Cenvat credit on consultancy for expansion and modernisation of an existing factory was held admissible under input service rules.

Consultancy services used for feasibility studies and project designs for expansion, renovation and modernisation of an existing factory were treated as eligible input services for Cenvat credit. The Tribunal applied the post-1.4.2011 definition of input service and held that services used directly or indirectly in relation to manufacture remain covered, and the exclusion for services relating to setting up a factory cannot be read so broadly as to deny credit where the services are integrally connected with an existing manufacturing unit. Cenvat credit was therefore admissible, the demand was unsustainable, and the Revenue's challenge failed.

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Issues: Whether Cenvat credit was admissible on consultancy services used for feasibility studies and project designs connected with expansion, renovation and modernization of an existing factory, in light of the exclusion of services relating to setting up of a factory under Rule 2(l) of the Cenvat Credit Rules, 2004.

Analysis: The dispute turned on the correct characterisation of the services. The record showed that the consultancy related to proposed expansion and modernization of the existing plant, not to the creation of a new factory. The definition of input service, as applicable after 1.4.2011, was examined along with the wide meaning of manufacture under Section 2(f) of the Central Excise Act, 1944. Services used directly or indirectly in relation to manufacture were treated as covered, and the exclusion was not read so broadly as to deny credit on services connected with expansion or renovation of an existing unit. The reasoning followed the settled Tribunal view that even services described as for setting up do not lose eligibility where they are integrally connected with manufacturing activity of the existing unit.

Conclusion: The services were held to be eligible input services and the assessee was entitled to Cenvat credit. The Revenue's challenge failed.

Final Conclusion: The demand was not sustainable and the Revenue's appeal was rejected.

Ratio Decidendi: Consultancy and related services used for expansion, renovation or modernization of an existing factory, and having a direct or indirect nexus with manufacture, remain admissible as input services unless specifically excluded by the Cenvat Credit Rules, 2004.

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