2026 (2) TMI 394 - AT - Central Excise

CENVAT credit on services: remand for escort/security and works contract claims; employee transport and C Form collection denied, limitation invoked

Definition of input service under Rule 2(l) turns on nexus with manufacture and the contractual place of removal; escort/security services may qualify as ... Definition of input service under Rule 2(l) of CENVAT Credit Rules, 2004 - place of removal and FOR destination contracts determining point of clearance - nexus or integral connection with manufacture or clearance up to place of removal - express exclusion of services used primarily for personal use or consumption of employees (post01.04.2011) - exclusion of service portion in execution of works contract and construction services (post01.04.2011) - invocation of extended period of limitation under proviso to Section 11A - interest under Rule 14 CCR / Section 11AA - penalty under Rule 15 CCR - Entitlement to CENVAT credit of service tax paid on escort/security personnel deputed along with high-value consignments during transit to customer sites - HELD THAT:- In the present case, escort/security services are directly linked with safeguarding consignments during outward movement and may qualify as input services if the place of removal extends beyond the factory gate. However, since the relevant purchase orders, delivery terms, insurance/risk clauses and contractual documents have not been placed before us in sufficient detail, we are unable to conclusively determine admissibility. Accordingly, this issue is remanded to the adjudicating authority for the limited purpose of verifying the contractual place of removal and thereafter deciding eligibility of credit on escort/security services strictly in terms of Roofit Industries Ltd. [2015 (4) TMI 857 - SUPREME COURT], EMCO Ltd. [2015 (8) TMI 200 - SUPREME COURT] and CBIC Circular No. 1065/4/2018-CX dated 08.06.2018, after affording due opportunity to the Appellant. Admissibility of CENVAT credit on “transport coordination services” - HELD THAT:- The Hon’ble Supreme Court in Solar Industries India Ltd. [2022 (9) TMI 1155 - SC ORDER] has categorically held that transportation of employees through rent-a-cab/employee transport services has no nexus with manufacture and is barred by the exclusion clause post-amendment. The Chennai Bench in Verizon Data Services India Pvt. Ltd. [2022 (8) TMI 1105 - CESTAT CHENNAI] has also reiterated that employee welfare services such as rent-a-cab and similar benefits are not eligible for credit after 01.04.2011. Therefore, credit on transport coordination services relating to employee movement is inadmissible for the period from 01.04.2011 onwards, and the disallowance is upheld for the post-amendment period. Admissibility of CENVAT credit on service tax paid to agencies engaged for collection of C-Forms and follow-up for realization of payments from customers - HELD THAT:- We find that such services are clearly post-sale and post-removal commercial activities undertaken after clearance of the goods. Collection of statutory declaration forms under the CST regime and recovery of sale proceeds arise only after the transaction of sale is completed and do not contribute either directly or indirectly to the process of manufacture, nor do they fall within the scope of “clearance of final products up to the place of removal” under Rule 2(l) of the CENVAT Credit Rules, 2004. Even though the definition of “input service” prior to 01.04.2011 included the expression “activities relating to business”, it is well settled by the Hon’ble Supreme Court in Maruti Suzuki Ltd. [2009 (8) TMI 14 - SUPREME COURT] and by the Bombay High Court in Ultratech Cement Ltd. [2010 (10) TMI 13 - BOMBAY HIGH COURT] that the inclusive portion cannot enlarge the scope to cover remote post-clearance financial or documentation activities having no integral nexus with manufacture. Therefore, credit on services relating to collection of C-Forms/payments is inadmissible even for the pre-01.04.2011 period, and the position is even more explicit against the Appellant after 01.04.2011 when the definition was further narrowed. Accordingly, the disallowance is upheld for the entire period and is answered against the Appellant. Admissibility of CENVAT credit on civil/works contract related services such as earth pits, manholes, sewage treatment plant works, renovation of canteen facilities, gas bunk renovation and other allied civil activities undertaken in the factory premises - HELD THAT:- In the present case, the disputed services pertain to civil activities such as earth pits, manhole chambers, STP works and renovation of canteen/gas bunk facilities. Accordingly, this issue is remanded to the adjudicating authority for the limited purpose of verifying whether the impugned activities constitute admissible repairs/renovation/ modernisation or inadmissible construction/works contract services hit by the exclusion clause post-01.04.2011, and thereafter to decide admissibility strictly in accordance with Rule 2(l). Interest, Penalty and Invocation of Extended Period - HELD THAT:- In the present case, we find that despite the statute being clear, the Appellant continued to avail CENVAT credit even after 01.04.2011 on services which were plainly hit by the exclusion clause, such as Sodexo meal passes, medical services, canteen/outdoor catering and employee transport coordination services. These services are neither directly nor indirectly connected with manufacture or clearance of final products, and are expressly excluded by law. The continued availment of credit on such services, notwithstanding the clear statutory prohibition, cannot be treated as a mere interpretational dispute, but constitutes availment in contravention of the CCR provisions. The availment of credit on services which are expressly barred indicates suppression of material facts and contravention with intent to avail inadmissible benefit. Therefore, the extended period of limitation is clearly invokable in the facts and circumstances of the case. Accordingly, we uphold the invocation of the extended period for recovery of inadmissible credit on those services which are conclusively held to be excluded and ineligible. The adjudicating authority, while re-computing the demand upon remand, shall apply the extended period wherever the credit pertains to services clearly hit by the exclusion clause and not forming part of the remanded issues. As regards interest, it is settled that interest under Rule 14 is attracted when credit is wrongly taken and utilized. The adjudicating authority shall verify the extent of utilization of inadmissible credit and thereafter determine interest liability accordingly. Insofar as the remaining services are concerned, we uphold the disallowance of credit on collection of C Forms/payments services as being post-removal commercial activities not covered under Rule 2(l). The appeal is thus partly allowed by way of limited remand only on escort/security services, gardening services, and works contract/civil services, while the remaining disallowances are sustained in the above terms. The invocation of the extended period is upheld, as the Appellant continued to avail CENVAT credit on services clearly excluded under Rule 2(l) post-01.04.2011 in contravention of the statutory provisions. Interest and penalty, if any, shall be consequential and shall be redetermined after fresh adjudication. Issues: (i) Whether CENVAT credit on escort/security personnel deputed along with goods to customer sites is admissible; (ii) Whether transport-coordination/employee transportation services are admissible pre- and post-01.04.2011; (iii) Whether services of agents engaged to collect C-Forms/payments are admissible; (iv) Whether gardening, Sodexo meal passes, medical and canteen/outdoor catering services are admissible considering pre- and post-01.04.2011 positions; (v) Whether construction/works contract/civil services (earth pits, manholes, STP, canteen/gas bunk renovation) are admissible; (vi) Whether interest under Rule 14/Section 11AA and penalties under Rule 15 CCR and invocation of extended period are properly levied.Issue (i): Whether CENVAT credit on escort/security personnel deputed along with goods to customer sites is admissible.Analysis: The admissibility depends on the contractual determination of the 'place of removal' and whether delivery obligations and risk allocation extend clearance beyond the factory gate; Supreme Court decisions on FOR/destination contracts and CBIC guidance require factual verification of purchase orders, delivery terms and related documents.Conclusion: Remanded to the adjudicating authority for limited verification of contractual terms and determination of place of removal; outcome to be decided in accordance with governing precedents (neutral procedural outcome).Issue (ii): Whether transport-coordination/employee transportation services are admissible for periods before and after 01.04.2011.Analysis: Pre-01.04.2011 the wider phrase 'activities relating to business' permitted credit where employee transport had sufficient nexus to business operations; post-01.04.2011 an express exclusion bars services used primarily for personal use of employees and binding Supreme Court and Tribunal decisions treat employee transport/rent-a-cab as ineligible.Conclusion: Credit allowed for the pre-01.04.2011 period; credit disallowed for the period from 01.04.2011 onwards (against the assessee for post-amendment period).Issue (iii): Whether services of agents engaged to collect C-Forms/payments are admissible.Analysis: Collection of statutory forms and recovery of payments are post-sale/post-removal commercial activities that do not form part of manufacture or clearance up to place of removal; precedents hold that inclusive language cannot be stretched to cover remote post-clearance financial/documentation activities.Conclusion: Disallowance upheld for the entire period (against the assessee).Issue (iv): Whether gardening, Sodexo meal passes, medical and canteen/outdoor catering services are admissible considering pre- and post-01.04.2011 positions.Analysis: Post-01.04.2011 exclusion expressly bars services primarily for employee personal use; gardening/green-belt maintenance may qualify if undertaken pursuant to statutory/environmental obligations, requiring factual proof; Sodexo, medical and canteen services are employee-oriented and excluded absent statutory compulsion and nexus evidence.Conclusion: Gardening remanded for limited verification of statutory/environmental nexus; credit on Sodexo meal passes, medical and canteen/outdoor catering services disallowed, particularly for post-01.04.2011 (partly in favour of assessee for gardening conditional; against assessee for other services).Issue (v): Whether construction/works contract/civil services (earth pits, manholes, STP, canteen/gas bunk renovation) are admissible.Analysis: Pre-01.04.2011 renovation/repairs could qualify if they satisfy nexus and are not new construction; post-01.04.2011 specific exclusion bars service portion of works contract/construction used for building/foundation/support of capital goods; factual details of scope of work are necessary to determine nature of activity.Conclusion: Remanded to the adjudicating authority for limited verification to ascertain whether activities are admissible repairs/renovation or inadmissible construction/works contract (neutral procedural outcome).Issue (vi): Whether interest under Rule 14/Section 11AA and penalties under Rule 15 CCR and invocation of extended period are properly levied.Analysis: Invocation of the extended period under proviso to Section 11A is upheld where credits were continued after the clear statutory exclusion from 01.04.2011 and represent availment contrary to the amended law; interest under Rule 14 applies if inadmissible credit was taken and utilized; penalty under Rule 15 depends on findings of suppression/intent and is consequential upon final re-adjudication.Conclusion: Invocation of the extended period upheld for credits clearly excluded post-01.04.2011 (against the assessee); interest and penalty to be re-determined by the adjudicating authority after remand and fresh adjudication (neutral/consequential).Final Conclusion: The appeal is partly allowed by limited remand on issues requiring factual verification (escort/security services, gardening subject to statutory nexus, and works contract/civil services) while disallowances on collection-of-payments agents, Sodexo/medical/canteen services and employee transport post-01.04.2011 are sustained; invocation of the extended period is upheld and interest/penalty are to be redetermined upon fresh adjudication.Ratio Decidendi: Where admissibility of input service depends on contractual place of removal and factual nexus to manufacture or clearance, the question must be decided by factual verification in light of governing precedents; after the amendment w.e.f. 01.04.2011 the express exclusion of services used primarily for employee personal consumption precludes CENVAT credit thereon and permits invocation of the extended period for continuance of such credits post-amendment.