CENVAT credit on factory-linked services allowed where nexus with manufacturing and pollution-control compliance was established.

CENVAT credit was held admissible on services having a direct nexus with manufacturing operations or statutory compliance. Credit on canteen-related manpower services was allowed because the canteen formed part of the manufacturing establishment and there was no outdoor catering or employee tax recovery. Gardening expenses were allowed as the green-belt activity was tied to factory operations and pollution-control conditions. Cleaning expenses for the residential colony were also allowed because the colony was treated as part of the industrial township supporting the factory. Proportionate disallowance from vehicle hiring charges was set aside because the show-cause notice had not alleged such a disallowance.

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Issues: (i) Whether CENVAT credit on canteen-related manpower services was admissible without proportionate disallowance. (ii) Whether CENVAT credit on gardening expenses was allowable as an input service connected with manufacturing activity and pollution-control compliance. (iii) Whether CENVAT credit on cleaning expenses for the residential colony was allowable. (iv) Whether proportionate disallowance from vehicle hiring charges could be sustained when no such allegation was made in the show-cause notice.

Issue (i): Whether CENVAT credit on canteen-related manpower services was admissible without proportionate disallowance.

Analysis: The service used was only for deployment of manpower to run the factory canteen. There was no outdoor catering service and no recovery of service tax from employees. The canteen was treated as part of the manufacturing establishment and its maintenance had nexus with the business of manufacture.

Conclusion: The disallowance on canteen expenses was set aside and the issue was decided in favour of the assessee.

Issue (ii): Whether CENVAT credit on gardening expenses was allowable as an input service connected with manufacturing activity and pollution-control compliance.

Analysis: The gardening and green-belt activity was required for maintaining the manufacturing environment and was also mandated by the pollution-control conditions imposed for operating the factory. The activity was therefore integral to continued manufacturing operations.

Conclusion: The credit on gardening expenses was held fully allowable and the disallowance was set aside in favour of the assessee.

Issue (iii): Whether CENVAT credit on cleaning expenses for the residential colony was allowable.

Analysis: The residential colony formed part of the factory premises and functioned as an industrial township created for the factory. In the absence of municipal services for the area, maintenance of the colony was treated as the responsibility of the industry itself. The cleaning expenditure was therefore connected with the industrial establishment.

Conclusion: The disallowance on cleaning expenses was set aside in favour of the assessee.

Issue (iv): Whether proportionate disallowance from vehicle hiring charges could be sustained when no such allegation was made in the show-cause notice.

Analysis: The notice did not propose disallowance of any proportionate amount on account of employee recovery. The adjudication travelled beyond the scope of the notice, and the corresponding disallowance could not be sustained.

Conclusion: The proportionate disallowance on vehicle hiring charges was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded on the disputed items relating to canteen manpower, gardening, cleaning, and vehicle hiring, while the withdrawn claims and the unpressed items remained outside adjudication.

Ratio Decidendi: CENVAT credit is allowable where the service has a direct nexus with manufacturing operations or statutory compliance, and a demand cannot extend beyond the allegations contained in the show-cause notice.

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