CENVAT credit for factory set-up input services after 01.04.2011 under CCR definition change upheld on appeal

The dominant issue was whether CENVAT credit was admissible on input services used for setting up a factory after 01.04.2011, despite the amended definition of "input service" under the CCR, 2004 omitting express inclusion of "setting up." The Tribunal held that such services, though no longer specifically enumerated, remain covered under the main/means limb of the definition because they have a direct nexus with manufacture of final products, consistent with prior Tribunal precedent. Consequently, the appellant was held entitled to avail CENVAT credit on the disputed services post 01.04.2011, the impugned order was set aside, and the appeal was allowed.

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Issues: (i) Whether CENVAT credit is admissible for input services used in setting up a factory post 01.04.2011 when the inclusive part of the definition of "input service" no longer expressly mentioned "setting up"?

Analysis: The question requires construing Rule 2(1) of the CENVAT Credit Rules, 2004 as it stood w.e.f. 01.04.2011, which contains a main (means) clause, an includes clause and an excludes clause. The main clause covers any service "used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal." The term "manufacture" is wide (Section 2(f) of the Central Excise Act, 1944) and includes processes incidental or ancillary to manufacture. Services used for setting up a factory are activities directly or indirectly in relation to manufacture because without setting up the factory manufacture cannot occur. Where such services fall within the scope of the main (means) clause and are not specifically placed in the excludes clause, they qualify as "input service" despite omission from the inclusive list. Earlier Tribunal decisions applied this construction, held that setting up activities fall under the main clause, and set aside demands based on exclusion from the inclusive part.

Conclusion: The input services used in setting up the factory post 01.04.2011 qualify as "input service" under Rule 2(1) of the CENVAT Credit Rules, 2004 and CENVAT credit availed on such services is admissible; the impugned demand, interest and penalty are set aside and the appeal is allowed.

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