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2025 (5) TMI 1009 - AT - Central ExciseCENVAT Credit - input services used in relation to setting up of factory even after deletion of the phrase setting up of factory from the definition of input service with effect from 01.04.2011 under rule 2(l) of the Cenvat Credit Rules 2004 - HELD THAT - A Division Bench of this Tribunal in M/s Kellogs India Pvt Ltd vs. Commissioner of Central Tax 2020 (7) TMI 414 - CESTAT HYDERABAD observed that we find that the services used in relation to setting up of a plant are neither specifically included nor specifically excluded during the relevant period. That takes us to the main part of the definition which with respect to manufacturer allows CENVAT credit of services used in or in 6 relation to manufacture whether directly or indirectly. This definition in our considered view is wide enough to cover in its compass any services used for setting up a Plant especially when the services are used for obtaining the land on lease. Without such land no factory can be set up nor can any manufacture take place. We find a direct nexus between the manufacture of the final products and the services used for setting up of plant by leasing the land. In the grounds of appeal it has been stated that since the decisions rendered by the Tribunal in Kellogs India and Pepsico India 2021 (7) TMI 1094 - CESTAT HYDERABAD have been assailed before the Telangana High Court it cannot be said that the decisions of the Tribunal had attained finality - This ground taken in the appeal is without any basis. So long as the decisions of the Tribunal have not been set aside the Principal Commissioner was bound to follow the decisions. Conclusion - CENVAT credit on input services used in relation to setting up of factory is admissible under Rule 2(l) of the CENVAT Credit Rules 2004 despite the deletion of the phrase setting up of factory. In view of the aforesaid decisions of the Tribunal in Kellogs India and Pesico India there is no error in the order passed by the Principal Commissioner - appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered in this appeal is whether CENVAT credit is admissible on input services used in relation to the "setting up of factory" after the deletion of the phrase "setting up of factory" from the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004, effective from 01.04.2011. Specifically, the Tribunal examined whether input services availed for setting up or expansion of industrial plants qualify for CENVAT credit despite the statutory amendment excluding "setting up of factory" from the definition. 2. ISSUE-WISE DETAILED ANALYSIS Issue: Availability of CENVAT credit on input services used for setting up of factory post deletion of the phrase "setting up of factory" from Rule 2(l) of CENVAT Credit Rules, 2004. Relevant Legal Framework and Precedents: The definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, initially included services used in relation to "setting up of factory." However, this phrase was deleted effective 01.04.2011. The rule broadly defines input service as any service used by a manufacturer in or in relation to the manufacture of final products, whether directly or indirectly. The definition also includes certain specified services and excludes others. The question arose as to whether the deletion of "setting up of factory" from the inclusion list precludes credit for services used in factory setup. Two key precedents were heavily relied upon by the Principal Commissioner and the Tribunal:
Court's Interpretation and Reasoning: The Tribunal reasoned that the deletion of the phrase "setting up of factory" from the definition did not exclude such services from the ambit of input services. Since the main part of the definition allows credit for any service used by a manufacturer in or in relation to manufacture, directly or indirectly, it inherently covers services used in setting up a plant. The Tribunal noted that without land acquisition or leasing (an input service), no factory can be set up, and consequently, no manufacture can occur. Therefore, a direct nexus exists between the input services used for setting up and the manufacture of final products. Key Evidence and Findings: The appellant had entered into contracts for setting up and expansion of various plants and availed CENVAT credit on input services received in this context. The department issued a show cause notice demanding recovery of credit on the ground that such credit was inadmissible post deletion of "setting up of factory" from Rule 2(l). The Principal Commissioner, relying on the Tribunal's precedents, dropped the demand. The department challenged this order. Application of Law to Facts: The Tribunal applied the broad definition of input service and the precedent rulings to hold that the services used for setting up the plant fall within the scope of input services eligible for credit. The deletion of the phrase "setting up of factory" did not curtail the credit because the main definition's language was sufficiently wide to cover such services. The Tribunal emphasized the necessity of such services for manufacturing operations, establishing a direct nexus. Treatment of Competing Arguments: The department contended that the Principal Commissioner erred in following the Tribunal's decisions in Kellogs India and Pepsico India, arguing that these decisions were under challenge before the High Court and hence not final. The Tribunal rejected this contention, holding that until such decisions are set aside, they are binding and must be followed. Further, the Tribunal noted that these decisions were subsequently upheld by a Division Bench of the Regional Bench and the Karnataka High Court, and the Supreme Court dismissed the Special Leave Petition filed by the department, thereby affirming the finality of the rulings. Conclusions: The Tribunal concluded that the Principal Commissioner rightly dropped the demand for recovery of CENVAT credit on input services used for setting up the factory. The credit was admissible under the broad definition of input service despite the deletion of the phrase "setting up of factory." The appeal filed by the department was dismissed. 3. SIGNIFICANT HOLDINGS "As can be seen from the three components of the definition of input service under Rule 2(l) of CENVAT Credit Rules 2004, the initial part says that any service used by a service provider in connection with provision of output service or by a manufacturer in or in relation to manufacture of the final products whether directly or indirectly is covered under the definition of input service." "This definition, in our considered view, is wide enough to cover in its compass any services used for setting up a Plant especially when the services are used for obtaining the land on lease. Without such land no factory can be set up nor can any manufacture take place. We find a direct nexus between the manufacture of the final products and the services used for setting up of plant by leasing the land." Core principles established include:
Final determinations:
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