2026 (3) TMI 741 - AT - Central Excise

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 ... Entitlement to cenvat credit on input services used in setting up a plant and factory - consultancy services to Durgapur Steel Plant (“DSP”) - definition of 'input service' under Rule 2(l) - availment and utilization of credit - demand, interest and penalty. Entitlement to cenvat credit - HELD THAT:- The said issue has been decided by this Tribunal in the case of M/s Brahmani River Pallets Private Limited (Supra) wherein this Tribunal relied on the decision of Aditya Aluminium v. Commissioner of Central Excise, Customs &Service Tax, Bhubaneswar [2023 (9) TMI 55 - CESTAT KOLKATA] and Jindal Steel and Power Ltd. v. Commissioner of Central Tax, Rourkela [2023 (7) TMI 712 - CESTAT KOLKATA] The Tribunal held that Rule 2(l) (post 01.04.2011) must be read with its main 'means' clause which covers any service 'used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products'. Services used in setting up a factory are activities 'in relation to' manufacture and, being covered by the main clause and not specifically excluded by the 'excludes' part, qualify as input service for cenvat credit. Earlier decisions of the Tribunal applying the same reasoning were followed, and the denial of credit, recovery and penalty based on premature availment were held unsustainable. [Paras 6, 7, 8] Final Conclusion: The appeal is allowed: the appellant is entitled to cenvat credit on input services used for setting up the plant post 01.04.2011 and the impugned order confirming demand, interest and penalty is set aside with consequential relief, if any. 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.