Cenvat credit requires nexus with factory operations and cannot be denied merely because tax was paid on allegedly non-taxable services.

Cenvat credit was not to be denied merely because service tax had been paid on a service later alleged to be non-taxable; the recipient could not be faulted without the supplier's assessment being reviewed or reopened by the competent authority. Credit was also held admissible on manpower supply services used to maintain lawns and green belts around the factory, as those services had a sufficient nexus with factory operations and compliance with pollution-control directions. On that basis, the credit demand and penalties were unsustainable.

---

---

Issues: (i) whether cenvat credit could be denied on the ground that service tax had been paid on a service alleged to be non-taxable; (ii) whether cenvat credit was admissible on manpower supply services used for maintenance of lawns and green belt around the factory.

Issue (i): whether cenvat credit could be denied on the ground that service tax had been paid on a service alleged to be non-taxable.

Analysis: The denial of credit on this ground was found unsustainable because credit cannot be refused by questioning the assessment or tax payment made at the supplier's end in the absence of a review or reopening of that assessment by the competent authority. The service tax paid by the service provider could not, for that reason alone, be disregarded for credit purposes at the recipient's end.

Conclusion: The objection was rejected and credit could not be denied on the ground that the service was allegedly non-taxable.

Issue (ii): whether cenvat credit was admissible on manpower supply services used for maintenance of lawns and green belt around the factory.

Analysis: The issue was treated as already settled in the appellant's own case. The services were connected with maintenance of plantation and lawns around the factory, which were required for compliance with pollution control directions and therefore had the requisite relation with manufacture and factory operations.

Conclusion: Credit was held admissible on the impugned services and the disallowance was set aside.

Final Conclusion: The credit demand and penalties were unsustainable, and the assessee succeeded in the appeal.

Ratio Decidendi: Cenvat credit cannot be denied merely because the service provider paid tax on a service alleged to be non-taxable, and services mandated for compliance with factory operational requirements may qualify for credit where they bear the requisite nexus with manufacture.

---