Input service credit for erection and commissioning services was admissible where the work enabled exported machinery to operate at buyer premises.

For the period before 01.04.2011, erection and commissioning services used to make exported machinery operational at the buyer's premises fell within the wide definition of input service under the Cenvat Credit Rules, 2004. Because the services were outsourced in connection with the sale and use of the machinery, and their cost formed part of the machinery's overall cost, they had a direct nexus with the assessee's business. Credit of service tax paid on those services was therefore admissible, and denial of input service credit was unsustainable.

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Issues: Whether credit of service tax paid on erection and commissioning services used in connection with exported machinery was admissible as input service credit under the Cenvat Credit Rules, 2004.

Analysis: For the period prior to 01.04.2011, the definition of input services was wide and included services used in relation to activities relating to business. The erection and commissioning services were outsourced to a third party, but they were undertaken to make the machines sold by the appellant usable at the buyer's premises. The cost of such services formed part of the cost of the exported machinery, and the services had a direct business nexus with the manufacture and sale of the goods.

Conclusion: The appellant was eligible for credit of the service tax paid on the erection and commissioning services.

Final Conclusion: The denial of credit was unsustainable, and the assessee was entitled to relief.

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