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Issues: Whether CENVAT credit on service tax paid for construction of residential quarters or township for employees, in the pre-01/04/2011 regime, is admissible as input service.
Analysis: The relevant definition of input service during the material period had a wide ambit and included activities related to business. The residential quarters were located within or near the remote factory premises and were necessary for sustaining manufacturing operations by enabling employees to work at the site. The service costs were treated as part of the cost of production, and the residential colony was found to have a direct and intrinsic nexus with the manufacturing activity. In that setting, the services used for construction and upkeep of the employees' housing were held to fall within the scope of Rule 2(l) of the Cenvat Credit Rules, 2004.
Conclusion: Credit was admissible and the denial of CENVAT credit was unsustainable.
Ratio Decidendi: Where employee housing or township is integrally connected with manufacture and forms part of business-related costs in the pre-01/04/2011 regime, services used for its construction or maintenance qualify as input services under Rule 2(l) of the Cenvat Credit Rules, 2004.
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