Cenvat credit on factory-related input services allowed where services had nexus with manufacture and tax treatment of underlying service did not bar credit.

Cenvat credit was held admissible on input services used for construction of a scrap yard, barbed wire fencing, canteen hall, dining hall, security services at a guest house, and road and drainage facilities inside factory premises. The services were treated as falling within the scope of input service under Rule 2(l) of the Cenvat Credit Rules, 2002 because they had a sufficient nexus with manufacture or were used within the factory premises. It was further held that credit could not be denied merely because the service provider had paid tax on a service described as exempted. The denial of credit by the lower authorities was set aside.

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Issues: Whether Cenvat credit was admissible on input services used for construction of scrap yard, barbed wire fencing, canteen hall, dining hall, security services at guest house, and on construction of road and drainage system inside the factory premises, including where the underlying service was treated as exempted.

Analysis: The disputed services were examined in the light of the definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2002 and the settled line of decisions holding that services used within the factory premises or having a sufficient nexus with manufacture are eligible for credit. For the road and drainage system, it was held that payment of service tax by the service provider on an exempted service does not, by itself, bar availment of credit at the recipient's end, and the credit could not be denied on that basis. The denial of credit by the lower authorities was therefore found unsustainable.

Conclusion: Cenvat credit on all the disputed services was held admissible and the order denying credit was set aside in favour of the assessee.

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