CENVAT credit on factory-related services and MS plates recognised under the input service definition

Rule 2(l) of the CENVAT Credit Rules, 2004 was read to include services used directly or indirectly in relation to manufacture, as well as services used for setting up, modernisation, renovation or repairs of a factory and other business-related activities. On that basis, consultancy, insurance, security, maintenance and survey services received for the factory premises, together with MS plates received in the factory, were treated as eligible inputs for credit. The lower authorities had taken an unduly narrow view of the definition of input service, and the denial of credit was therefore held unsustainable.

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Issues: Whether the appellant was entitled to CENVAT credit of service tax paid on consultancy charges, insurance charges, security service charges, maintenance services and survey fees, and to credit of central excise duty paid on MS plates used in the factory.

Analysis: Rule 2(l) of the CENVAT Credit Rules, 2004, during the relevant period, allowed credit for input services used directly or indirectly in relation to manufacture and also for services used in setting up, modernisation, renovation or repairs of a factory, besides activities relating to business and allied services. The record showed that the services were received for the factory premises in the course of setting up, modernisation, renovation and repairs, and that the inputs had also been received in the factory. The lower authorities had misconstrued the scope of the definition of input service and had wrongly denied credit on the ground of insufficient explanation.

Conclusion: The appellant was eligible for CENVAT credit on the disputed input services and on the central excise duty paid on MS plates.

Final Conclusion: The denial of credit was unsustainable, and the appeal succeeded with the impugned order set aside.

Ratio Decidendi: Services used for setting up, modernisation, renovation or repairs of a factory fall within the ambit of input service under Rule 2(l) of the CENVAT Credit Rules, 2004, and credit cannot be denied when the services and inputs are received in the factory for such purposes.

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