2025 (6) TMI 588 - AT - Central Excise

CENVAT Credit on input services used for setting up its factory post 01.04.2011 - amendment in the definition of input service under the CENVAT Credit Rules 2004 - omission of explicit inclusion of services related to setting up from its scope - HELD THAT - The said issue has been examined by this Tribunal in the case of M/s. Aditya Aluminium vs. Commissioner of Central Excise Customs S.Tax Bhubaneswar 2023 (9) TMI 55 - CESTAT KOLKATA Kolkata wherein this Tribunal observed that the subject input services have a direct nexus with the manufacture of finished goods in the means clause of the definition of input services. Accordingly we hold that even if the word setting up of a factory has been specifically excluded from the definition.e.f. 01.04.2011 such services are covered within the ambit of main clause of the definition. Hence it would still qualify as an input service as per Rule 1(1) of CCR 2004. As issue has already been settled that the input services have direct nexus with the manufacturing goods in the means clause of definition of input services. Therefore post 01.04.2011 also the services in question was covered within the ambit of main clause of the definition. Hence appellant do qualify to avail Cenvat Credit of input services used for setting up of its factory plant post 01.04.2011. In view of this there are no merit in the impugned order - appeal allowed.

Summary

The core legal question considered by the Tribunal is whether the appellant is entitled to avail CENVAT Credit on input services used for setting up its factory post 01.04.2011, despite the amendment in the definition of "input service" under the CENVAT Credit Rules, 2004, which omitted the explicit inclusion of services related to "setting up" from its scope.

In addressing this issue, the Tribunal examined the relevant statutory framework, including the CENVAT Credit Rules, 2004, and the Central Excise Act, 1944, along with authoritative precedents interpreting the scope of "input service" and the term "manufacture."

Post 01.04.2011, the definition of "input service" under Rule 2(1) of the CENVAT Credit Rules, 2004, comprises three parts: a "means" clause, an "includes" clause, and an "excludes" clause. The "means" clause defines input service as any service used by a manufacturer, directly or indirectly, in or in relation to the manufacture of final products and their clearance up to the place of removal. The "includes" clause enumerates specific services such as modernization, renovation, repairs, advertisement, storage, and others, but notably omits "setting up" of a factory. The "excludes" clause specifies services that are not eligible for credit.

The Tribunal reasoned that although the term "setting up" was removed from the "includes" clause effective 01.04.2011, this omission does not automatically exclude such services from the ambit of input services. The "means" clause is broad and encompasses any service used directly or indirectly in or in relation to manufacture. The Tribunal relied on the definition of "manufacture" under Section 2(f) of the Central Excise Act, 1944, which is expansive and includes any process incidental or ancillary to the completion of a manufactured product.

Applying this interpretation, the Tribunal held that services used for setting up a factory are activities directly related to manufacture since without setting up the factory, manufacture cannot commence. Therefore, such services fall within the "means" clause of the definition of input service and qualify for CENVAT credit unless specifically excluded. Since "setting up" was not specified in the "excludes" clause, the appellant's claim for credit on input services used for setting up the factory post 01.04.2011 is valid.

The Tribunal supported this conclusion by referencing several precedents, including the decision in the case of M/s. Aditya Aluminium, where the Tribunal held that services used for setting up a factory post 01.04.2011 are covered under the "means" clause and eligible for credit. The Tribunal also cited the case of Pepsico India Holdings Pvt. Ltd., which affirmed that the omission of "setting up" from the "includes" clause does not preclude credit if the services fall within the broad "means" clause. Further, the Tribunal referred to the decision in M/s Bharat Coking Coal Ltd., which allowed credit for services used in setting up a Coal Handling Plant, viewing it as modernization and directly related to manufacture.

In addition, the Tribunal noted consistent judicial pronouncements from various benches, including those involving Jindal Steel and Power Ltd., Shell India Pvt. Ltd., Reliance Corporate IT Park Ltd., Hindustan Zinc Ltd., Kellogs India Pvt. Ltd., Texmaco UGL Rail, Hindalco Industries Ltd., and Linde India Pvt. Ltd., all affirming the entitlement to credit on input services used in setting up or modernization activities directly or indirectly related to manufacture.

The appellant's contention that input service credit availed prior to 01.04.2011 should not be denied was accepted by the department, and the demand for that period was dropped. The dispute centered on the post-amendment period. The Tribunal's analysis clarified that the statutory amendment did not intend to deny credit for services used in setting up a factory, as these remain covered under the "means" clause of the definition.

The Tribunal carefully considered the department's argument that the deletion of "setting up" from the definition implied denial of credit but rejected this interpretation, emphasizing the wide scope of the "means" clause and the absence of any specific exclusion. The Tribunal underscored that the term "manufacture" includes incidental and ancillary processes, thereby encompassing preparatory activities such as setting up the factory.

Consequently, the Tribunal concluded that the appellant was entitled to avail CENVAT Credit on input services used for setting up the factory post 01.04.2011. The impugned order confirming the demand along with interest and imposing penalty was set aside, and the appeal was allowed with consequential relief.

Significant holdings include the following verbatim extract from the Tribunal's reasoning in M/s. Aditya Aluminium:

"The input services utilized for setting up of a factory are covered within the ambit of 'means clause' i.e. service 'used by a manufacturer whether directly or indirectly in or in relation to the manufacture of final products'. Since the subject input services are covered in the 'main clause' of the definition of input service, unless it is specifically excluded under the excludes clause of the definition, the Appellant is entitled to CENVAT Credit on the subject input services used in setting up of the factory."

Further, the Tribunal stated:

"Although setting up the factory is not manufacture in itself, it is an activity directly in relation to manufacture. Without setting up the factory, there cannot be any manufacture. Service used in setting up the factory are, therefore, unambiguously covered as 'input services' under Rule 2 (1) (ii) of the CENVAT Credit Rules 2004 as they stood during the relevant period (post 1.4.2011). The mere fact that it is again not mentioned in the inclusive part of the definition makes no difference."

The core principle established is that the definition of "input service" post 01.04.2011 must be read holistically, giving effect to the broad "means" clause, which covers services used directly or indirectly in or in relation to manufacture, including setting up activities, unless explicitly excluded.

On the final determination, the Tribunal held that the appellant's claim for CENVAT Credit on input services used for setting up the factory post 01.04.2011 is valid and allowed the appeal, setting aside the demand, interest, and penalty imposed by the department.