CENVAT credit on factory compliance and renovation services was held admissible where the input services supported manufacture and statutory obligations.

Services used to meet statutory factory obligations, including AMC of water coolers and housekeeping, cleaning, maintenance and repair services for the canteen, were treated as input services because they had an indirect nexus with manufacture and fell within the inclusive part of Rule 2(l) of the CENVAT Credit Rules, 2004; credit was therefore admissible. Works contract, construction and architectural services used for repair, renovation and modernisation of factory premises were also held eligible, because they related to maintenance and improvement of the existing factory and were not covered by the exclusion for new construction; credit was therefore admissible. The denial of CENVAT credit on both sets of services was held unsustainable.

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Issues: (i) Whether CENVAT credit was admissible on AMC of water coolers and housekeeping, cleaning, maintenance and repair services relating to the canteen as services required to comply with the Factories Act, 1948; (ii) Whether CENVAT credit was admissible on works contract, construction and architectural services used for repair, renovation and modernisation of the factory premises.

Issue (i): Whether CENVAT credit was admissible on AMC of water coolers and housekeeping, cleaning, maintenance and repair services relating to the canteen as services required to comply with the Factories Act, 1948.

Analysis: The services were found to be availed for statutory compliance, including provision of canteen facility and drinking water and maintenance of workplace and canteen in a cool and clean condition. Such services were held to be indispensable to factory operations and to have an indirect nexus with manufacture. They were treated as falling within the main and inclusive part of the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004 and not as outdoor catering for personal consumption of employees. The Tribunal also relied on prior decisions holding that housekeeping and canteen-cleaning services in a factory are eligible credits when rendered to meet statutory factory obligations.

Conclusion: Credit on AMC of water coolers and canteen-related housekeeping, cleaning, maintenance and repair services was held admissible in favour of the assessee.

Issue (ii): Whether CENVAT credit was admissible on works contract, construction and architectural services used for repair, renovation and modernisation of the factory premises.

Analysis: The services were held to relate to renovation, repair and modernisation of factory premises, such as toilets, ceilings, civil works, roof repairs and allied maintenance, rather than to new construction of a building or civil structure falling within the exclusion. The Tribunal held that the inclusive part of Rule 2(l) specifically covers services used in relation to modernisation, renovation or repairs of a factory, and relied on the TRU clarification that credit is allowed on input services used for repair or renovation. The cited decisions were treated as supporting the view that works contract and construction services used for such factory repair and renovation remain eligible input services.

Conclusion: Credit on works contract, construction and architectural services used for repair, renovation and modernisation of the factory was held admissible in favour of the assessee.

Final Conclusion: The denial of CENVAT credit on the disputed services was unsustainable, and the assessee was held entitled to the credit claimed.

Ratio Decidendi: Services used by a manufacturer to satisfy statutory factory obligations, or for repair, renovation and modernisation of factory premises, fall within the scope of input service where they are covered by the inclusive part of Rule 2(l) of the CENVAT Credit Rules, 2004 and are not hit by the specific exclusions.

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