Factory renovation services deemed as 'input service' eligible for credit under Service Tax rules

The Tribunal held that services related to modernization, renovation, and repair of factory premises constitute 'input service' eligible for credit, despite the exclusion of construction services. The appellants' contention was supported by a Board clarification, leading to the reversal of orders denying credit for Service Tax paid on such services. The appeals were allowed, setting aside the demands for recovery of inadmissible credit with interest and penalty, granting the appellants relief in accordance with the law.

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Issues:
Whether the appellants are eligible for credit of Service Tax paid on 'construction service' for modernization, renovation, or repair of their factory premises.

Analysis:
The appeals were filed against orders-in-appeal passed by the respective Commissioner (Appeals) regarding the admissibility of credit of Service Tax paid on 'Construction Service' for modernization, renovation, or repair of factory premises. The appellants alleged that the credit availed on this service was irregular due to an amendment excluding 'construction service' from the definition of 'input service' effective from 1.4.2011. The demands for recovery of inadmissible credit were confirmed with interest and penalty. The appellants contended that 'modernization, renovation, and repair' of the factory continued to be part of the definition of 'input service' post-amendment, citing a circular for support.

The Revenue argued that all 'construction service' within factory premises fell outside the scope of the amended definition of 'input service,' making Service Tax paid on such services inadmissible for credit. However, the appellants argued that while new construction was no longer eligible, activities related to 'modernization, renovation, or repair' of existing plant and machinery within the factory premises still fell within the definition of 'input service.' The Tribunal examined the old and amended Rule 2(l) of the Cenvat Rules 2004 to determine the eligibility of credit for 'construction service.'

The Tribunal concluded that services related to modernization, renovation, and repair of the factory premises were within the meaning of 'input service,' despite construction of buildings or civil structures being excluded. A clarification issued by the Board supported this interpretation, stating that services provided in the inclusive part of the definition of 'input service' were eligible for credit. As the appellants had undertaken modernization, renovation, or repair work in their factory premises, the Service Tax paid on such services was deemed eligible for credit. Consequently, the impugned orders were set aside, and the appeals were allowed with consequential relief, if any, as per the law.

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