Payroll processing qualifies as input service where it supports accounting and maintenance of tax records.

Cenvat credit on payroll preparation services was admissible because the service was used to maintain employee payroll records, back-up data and pay slip generation, functions treated as part of proper accounting and upkeep of tax records. Rule 2(l) of the Cenvat Credit Rules, 2004 covers services used in relation to business activities, including accounting, auditing and financing, and payroll processing was regarded as connected with accounting and necessary for maintaining accounts. The disallowance was therefore unsustainable, and the service qualified as an input service.

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Issues: Whether Cenvat credit of service tax paid on payroll preparation services was admissible as an input service under the Cenvat Credit Rules, 2004.

Analysis: The service was used for maintenance of employee payroll records, back-up, and pay slip generation, which was treated as part of maintaining proper accounts. Rule 2(l) of the Cenvat Credit Rules, 2004 covers services used in relation to activities relating to business, including accounting, auditing and financing. Payroll processing was held to be connected with accounting and necessary for upkeep of tax accounting. Support was also drawn from the Tribunal's earlier view that payroll processing services fall within the ambit of input service.

Conclusion: The credit on payroll preparation service was admissible and the disallowance was unsustainable.

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