Eligibility of credit on construction services of dormitory in factory.

PJ/Case Law /2016-17/3301

Case:-BAJAJ HINDUSTHAN LTD. VERSUS COMMISSIONER OF C. EX., MEERUT

Citation:- 2016 (43) S.T.R. 461 (Tri. - Del.)

Issue:- Eligibility of credit on construction services of dormitory in factory.
Brief Facts:-Appellant is in appeal against the impugned order wherein input service credit on construction services of dormitory was denied to the appellant on the premises that same does not qualify as input service as per Rule 2(l) of the Cenvat Credit Rules, 2004.

The brief facts of the case are that appellant is the manufacturer of sugar and molasses. As the factory is located in the remote area and they need technicians/engineers for maintenance of their plant and machinery. Therefore, they constructed dormitory within the factory for stay of these technicians/engineers as same may be called as and when if there is a fault in the plant or machinery. For construction of this dormitory, the appellant took Cenvat credit on construction services which was sought to be denied by the revenue on the premise that the same does not qualify as input service as per Rule 2(l) of the Cenvat Credit Rules, 2004. The show cause notices were issued and the same were adjudicated which were converted into the impugned order. Aggrieved from the said orders, appellant is before Tribunal.

Appellants Contention-The ld. counsel for the appellant submits that thedormitory is constructed within the factory premises for stay of technicians/engineers in their factory as same is located in a remote area and these technicians/engineers are required for repair of machinery and plant. In these circumstances, the requirement of these technicians/engineers is directly connected with the manufacturing activity of the appellants and for stay of these employees is related to an integral part of their manufacturing activity. In these circumstances, they are entitled to take Cenvat credit. He submits that although the decision of the Hon’ble High Court of Bombay in the case of Manikgarh Cementsv. C.C.E., Nagpur- 2010 (20) S.T.R. 456 (Bombay), is against them but in that case it was held by the Hon’ble High Court that the residential colony have no integral connection with the business of the assessee. But in this case the employees are staying in factory itself. Therefore, they are entitled to take Cenvat credit. He further submits that in the case of ITC Limited v. C.C.E., Hyderabad- 2013 (32) S.T.R. 288 (A.P.), the Hon’ble High Court of Andhra Pradesh has held that maintenance of residential colony is entitle to take Cenvat credit. Therefore, appellants are entitled to take Cenvat credit. He also relied on the decision of Hon’ble High Court of Bombay in the case of Ultra Tech Cement Ltd. v. C.C.E., Nagpur- 2011 (22) S.T.R. 289 (Tri.-Mumbai). He further submitted that in their own case for the earlier period this Tribunal has held that the appellant is entitled to take Cenvat credit of the impugned input service vide Order No. 54918/2014-EX(SM), dated 29-12-2014 [2016 (41) S.T.R. 503 (Tri.)].

Respondents Contention:-On the other hand the ld. AR opposes the contentionof the ld. counsel and submits that the dormitory is located outside the factory premises as alleged in the show cause notice. Further the decision of the Hon’ble High Court of Bombay in the case of Manikgarh Cement (supra), is applicable to the facts of the case. Therefore, appellant is not entitled to take Cenvat credit. He further submits that the construction service is not included in the inclusive part of the Rule 2(l) of Cenvat Credit Rules, 2004 and the construction services has no nexus with the manufacturing activity of the appellant.

Reasoning Of Judgement:-Heard the parties. Considered the submissions andperused the records. On perusal of the record, tribunal find that although it isalleged in the show cause notice that the dormitory is located outside factory premises but the appellant in reply to the show cause notice has clearly mentioned that this dormitory is constructed within factory premises and the said fact has not been contradicted by the adjudicating authority or the first appellate authority. In these circumstances, it is held that dormitory is located within the factory and same can be verified by the department on visiting the factory premises. As 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, they hold that the construction of dormitory for this purpose of stay of technicians/engineers is integrally connected with the manufacturing activity of the appellant. In these circumstances, they find that the decision of the Manikgarh Cement by Hon’ble High Court is not applicable to the facts of this case as in that case the residential colony was located outside factory premises. Furthermore, they find that in the case of ITC Ltd. (supra), the High Court of Andhra Pradesh has held that maintenance of residential colony in the remote area is entitled to take input services credit for the services of maintenance of residential colony as the factory is located in remote area. Therefore, the credit is available as that service has been availed in the business of manufacturing activity. Further, they find that in appellants own case for earlier period this Tribunal has allowed the Cenvat credit on the impugned input service. In these circumstances they hold that as construction of dormitory is an integral part of the manufacturing activity of the appellant, the appellant is entitled to take Cenvat credit on construction services. With these observations, they set aside the impugnedorder and allow the appeal with consequential relief if any.

Decision:-Appeal allowed.

Comment:- The gist of the case is that as per Rule 2(l) of Cenvat Credit Rules, 2004 cenvat credit could not be denied on the construction services of dormitory within factory premises for technicians/engineers because the stay of technicians/engineers is required in factory located in remote area for maintenance of plant and machinery. Hence, the construction of dormitory is connected with business activities of appellant and credit is admissible.

Prepared By:- Neelam Jain

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PJ/Case Law /2016-17/3301

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