2025 (8) TMI 711 - AT - Central Excise

Service Tax Credit Allowed on Management Consultant Services Under Rule 2(l) of CENVAT Credit Rules 2004

M/s. Hindustan Unilever Ltd. Versus The Commissioner of GST & Central Excise, Puducherry Commissionerate

M/s. Hindustan Unilever Ltd. Versus The Commissioner of GST & Central Excise, Puducherry Commissionerate - TMI 1. ISSUES PRESENTED and CONSIDERED Whether the service tax credit availed on 'Management or Business Consultant's Service' and 'Business Support Service' qualifies as input service under Rule 2(l) of the CENVAT Credit Rules, 2004 (CCR 2004) and is therefore admissible. Whether the impugned denial of CENVAT credit on these services and consequent demand of service tax along with interest and penalty under Rule 14 and Rule 15(1) of CCR 2004 is justified. Interpretation and scope of the term 'input service' under Rule 2(l) of CCR 2004, especially post its amendment effective from 01.04.2011. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of CENVAT Credit on 'Management or Business Consultant's Service' and 'Business Support Service' Legal Framework and Precedents: Rule 2(l) of CCR 2004 defines 'input service' as any service used by a manufacturer, directly or indirectly, in or in relation to the manufacture of final products and their clearance up to the place of removal. The rule includes an illustrative list of services such as advertisement, sales promotion, market research, accounting, financing, recruitment, coaching, security, etc. The definition was amended effective 01.04.2011 to clarify the scope. Relevant judicial precedents include: Bombay High Court's decision in Coca Cola India Pvt. Ltd. v. CCE, which held that the term 'business' is an integrated, continuous activity and not confined to mere manufacture. The phrase 'activities relating to business' is broad and includes all activities related to the functioning of a business. Ultratech Cement Ltd. ruling, which recognized that input service credit includes services used in relation to the business of manufacture, whether availed prior to or after manufacture. Madras High Court's ruling in M/s. Rane TRW Steering System Ltd., which after extensive analysis, held that the definition of input services cannot be restricted only to manufacture but includes services used in relation to the business of manufacture and clearance. Supreme Court decision in Ramala Sahkari Chini Mills Ltd., reinforcing the broad interpretation of input services. Court's Interpretation and Reasoning: The Court emphasized the wide scope of 'input service' under Rule 2(l), which includes services used indirectly or in relation to manufacture and clearance of final products. The definition explicitly includes services such as management consultancy, business support, and others that support the business operations integral to manufacturing. The Court rejected the narrow interpretation urged by Revenue that input service credit should be confined strictly to services directly linked to manufacturing processes. It relied on authoritative judicial pronouncements to affirm that services supporting the overall business operations of the manufacturer qualify as input services. Key Evidence and Findings: The appellant had availed credit on various input services including 'Management or Business Consultant's Service' and 'Business Support Service' based on ISD invoices from their Head Office. The adjudicating authority confirmed disallowance only on these two services, while other services were accepted. The Revenue's contention was that these services were not used directly or indirectly in or in relation to manufacture and clearance of final products, and thus not eligible for credit. Application of Law to Facts: Applying the broad interpretation of Rule 2(l) and judicial precedents, the Court found that the impugned services fall within the ambit of input services. The services in question support the business activities related to manufacture and clearance, thereby qualifying for credit. Treatment of Competing Arguments: The Revenue's argument for restricting input service credit to only those services directly linked to manufacture was rejected. The Court held that the definition and judicial precedents clearly support a wider interpretation encompassing services that relate to the business of manufacture. Conclusions: The service tax credit availed on 'Management or Business Consultant's Service' and 'Business Support Service' is admissible input service credit under Rule 2(l) of CCR 2004. The disallowance of credit on these services by the adjudicating authority is set aside. Issue 2: Validity of Demand for Service Tax, Interest and Penalty on Disallowed Credit Legal Framework: Rule 14 of CCR 2004 read with Section 11A(1) and Section 11AB of the Central Excise Act, 1944 provides for recovery of service tax along with interest where credit is wrongly availed. Rule 15(1) of CCR 2004 provides for imposition of penalty for contravention of the rules. Court's Reasoning: Since the Court held that the credit on the disputed services was rightly availed, the demand for service tax recovery, interest, and penalties based on disallowance cannot be sustained. The penalty is contingent upon the existence of wrongful availment of credit, which is negated by the Court's findings. Application of Law to Facts: The adjudicating authority imposed proportionate penalties along with demand of service tax and interest on disallowed credit for the two services. Given the Court's acceptance of credit eligibility, these demands and penalties fail. Conclusions: The demand of service tax, interest, and penalties on the disallowed credits are set aside as unsustainable. Issue 3: Interpretation and Scope of Rule 2(l) of CCR 2004 Legal Framework: Rule 2(l) defines 'input service' with an inclusive list and explanation, emphasizing usage in relation to manufacture and clearance of final products. The amendment effective 01.04.2011 clarified and expanded the scope. Court's Interpretation: The Court interpreted Rule 2(l) in a purposive and expansive manner, consistent with legislative intent and judicial precedents, to include services used indirectly or in relation to business activities associated with manufacture and clearance. Key Findings: The Court noted that the definition includes services such as advertisement, sales promotion, accounting, recruitment, coaching, security, and others that are integral to business operations supporting manufacture. Conclusions: The scope of 'input service' under Rule 2(l) is broad and not confined to direct inputs into manufacture. Services supporting the business of manufacture qualify for CENVAT credit.