2026 (1) TMI 386 - AT - Central Excise

Service tax on technical inspections and outward couriering for project goods treated as Rule 2(l) input services; credit restored.

The dominant issue was whether service tax paid on technical inspection services and outward courier services qualified as 'input service' under Rule 2(l) ... Eligibility of the appellant to avail Cenvat credit of service tax paid - technical inspection services - outward courier services - HELD THAT:- Perusal of Rule 2(l) of Cenvat Credit Rules, 2004 shows that the legislature has used both the words in the said definition that is ‘means’ and ‘includes’. Therefore the definition is exhaustive. Any services rendered directly or indirectly in the manufacture of final product and clearance thereof, the inclusive definition sets out various services and further enlarge the scope by showing that all activities relating to business constitute the input services. No doubt the product in question is HDPE pipes which is very much different from a pharmaceutical product as was in consideration in the case of Cadila Healthcare Ltd. [2013 (1) TMI 304 - GUJARAT HIGH COURT]. However, it is an admitted fact that the appellant had manufactured those pipes for a government project of water supply distribution system of Roorkee awarded to M/s. NCC Ltd. Admittedly the project was funded by Asian Development Bank under a loan agreement between Government of India and the said bank. The scheme was to be implemented by Urban Development Department of Uttarakhand. These admissions falsify the plea of department that the services of technical inspection were not required by the appellant. In the light of discussion about meaning of input services under rule 2(l) of Cenvat Credit Rules, 2004, the said service is also held to have been availed in relation to the manufacturing process/business of the appellant. Hence it is held that these were also eligible input services qua which the appellant was entitled to avail the Cenvat credit - it is held that Commissioner (Appeals) though had dropped the major demand of excise duty as well as that of service tax but has committed an error while confirming the demand/reversal of Cenvat credit availed by the appellant. With these observations, the order under challenge confirming the reversal of Cenvat credit amounting to Rs.93,662/-is hereby set aside. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether Cenvat credit of service tax was admissible under Rule 2(l) of the Cenvat Credit Rules, 2004 on technical inspection services availed for HDPE pipes prior to their supply for a government-funded project. (ii) Whether Cenvat credit of service tax was admissible under Rule 2(l) of the Cenvat Credit Rules, 2004 on outward courier services used in connection with the appellant's manufacturing business and clearance of final products. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Cenvat credit eligibility on technical inspection services Legal framework: The Court examined the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004. It noted that the definition uses both 'means' and 'includes', treating it as an exhaustive definition that nevertheless expressly expands coverage through the inclusive limb to cover services used directly or indirectly in manufacture and clearance, and further to include 'activities relating to business'. Interpretation and reasoning: The Court found it admitted that the HDPE pipes were manufactured for a government water supply distribution project funded under an external loan arrangement and implemented through the State's urban development department. This factual context disproved the Department's objection that technical inspection was not required. The Court further held that, even independent of whether the inspection was 'necessary' in the abstract, once such services were availed before clearance to a government agency, and the Department produced no evidence of any alternative purpose, the services bore a clear nexus to the appellant's business and manufacturing activity. Conclusion: Technical inspection services availed for the manufactured HDPE pipes prior to supply were held to be services used 'in relation to' manufacture/business, qualifying as eligible input services. Denial of credit was therefore held unsustainable. Issue (ii): Cenvat credit eligibility on outward courier services Legal framework: Applying the same Rule 2(l) framework, the Court treated services connected with manufacture and clearance, and more broadly 'activities relating to business', as capable of qualifying for credit where the nexus is established. Interpretation and reasoning: The Court held that outward courier services, in the facts considered, were also availed in relation to the manufacturing process/business of the appellant. It treated such courier services as having sufficient business nexus within the meaning of Rule 2(l), and found no basis to sustain the denial of credit once the services were shown to be connected with the appellant's business and clearance-related activities. Conclusion: Outward courier services were held to be eligible input services, and the appellant was entitled to Cenvat credit of the service tax paid on such services. Final decision on the disputed demand: Since both disputed services were held eligible input services under Rule 2(l), the confirmation of reversal/demand of Cenvat credit (with interest) was found erroneous and was set aside, and the appeal was allowed to that extent.