CENVAT credit on factory maintenance and construction services allowed only to the extent covered by the input service definition.

CENVAT credit was admissible on pest control services used to maintain an organic chemicals factory because they had a direct nexus with manufacturing and fell within the scope of input service. Credit on civil works for construction of the factory was admissible for the period when input service included services used in relation to setting up of a factory, but became inadmissible after that expression was deleted, requiring reversal of credit with interest for the post-amendment period. Penalties were unsustainable because the inadmissible portion did not involve any finding of intention to evade. The appeal therefore succeeded in part, with partial relief to the assessee.

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Issues: (i) Whether CENVAT credit of service tax paid on pest control services was admissible. (ii) Whether CENVAT credit of service tax paid on civil works for construction of the factory was admissible for the period prior to and after the amendment deleting "setting up" from the definition of input service. (iii) Whether the penalties imposed were sustainable.

Issue (i): Whether CENVAT credit of service tax paid on pest control services was admissible.

Analysis: Pest control services were used by a manufacturer of organic chemicals to maintain the factory in accordance with good manufacturing practices. Such services had a direct nexus with the manufacturing activity and were covered within the broad ambit of input service.

Conclusion: CENVAT credit on pest control services was admissible and the finding was in favour of the assessee.

Issue (ii): Whether CENVAT credit of service tax paid on civil works for construction of the factory was admissible for the period prior to and after the amendment deleting "setting up" from the definition of input service.

Analysis: For the period when the definition of input service included services used in relation to setting up of a factory, service tax paid on civil works for construction of the factory was eligible for credit. After the amendment deleting the expression "setting up", credit on such services rendered post-amendment was not available, and the assessee was required to reverse the credit along with interest to that extent.

Conclusion: CENVAT credit was admissible for the pre-amendment period and inadmissible for the post-amendment period, resulting in partial relief to the assessee.

Issue (iii): Whether the penalties imposed were sustainable.

Analysis: Since the major portion of the credit was held admissible and the inadmissible portion arose without any finding of intention to evade, the penalty was not warranted.

Conclusion: The penalties were set aside and the finding was in favour of the assessee.

Final Conclusion: The appeal succeeded in part: credit was allowed on pest control services and on civil works to the extent covered by the pre-amendment regime, while credit for the post-amendment civil works period was denied and penalties were cancelled.

Ratio Decidendi: Services used for maintaining a factory in direct relation to manufacturing qualify as input service, and civil works for factory construction qualify only so long as the governing definition expressly includes services used in relation to setting up of a factory.

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