CESTAT allows cenvat credit for mark-up fees on permanent services like electricity, water, canteen facilities

CESTAT Bangalore allowed the appeal regarding recovery of cenvat credit wrongly availed with interest and penalty. The adjudicating authority held that mark-up/milestone fees paid for permanent services including electricity, water, canteen facilities, and ETP charges were not input services under Cenvat Credit Rules, 2004. CESTAT rejected this reasoning, finding these services were necessary for manufacturing activities and used in relation to manufacture of finished goods. The tribunal emphasized that services categorized as Management Consultancy Services with service tax paid by the supplier and accepted by the department cannot be questioned when the recipient claims cenvat credit, following SC precedents in Sarvesh Refractories and MDS Switchgear cases.

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Issues involved:
Appeal against orders passed by Commissioner of Central Excise, Bangalore regarding availing cenvat credit on input services.

Facts of the case:
The appellants are engaged in the manufacture of excisable goods and availed cenvat credit on input services based on invoices issued by another company. The dispute arose regarding the nature of services provided and whether they qualify as input services for cenvat credit.

Appellant's argument:
The appellant entered into a Business Sale Agreement with the other company, under which certain services were agreed to be provided during the transfer of business. The services were essential for the manufacturing activity and were classified under 'Management Consultancy Services'. The appellant contended that since the services were used in the manufacture of final products and the service tax was paid by the other company, the credit should not be denied.

Revenue's argument:
The Revenue argued that the services availed by the appellant were not directly or indirectly used in relation to the manufacture of final products, thus not qualifying as input services under the CENVAT Credit Rules. They also highlighted that post-01.04.2011, credit on all expenses relating to business activities cannot be allowed.

Decision:
The Tribunal considered the agreements between the parties and the nature of services provided. It was observed that the services were necessary for manufacturing activities and were paid for by the other company under 'Management Consultancy Services'. The Tribunal rejected the Revenue's contention and allowed the appeals, setting aside the impugned orders.

Conclusion:
The Tribunal ruled in favor of the appellant, stating that the cenvat credit availed on the services provided during the business transfer should not be denied. The impugned orders were set aside, and the appeals were allowed with consequential relief, if any, to the appellant.

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