2025 (11) TMI 119 - AT - Central Excise

CENVAT credit allowed for disputed input services under Rule 2(l); Rent-a-Cab credit must be reversed with limited interest, no penalty

M/s. National Aluminium Co. Ltd. Versus Commissioner of CGST, Central Excise & Customs, Rourkela, Odisha

CESTAT KOLKATA - AT allowed CENVAT credit for all disputed input services claimed for 2007-08 to 31.03.2011 except Rent-a-Cab services, which are ... CENVAT Credit - input services - Rent-a-Cab service - Travel Agency service - Courier Services - Banking and Financial Services - period 2007-08 to August 2014 - lack of direct nexus with manufacturing activities - HELD THAT:- All the disputed input services in this case are used in relation to the business of the appellant. Accordingly, it is held that the appellant is eligible for the credit of all those disputed input services during the period 2007-08 to 31.03.2011. As per the amended definition of ‘input services’, Rule 2(l) of the CENVAT Credit Rules, 2004 covers three categories of services, out of which the first category viz., (i) ‘means’ part of the definition, generally cover services which are used directly or indirectly, in or in relation to manufacture of final goods or for providing of output services; the second category viz., (ii) ‘inclusion’ part of the definition, specifically state certain services used in relation to various activities, which is used in relation to the manufacture of final products or provision of output services, both of which are covered under the scope of ‘input services’. Further, the third category, viz., (iii) ‘exclusion’ part of the definition provided under Clauses (A), (B), (BA) and (C), specifically provide for certain services or portion of such services, which are not included in the above definition of ‘input service’. Rent-a-cab services - HELD THAT:- It is found that the input service namely, Rent-a-cab services has been specifically excluded from the definition of ‘input service’. In view of the specific exclusion, it is observed that the appellant is not eligible for the credit availed on the input services namely, Rent-a-cab services. We observe that the disallowance of CENVAT Credit on rent-a-cab service has been upheld by the Hon’ble Apex Court in the case of Solar Industries Industries India Ltd. Vs. Commissioner of Central Excise, Customs & Service Tax, Nagpur-II, [2022 (9) TMI 1155 - SC ORDER], wherein it has been held 'Providing transportation service to the employees cannot be said to be 'input service' as it has nothing to do with the manufacture of the goods.' - the appellant is not eligible for the credit availed by them in respect of Rent-a-cab services. The appellant is liable to reverse the credit availed and utilized on Rent-a-cab services. along with interest. As there is no suppression of fact with intention to avail irregular credit established in this case, no penalty imposable on the appellant on account of reversal of this credit availed on Rent-a-Cab service. Liability to pay interest on the irregular credit availed in respect of rent-acab service - HELD THAT:- It is required to ascertain the balance available in the CENVAT Credit account of the appellant during the relevant period and if the balance available in the CENVAT Credit account during the relevant period is more than the CENVAT Credit denied in this Order in respect of rent-a-cab service, then there shall be no liability to pay interest on the part of the appellant. However, if the credit balance is less than the CENVAT Credit denied in respect of rent-a-cab service, then the interest shall be liable to be paid by the appellant. Other input services - HELD THAT:- They fall within the ambit of the ‘means’ part of the definition, which covers services which are used directly or indirectly, in or in relation to manufacture of final goods or for providing of output services. Thus, the appellant is eligible for the credit of all input services other than Rent-a-Cab service on which they have availed the credit, as the said services are covered with the ambit of the ‘means’ part of the definition as provided under Rule 2(l) of the CENVAT Credit Rules, 2004 - As the credit availed by the appellant in respect of all input services, other than Rent-a-Cab service, are held to be eligible, we hold that no interest or penalty is imposable on the appellant in this regard. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether services comprising Rent-a-Cab, Travel Agency, Courier Services, and Banking & Financial Services qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004 for periods before and after the amendment effective 01.04.2011. 2. Whether the expression 'activities relating to business' in the pre-amendment definition (up to 31.03.2011) covers the disputed services for CENVAT credit eligibility. 3. Effect of the amendment to Rule 2(l) w.e.f. 01.04.2011 on eligibility of the disputed services and applicability of the exclusion clauses (notably exclusion of renting of a motor vehicle). 4. Whether extended period of limitation, interest and penalty are imposable in respect of denial/reversal of CENVAT credit on the disputed services. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Pre-amendment eligibility (period up to 31.03.2011): Are the disputed services 'input services' under Rule 2(l) as then worded? Legal framework: The pre-amendment Rule 2(l) included the phrase 'activities relating to business' in the definition of 'input service', thereby extending coverage to services integrally connected with the business of manufacturing. Precedent treatment: The Tribunal follows judicial authority holding that 'activities relating to business' must be read to include services having nexus or integral connection with the business of manufacture; the Maruti Suzuki ratio (as applied in that context) and subsequent high court authority have been applied to interpret scope. Interpretation and reasoning: The Court reasons that the substantive part of the definition must be read in its entirety and that services integrally connected with or having nexus to the manufacturing business fall within 'input service'. Functional utility and integral connection to the business, not necessarily physical use within the factory, are determinative. Ratio vs. Obiter: Ratio - services used in relation to the business of manufacturing (under the pre-amendment wording) qualify as input services where a nexus/integral connection is established. Observations on illustrative examples are explanatory. Conclusions: All disputed services (Rent-a-Cab, Travel Agency, Courier, Banking & Financial Services) availed up to 31.03.2011 qualify as eligible input services; credit for that period is allowable. Issue 2 - Post-amendment interpretation (w.e.f. 01.04.2011): Structure of Rule 2(l) and test for eligibility Legal framework: Post-amendment Rule 2(l) is structured in three parts - (i) substantive 'means' part covering specified classes (including services used by manufacturers in or in relation to manufacture and clearance), (ii) an inclusive illustrative list of services, and (iii) explicit exclusion clauses (A),(B),(BA),(C) restricting certain services. Precedent treatment: The Court relies on multiple tribunal and high court decisions interpreting the amended definition to hold that services captured in the 'means' part or the inclusive list are eligible unless specifically excluded; jurisprudence has recognized that deletion of 'activities relating to business' did not automatically exclude non-factory-based services if they fall under the means/inclusive parts. Interpretation and reasoning: The Court analyzes each disputed service against the amended text: if a service is captured by the 'means' part or included by the illustrative list, it remains eligible unless falling within an exclusion. The Court treats the inclusive list as illustrative but operative to show Parliament's intention to permit several business-related services as input services even post-amendment. Ratio vs. Obiter: Ratio - post-amendment eligibility depends on whether a service is used by a manufacturer directly or indirectly in or in relation to manufacture/clearance or is covered by the inclusive list, and it must not be within specific exclusions. Observations on legislative intent and examples are explanatory. Conclusions: Travel Agency, Courier Services, and Banking & Financial Services meet the post-amendment eligibility test (covered by means/inclusive parts and supported by precedent) and are allowable as input services for periods after 01.04.2011; the analysis for Rent-a-Cab differs per exclusion (see Issue 3). Issue 3 - Specific exclusion for renting of motor vehicle (Rent-a-Cab): Effect of exclusion and consequences Legal framework: Post-amendment Rule 2(l) expressly excludes 'services provided by way of renting of a motor vehicle' insofar as they relate to a motor vehicle which is not a capital good (clause (B)); other exclusion provisos also limit certain employee-benefit type services. Precedent treatment: The Court follows binding authority holding that transportation of employees via rent-a-cab is excluded from input service and not connected with manufacture; higher court authority confirms denial of credit for such services. Interpretation and reasoning: Given the specific statutory exclusion and the consistent judicial position that employee transportation bears no nexus to manufacture of goods, rent-a-cab services fall outside the definition of input service post-amendment and are ineligible for CENVAT credit for the post-amendment period. The Court applies the exclusion notwithstanding other parts of the definition. Ratio vs. Obiter: Ratio - rent-a-cab services are excluded under post-amendment Rule 2(l) and are not eligible for input credit when the vehicle is not a capital good; related observations on nexus and employee transport are part of the binding reasoning. Conclusions: Credit availed on Rent-a-Cab services post-01.04.2011 is not allowable and must be reversed; reversal is ordered with interest rules described below. No penalty is imposed because there is no finding of suppression or intention to avail irregular credit. Issue 4 - Interest, reversal mechanics, limitation and penalty Legal framework: Recovery of ineligible credit requires reversal and may attract interest subject to account balances; penalty and extended limitation apply where suppression or intentional evasion is proved; limitation considerations were raised by appellant. Precedent treatment: The Court applies established principles that interest liability depends on the net CENVAT balance during the relevant period and that penalty requires a finding of suppression/intent; where no suppression is found, penalty is not attracted. Interpretation and reasoning: For the ineligible rent-a-cab credit, the Court orders reversal. Interest liability is made contingent: if the CENVAT Credit account balance during the relevant period exceeds the disallowed amount, no interest is payable; if balance is insufficient, interest is payable on the shortfall. No penalty is levied because there is no evidence of suppression with intent. For other disputed services found eligible, demand, interest and penalty are set aside. Ratio vs. Obiter: Ratio - reversal of ineligible credit is required; interest liability is determined by reference to actual credit balances; penalty requires affirmative finding of suppression/intent. Ancillary statements on limitation and quantum are explanatory to application. Conclusions: (i) Demand for services held eligible is set aside and no interest or penalty is imposed; (ii) Rent-a-Cab credit must be reversed; interest, if any, is payable only to the extent the available CENVAT balance is insufficient; (iii) No penalty is imposable in absence of suppression/intent; limitation contentions were noted but did not alter the outcomes as to eligibility and reversal. Cross-references See Issue 1 for reasoning applicable to pre-amendment periods; see Issue 2 for post-amendment textual framework and inclusive list analysis; see Issue 3 for application of specific exclusion to Rent-a-Cab; see Issue 4 for financial consequences and penalty rationale.