Input service definition: Cenvat credit allowed for services used to set up a plant where main clause applies; disallowance removed.

Post 01.04.2011 the "input service" main clause covers services used "in or in relation to" manufacture, so services for setting up a plant or factory fall within the definition unless expressly excluded; the statutory definition must be read with the wide meaning of "manufacture" to include processes incidental or ancillary to manufacture. Prior Tribunal authority applying the same framework held that consultancy and other input services used for plant setup qualify for Cenvat Credit if not caught by the excludes clause. Accordingly, the demand, interest and penalty based on disallowance of such credit was set aside and the appeal allowed for the assessee.

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Issues: Whether the appellant is entitled to avail Cenvat Credit on input services used for setting up a plant and factory after 01.04.2011.

Analysis: The question turns on the post-01.04.2011 definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004 which contains a main (means) clause, an includes clause and an excludes clause. Services used by a manufacturer "in or in relation to" manufacture, whether directly or indirectly, fall within the main clause. Setting up a plant or factory, although not manufacture itself, is an activity in relation to manufacture and is therefore captured by the main clause unless expressly excluded. The statutory definition must be read with the wide meaning of "manufacture" in Section 2(f) of the Central Excise Act, 1944, which embraces processes incidental or ancillary to manufacture. Prior decisions of the Tribunal applying the same statutory framework have held that input services used for setting up a factory are covered by the main clause post 01.04.2011 and consequently qualify for Cenvat Credit, so long as they are not specifically excluded by the excludes clause. The impugned demand, interest and penalty arose from disallowance of such credit claimed for consultancy services; those measures are unsustainable if the services qualify as input services under the main clause.

Conclusion: The appellant is entitled to avail Cenvat Credit on input services used for setting up a plant and factory after 01.04.2011; the impugned order confirming demand, interest and penalty is set aside and the appeal is allowed in favour of the assessee.

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