CESTAT allows CENVAT Credit on Input Services of Commercial & Industrial Construction [Read Order]

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that the CENVAT credit can be availed of on input services of commercial and industrial construction, fabrication and erection, manpower supply for construction, and Goods Transport Agency for construction materials, etc.

Madras Cements Ltd, the appellant assessee had availed CENVAT credit of duty paid on inputs and service tax on input services. CENVAT credit was availed on input services of commercial and industrial construction, fabrication and erection, manpower supply for construction, and the Goods Transport Agency for construction materials, etc., during the setting up of the unit in the years 2008–09, 2009–10, and 2010–11.

The department viewed that the credit availed did not have any nexus with the manufacturing activity either directly or indirectly, and hence, the same were not used in the activities specified under the definition of Rule 2(l) of the CENVAT Credit Rules, 2004.

The department issued the Show Cause Notice, proposing to disallow the wrong input service credit availed by the appellant and recover it along with applicable interest and penalties. The adjudicating authority proceeded to confirm the disallowance as proposed, along with interest and penalty.

The assessee contended that the authority wrongly concluded that the input service tax credit was permissible only for those input services used in or concerning the manufacture and clearance of products. The lower authority has failed to understand the broader scope and applicability of the definition of input service.  The issue raised was whether the department was justified in denying the availment of input service credit on the ground that the services in question did not have any nexus with the manufacturing activity.

The two-member bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) viewed that the period of dispute is from April 2008 to March 2011, and the definition of “input service” as it stood before the amendment with effect from 1.4.2011 would apply. Rule 2(l) of the Cenvat Credit Rules, 2004 (CCR), as in force before April 1, 2011, defined ‘input service’ to mean any service used for providing output service or used by the manufacturer concerning the manufacture of the final product.

While allowing the appeal, the CESTAT held that the ambit of the definition before April 1, 2011, was large enough to cover all activities as long as there was no denial by the department that, after setting up the factory, no business was carried on from that premises.

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