ELIGIBLE INPUT SERVICES FOR TAKING CREDIT AS DECLARED BY TRIBUNALS/HIGH COURTS

[Mr. M. GOVINDARAJAN]

CENVAT Credit Rules, 2004 allows a manufacturer or output service provider to take credit on service tax paid on input services and adjusts the same against the payment of central excise duty/service tax.  Rule 2(l) defines the term ‘input service’.  The readers may aware the interpretation of the said Rule leads to many a litigation before various forums, such as Commissioner (Appeals)/CESTAT/High Court/Supreme Court.   In this article the discussion is on the services which are eligible to take credit as declared by Tribunals/High Courts along with the reasons for the same.

For eligibility of CENVAT credit, it is to be decided whether a service is an input service or otherwise, it cannot be decided only by the nomenclature of services.   It is necessary to ascertain what is the output service and when the service in question is required for providing the output service.

The ‘nexus test’ relating to inputs that same to be used in or in relation to manufacture of dutiable final products, is also applicable to input services, as held in ‘Maruti Suzuki India Limited V. Commissioner of Central Excise, Customs & Service Tax, Hyderabad- II’ – 2016 (1) TMI 291 - CESTAT NEW DELHI.

Health and fitness services

In ‘Sitel India Limited V. Commissioner of Central Excise, Mumbai – II’ – 2016 (3) TMI 203 - CESTAT MUMBAI the Tribunal held that in the present case the appellant is providing the BPO services.   In the BPO services, the major involvement is manpower who are required to perform duties on 24x7 basis when the manpower work in odd times during the 24 hours it adversely affects the health of the employee which directly affects the performance of the services.   In the BPO companies the health and fitness of the employees is very essential factor in order to run the functions of a BPO company.  Therefore, health and fitness services availed by the company for their employee is a necessity for providing better quality of output service.   It is to be kept in the mind that business organization is not meant for an entertainment of the employees but the ultimate objective is to achieve optimum performance of the employees.  For that purpose the health and fitness services are input service eligible for CENVAT credit.

Transport of goods by Road

In ‘Sitel India Limited’ (supra) the transportation was used by the appellant for the various activities such as transportation of equipment like computers etc.,  Therefore these services are input services.  The Revenue alleged that the transport service was used for transporting the household goods of employees.  There is no evidence available as per the show cause notice or as per the proceedings before the Adjudicating Authority and Commissioner (Appeals).  The Tribunal did not agree with the contentions of the Revenue.  The Revenue held that credit is not deniable.

Electricity charges

In ‘Sitel India Limited’ (supra) the CENVAT credit in respect of electricity expense was denied only on the ground that the service was received by the landlord and not by tenant i.e., the appellant.  The Tribunal surprised that when the premises was occupied by the appellant and day-to-day repairs and maintenance are carried out in that premises, obviously, the said services are received and used by the tenant only and not by the landlord.  The use of electricity is directly used by the BPO service provider in order to carry out their day-to-day business activity.   It is an input service and credit is admissible.

Construction services of dormitory

In ‘Bajaj Hindustan Limited V. Commissioner of Central Excise, Meerut’ – 2015 (9) TMI 1222 - CESTAT NEW DELHI the dormitory is located within the factory and the use of the dormitory is for the technicians/engineers for their stay in the factory itself which is required for maintenance of plant and machinery and these technicians/engineers should be available immediately as the factory is located in a remote area.  Therefore the Tribunal held that the construction of the dormitory for this purpose of stay or technicians/engineers is integrally connected with the manufacturing of the appellant.  The appellant is entitled to take CENVAT credit on construction services.

Management consultant services

In ‘Commissioner of Central Excise, Bangalore V. Sanmar Specialty Chemicals Limited’ – 2016 (6) TMI 771 - KARNATAKA HIGH COURT the High Court held that the Management Consultancy services obtained for infusing finance in the different units of the company can be said as connected with the manufacturing activity and it cannot be excluded on the premise that it is not related to the manufacturing activity.  The manufacturing activity would be an ultimate result, but it begins with the establishment of the unit by purchasing machinery, raw material and also the availability of finance.   In the absence of fund procured may be of its own source or through financial institution, it may not be possible to reach the ultimate result of manufacturing activity.  The Tribunal has rightly found that the input tax credit was available and there is no ground to interfere with the orders of the Tribunal.

Disposal of Hazardous waste

In ‘India Pesticides Limited V. Commissioner of Central Excise & Service Tax, Lucknow’ – 2016 (8) TMI 724 - CESTAT ALLAHABAD  the Tribunal found that there is no dispute as regards the incurring of transport expenses for disposal of the hazardous waste.  Further there is no dispute that disposal of such hazardous waste is essential for the manufacture of taxable output/products being insecticides.  The Tribunal held that the disposal of hazardous waste by the appellant is an essential activity without which, the final products being excisable insecticides, cannot be manufactured.  The transport of service in question has been incurred in relation to manufacture of final taxable products.  The CENVAT credit is not deniable.

Repair and maintenance

In ‘Commissioner of Central Excise, Delhi – III V. Exide Industries Limited’ – 2014 (5) TMI 1114 - CESTAT NEW DELHI the appeal relates to availability of CENVAT credit of service tax paid on repair and maintenance of the building/plant/road etc.,  The Tribunal found that the definition of ‘input service’ as contained in Rule 2(l) specifically includes services used in relation to modernization, renovation or repairs of a factory.  The said definition was amended with effect from 01.04.2011 where in construction of the factory was excluded.  As there is no exclusion of the services relatable to renovation or repair, the Tribunal found no reasons to hold that such services were not CENVATable.

Insurance Service and Pest Control Services

In ‘Sundaram Fasteners Limited V. Commissioner of Central Excise, Chennai – II’ – 2016 (8) TMI 723 - CESTAT CHENNAI the Tribunal held that so far as the CENVAT credit on insurance service is claimed, the exclusion of such service in certain events has been incorporated into the law with effect from 01.04.2011.  That is only in respect of insurance coverage given to employees during journey availing LTC.  But that had not taken away the welfare of the workers under the Factories Act, from its fold if insurance service is availed to overcome difficulties under Workmen Compensation Act, in case of hazard.  Accordingly the appellant’s claim of CENVAT credit on service tax paid to avail insurance service for employees employed in factory is permissible.   Pest control to main property of the assessee is being integral the protection of the business, the appellant is also entitled to credit thereon.

Catering service

In ‘Sundaram Fasteners Limited V. Commissioner of Central Excise, Chennai – IV’ – 2015 (11) TMI 1539 - CESTAT CHENNAI the Tribunal held that services for catering was availed to maintain the canteen of the factory of the appellant.  Maintenance of canteen being an obligation under the labor law, there should not be denial of CENVAT credit of service tax paid in respect of such canteen services availed.  The Tribunal further directed that contribution recovered from the employees is to be deducted.

GTA Service

In ‘Commissioner of Central Excise, Raipur V. Drolia Electrosteels (P) Limited’ – 2015 (12) TMI 161 - CESTAT NEW DELHI the credit on GTA was denied on the ground that the service provider issued consolidated invoices for transportation, loading and unloading charges and therefore such services received are not to be treated as GTA service but cargo handling service which no service tax is paid.  The Tribunal held that the impugned service is taxable as GTA service and not cargo handling service.  The Tribunal held that the CENVAT credit is admissible.

Third party services

In ‘Jyothy Laboratories Limited V. Commissioner of Central Excise, Puducherry’ – 2015 (11) TMI 1556 - CESTAT CHENNAI the appellant availed broadcasting service and paid service tax.  This service tax was paid on the basis of invoice raised by intermediary who arranged service for the appellant.  The Revenue is of the view that discharging of service tax by the intermediary shall not entitle the appellant to the CENVAT credit.  The Tribunal held that the services availed by the appellant does not appear to be alien to its business.  There was an advertisement made for the appellant through broadcasting service which is not in dispute by the Revenue.  Such service was provided by a third party for the appellant through an intermediary.  What is the requirement of law is that there should be an integral connection with the activity of the appellant and the input service availed.  Such a nexus is established in this case for which the appellant cannot be denied the benefit of CENVAT credit of service tax paid.

In re ‘Indus Towers Limited’ – 2016 (1) TMI 1053 - AUTHORITY FOR ADVANCE RULINGS the Authority held that certification, inspection and engineering services provided by third party vendor to the applicant for repair of capital goods viz., D.G. Sets, air conditioners, etc., used for providing output service, the applicant is eligible to avail CENVAT credit.

In ‘Kernex Microsystems (India) Limited V. Commissioner of Central Excise, Customs & Service Tax, Hyderabad – II’ – 2015 (12) TMI 1106 - CESTAT BANGALORE the Tribunal held that the services of advertisement, DVD film production, campaigning in electronic and print media, etc., availed for collecting capital through IPO for expansion of manufacturing facilities by setting up of a new unit are covered within the definition of input service and eligible to  credit.

Gardening service

In ‘Sterlite Industries India Limited V. Commissioner of Central Excise, Madurai’ – 2015 (9) TMI 1399 - CESTAT CHENNAI the Tribunal held that the maintenance of plantation in the factory to prevent air pollution being necessity of law, CENVAT credit only on that output be allowed.   If there is any maintenance of garden in the office premises that should not be allowed.

Sundaram Clayton Limited V. Commissioner of Central Excise,Chennai – II’ – 2016 (6) TMI 161 - CESTAT CHENNAI

Financial Services -  Finance being the necessary for input for the purpose of carrying out the manufacturing activity and money is invested to carry out manufacture, credit cannot be denied for such services availed.

Cleaning and forwarding agents and customs clearing services – These services are integrally connected to the business.  Procurement of raw material and finished goods are essence of business.  Credit cannot be denied.

Auction Service – It is also an integral part of manufacturing activity since, clearance of dumped goods having no utility is necessary to be removed in order to store raw materials or finished goods.  Credit is not to be denied.

Legal Services – Legal services are available for statutory compliance which is the duty of the assessee to comply and credit cannot be denied for such services since it has relevancy to activity of manufacture.

Courier service – It is considered necessary for the business because without such service, there may not be the possibility of movement of documents as well as goods with least cost.  The appellant is entitled to CENVAT credit on this count.

IT Service – It is an integral part of the business activity to reduce paper work and to carry out the business efficiently and effectively.   Maintenance of software is also an integral part of the business.  The appellant cannot be denied CENVAT credit.

Photography services – it is used to issue ID cards to the employees and other different business activity which is in relation to the manufacturing of final products.  Therefore credit of ST on such input  service is not deniable.

Designing service – It pertained to the tools used in the manufacture of finished products, logos, graphics, corporate identity designs etc.,  This has the nexus to the manufacture and clearance of goods for which CENVAT credit cannot be denied to these services.