conditioners in the instrumentation room, canteen facility, AMC for computers, air travel agent service and online auction service.

Analysis: Pest control and AMC for the sewage disposal plant were treated as eligible input services on the basis of earlier Tribunal decisions. AMC for air conditioners installed in the instrumentation room had the requisite nexus with manufacture because the equipment was used for testing products before clearance. AMC for computers was also allowed to the extent the services were connected with manufacture and clearance. Canteen facility was not allowable because the statutory obligation under Section 46 of the Factories Act did not arise as the workforce was below the prescribed threshold. Air travel agent service was denied for want of documentary proof of business nexus. Online auction service was allowed because it was used for disposal of scrap generated during manufacture and had a direct nexus with clearance of excisable goods.

Conclusion: Credit was allowed on pest control, AMC for sewage disposal plant, AMC for air conditioners in the instrumentation room, AMC for computers and online auction service, but denied on canteen facility and air travel agent service.

Issue (iii): Whether the penalty issue required fresh consideration.

Analysis: As the matters were only partly allowed, the question of penalty was left to the original authority for reconsideration after hearing the assessee.

Conclusion: The penalty question was remanded for fresh decision.

Final Conclusion: The assessee obtained substantial relief on the credit disputes, while the canteen and air travel claims failed and the penalty question was sent back for reconsideration.

Ratio Decidendi: Credit cannot be denied for written-off inputs before the express reversal provision came into force, and input-service eligibility depends on a demonstrable nexus with manufacture or clearance, while statutory canteen credit is confined to cases where the statutory obligation actually arises.

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