2018 (5) TMI 411 - AT - Service Tax

Disallowance of CENVAT Credit for School Building Construction Upheld, Vehicle Maintenance Eligible

The Tribunal upheld the disallowance of CENVAT credit for constructing a school building and guest house, stating they were not related to manufacturing ... CENVAT credit - input services - construction service in respect of residential colony - construction of guest house and construction of school building - Rule 2(l) of CENVAT Credit Rules, 2004 - Held that: - any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of the final products and clearance of final products upto the place of removal would be an input service. The ‘includes’ part is worded in such a way that it takes in a large number of services which includes services used not only directly or indirectly, in or in relation to manufacture of final products and their clearance. After 1.4.2011, the legislature has deleted the services of settling up of factory and also activities relating to business. The services of motor vehicle repair and maintenance as well as vehicle insurance has been excluded. The period being prior to 1.4.2011, the services of construction of residential colony and repair and maintenance of vehicle as well as insurance services are eligible for credit - The appellant is eligible for credit in respect of construction service used for setting up of residential colony in the factory premises - However, the very same view cannot be applied in the case of guest house and school constructed by the appellant inside the factory premises as the construction of school for providing education to the children of the employees of the factory will fall wholly as a welfare activity and it has no nexus or relation to the activity of manufacture. The credit allowed in respect of construction of residential complex and services relating to vehicle maintenance and repair service and vehicle insurance are eligible for credit whereas the credit availed on construction of school building and guest house cannot be allowed. Appeal allowed in part. Issues Involved:1. Eligibility of CENVAT credit on construction of guest house and school building.2. Eligibility of CENVAT credit on vehicle maintenance and repair services, and insurance services.3. Eligibility of CENVAT credit on construction of residential complex.Detailed Analysis:1. Eligibility of CENVAT Credit on Construction of Guest House and School Building:The assessee availed input service tax credit for constructing a guest house and school building. The department argued that these services do not qualify as input services under Rule 2(l) of CENVAT Credit Rules, 2004, as they are not related to manufacturing activities. The Tribunal held that construction of a school for employees' children is a welfare activity with no nexus to manufacturing. Similarly, the guest house is a facility for visitors and not related to business activities. Therefore, the credit on these services was disallowed, and the disallowance was upheld as legal and proper.2. Eligibility of CENVAT Credit on Vehicle Maintenance and Repair Services, and Insurance Services:The Commissioner (Appeals) allowed credit on vehicle maintenance, repair services, and insurance services. The assessee argued that these services fall under 'activities relating to business' as per the definition of input services before 1.4.2011. The Tribunal agreed, citing decisions from higher courts and precedents that such services are essential for business operations. Consequently, the credit on these services was deemed eligible.3. Eligibility of CENVAT Credit on Construction of Residential Complex:The assessee claimed credit for constructing a residential complex within the factory premises, asserting it was necessary for continuous worker availability. The Tribunal noted that the definition of input services before 1.4.2011 included 'setting up of factory premises' and activities related to business. Citing the Andhra Pradesh High Court's decision in ITC Ltd., the Tribunal held that providing residential facilities to ensure worker availability is intrinsically linked to manufacturing activities. Therefore, the construction of the residential complex was considered an eligible input service.Conclusion:The Tribunal concluded that the credit on construction of a residential complex and services related to vehicle maintenance, repair, and insurance are eligible. However, the credit on construction of a school building and guest house was disallowed. The appeals by both the assessee and the Revenue were dismissed, and the impugned order was upheld.