Construction of residential complex within the factory premises – credit of Service tax

PJ/Case Laws/2011-12/1437

Construction of residential complex within the factory premises – credit of Service tax – not admissible

Case: COMMISSIONER OF CENTRAL EXCISE, MEERUT-I Versus BAJAJ HINDUSTAN LTD.

Citation: 2011 (24) S.T.R. 497 (Tri. - Del.)

Issue:- Construction of residential complex within the factory premises – cenvat not available in respect of Service Tax – stay granted to Revenue against refund of service tax to assessee.

Brief Facts:- The respondent-assessee availed cenvat credit of service tax paid on the construction of residential complex within the factory for their employees.

The Additional Commissioner had confirmed the demand for recovery of inadmissible credit of service tax and the amount already deposited was appropriated. The Adjudicating Authority had also directed payment of interest and imposed equal amount of penalty.

In appeal the Commissioner (Appeals) set aside the order passed by the Adjudicating Authority.

Revenue has filed appeal before the Tribunal. Application for stay of the order of the Commissioner (A) has also been filed.

Appellant’s Contention:- Revenue has placed reliance on the judgments in the following cases:

- Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. [2010 (260) E.L.T. 369 (Bom)]

- Commissioner of C. Ex., Nag-pur v. Manikgarh Cement Works [2010 (18) S.T.R. 275]

Revenue submitted that the credit was in relation to service pertaining to construction of residential complex and dormitory which were in the nature of employees welfare policy having no nexus with the manufacturing activity and on clearance of the goods, therefore, the Commissioner (Appeals) erred in setting aside the impugned order.

Revenue also submitted that the respondents have already filed an application for refund in view of the order passed by the Lower Appellate Authority.

Respondent’s Contention:- Respondent-assessee submitted that the Bombay High Court in the case of Ultratech Cement Ltd has nowhere laid down that the service tax paid in relation to the services pertaining to the construction of residential units within the factory complex would not be entitled to avail the credit.

They further submitted that the factory is situated in remote place about 25 kms. from Saharanpur and there is no proper bus services available and in order to enable the employees to attend the work in time, the company had arranged residential and dormitory within the factory complex and the same is to be construed in relation to the manufacture of goods.

Reasoning of Judgment:- The Tribunal held that the Bombay High Court has held that the expression "activities in relation to business" in the definition clause of the term 'Input service' postulates the activities which are integrally connected with the business of the assessee.

The Tribunal held that a perusal of the impugned order discloses that the Commissioner (Appeals) has observed that commercial construction services for the purpose of construction of staff quarters for the factory staff/workmen inside the factory premises are also covered by the definition of term ‘input service'. While arriving at the said finding, the Commissioner (Appeals) has tried to analyze the definition clause as being comprised of two parts, one main part and another inclusive clause. Referring to the inclusive clause, the Commissioner (Appeals) has taken into consideration the scope of the expression "such as," in relation to the expression 'activity relating to the business'.

The Tribunal referred to the definition of input services under Rule 2 (l) of CCR, 2004 and noted that the inclusive part relates to “activities relating to business” and further specifies the services like accounting, auditing, financing etc. It was noted that the prior to the said expression inclusive part also specifies that services used in or in relation to setting up, modernization, renovation or repairs to such factory or premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion etc would also form part of services within the meaning of the said expression under the CCR, 2004.

It was held that plain reading of definition of input services discloses that the inclusive portion specifically includes any construction activity relating to the factory premises, sales office premises of the factory, but there is no inclusion of residential premises.

The Tribunal noted that the activity relating to business relates to input or capital goods. Thus, the overall reading of the definition of the input service, therefore, clearly relates to those inputs and capital goods which are integrally connected with the manufacturing activity or any business activity relating to the manufacture of the final product.

It was held that once it is apparent that the law makers in the inclusive clause specifically includes construction activity relating to the factory premises or their office premises while no such inclusion is being made relating to residential premises prima facie, it is difficult to accept the contention sought to be canvassed on behalf of the respondent that the construction of the residential premises even within their factory premises, they would be entitled to avail the credit in respect of the service tax incurred in relation thereto.

In the end it was held that prima facie case made out for grant of stay to Revenue.

Decision:- Stay application allowed.

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PJ/Case Laws/2011-12/1437

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