2024 (11) TMI 716 - AT - Central Excise

Cenvat credit allowed on input services for manufacturing unit setup under Rule 2(l)(ii) despite deletion of 'setting up' clause

CESTAT Ahmedabad allowed the appeal regarding Cenvat credit on input services including imported capital goods clearance charges, consultancy charges, ... Cenvat credit - input services - imported capital goods clearances charges, consultancy charges (other than civil), insurance charges, input GTA (only machinery related) and erection and commissioning charges (only machinery related) etc used during the setting up of their manufacturing unit i.e. prior to starting of their first commercial production - Revenue denied the Cenvat credit in the above services on the ground that these services are related to and used in setting up of the factory and since the “setting up” wording was deleted from the inclusion clause of the definition in Rule 2 (l) of the Cenvat Credit Rules, 2004, appellant are not eligible for Cenvat credit - HELD THAT:- From the reading of the above rule, it can be seen that as per the main clause of the definition given in Rule 2 (l)(ii) any service used by a manufacturer, whether directly or indirectly, in or in relation to manufacture of final product and clearance of final product up to the place of removal are considered as input service. In the present case all the services described above are undisputedly used in the factory of the manufacturer. Therefore, the same are clearly covered under the Rule 2 (l)(ii) of the definition of input services. Similar issue has been dealt with by the Ahmedabad bench in the case of Piramal Glass Ltd [2019 (10) TMI 1032 - CESTAT AHMEDABAD] wherein the tribunal has held that 'In the present case, installation of new furnace is directly used in relation to manufacture of final product. Therefore, even as per the main clause of the definition of the input service, these services are input services and credit is rightly availed by the appellant.' In view of the above judgment, even though the wording “setting up” was deleted from the inclusion clause of the definition but all the services are covered under the main clause of definition of input services as per Rule 2 (l) of Cenvat Credit Rules, 2004 so far these services were used by the manufacturer, directly or indirectly in or in relation to the manufacture of the final product. Therefore the cenvat credit on the subject input services are admissible. The impugned order is set aside. Appeal is allowed. Issues Involved:1. Entitlement to Cenvat credit for input services used in setting up a manufacturing unit.2. Impact of the removal of 'setting up' from the definition of input service effective from 01.04.2011.3. Applicability of the extended period for issuing a show cause notice.Issue-wise Detailed Analysis:1. Entitlement to Cenvat Credit for Input Services Used in Setting Up a Manufacturing Unit:The primary issue in this case is whether the appellant is entitled to Cenvat credit for various input services used during the setting up of their manufacturing unit before the commencement of commercial production. The appellant argued that despite the removal of 'setting up' from the inclusive part of the definition of input service, the Cenvat credit remains admissible under the main limb of the definition, which includes services 'used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products.' The appellant contended that the input services in question were utilized for the procurement, erection, and installation of capital goods, which were subsequently used for manufacturing excisable goods, thus qualifying under the main limb of the definition.The tribunal examined the services for which Cenvat credit was claimed, such as CHA services for import of capital goods, consultancy charges, erection and commissioning charges related to machinery, and others. It concluded that these services were used in the factory of the manufacturer and were covered under Rule 2(l)(ii) of the Cenvat Credit Rules, 2004. The tribunal referenced several judgments, including those in the cases of Pepsico India Holdings Pvt. Ltd. and Aditya Aluminium, which supported the view that services used in setting up a factory are covered as input services under the main part of the definition, provided they are not specifically excluded.2. Impact of the Removal of 'Setting Up' from the Definition of Input Service Effective from 01.04.2011:The tribunal addressed the department's argument that the removal of the phrase 'setting up' from the definition of input service effective from 01.04.2011 rendered the Cenvat credit inadmissible. However, the tribunal noted that the main clause of the definition remained unchanged, which includes services used by a manufacturer in or in relation to the manufacture of final products. The tribunal emphasized that the scope of input service is broad, encompassing activities directly or indirectly related to manufacture. It reiterated that services used in setting up a factory, although not explicitly included, are not excluded and thus qualify as input services under Rule 2(l)(ii).The tribunal cited the case of Pepsico India Holdings Pvt. Ltd., where it was determined that the main part of the definition is sufficiently broad to cover services used in setting up a factory, as these activities are directly related to manufacture. The tribunal concluded that the deletion of 'setting up' from the inclusive clause does not affect the admissibility of Cenvat credit for such services, as long as they are covered under the main clause and not specifically excluded.3. Applicability of the Extended Period for Issuing a Show Cause Notice:The appellant argued that the show cause notice was issued by invoking the extended period, which is not justified in the absence of any suppression of facts. The tribunal did not specifically address this argument in detail in the order, as the primary focus was on the substantive issue of entitlement to Cenvat credit. However, the tribunal's decision to set aside the impugned order and allow the appeal implies that the extended period may not have been applicable, given the lack of suppression or misrepresentation by the appellant.Conclusion:The tribunal set aside the impugned order and allowed the appeal, concluding that the appellant is entitled to Cenvat credit for the input services used in setting up their manufacturing unit. The tribunal held that the services in question are covered under the main clause of the definition of input services, as per Rule 2(l) of the Cenvat Credit Rules, 2004, and the removal of 'setting up' from the inclusive clause does not affect their admissibility.