Eligibility of credit on services used in construction and maintenance of township for employees.

PJ/CASE LAW/13-14/2070

Case:-M/s ESSAR STEEL INDIA LTD Vs COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX VADODARA-I

Citation:-2013-TIOL-1128-CESTAT-AHM

Brief facts:-These stay petitions are filed by the appellant for waiver of pre-deposit of the following amounts:

Appeal No.	Cenvat Credit	Penalty	Interest
E/11309/13	Rs.6,82,37,234/-	Rs.6,82,37,234/-	Appropriate rate
E/11308/13	Rs.2,80,11,899/-	Rs.75,00,000/-	Appropriate rate

The above said stay petitions being in respect of the same assessee and also has identical issue, for two different periods, are being disposed of by a common order. The Adjudicating Authority has confirmed the demands on the ground that the appellant had availed ineligible cenvat credit of the service tax paid on different services used in the construction and maintenance of the township.

Appellant contention:- Learned Counsel at the outset would submit that the service tax paid on the different services which are used in the construction and maintenance of their township which is situated within the factory premises. It is his submission that the said residential township was inevitable as appellant's factory was situated in a remote area and in order to have continuous production, the appellant had accommodated required staff in the township. It is his further submission that the appellant had included the cost of such township in the cost of the products manufactured and cleared by them to their sister concerns. It is his submission that the inclusion of the cost of the township in the cost of production was in accordance with the cost accounting standard CAS-4. He would draw our attention to the specific guidance note and submit that cost of overheads includes Security, dispensary, canteen, staff welfare and other overheads; it would in turn get covered under indirect employees cost connected with production activities. It is his submission that when the appellant manufactured and cleared the intermediate products to their sister concern they included the cost of the township and discharged the Central Excise duty as per Rule 8 of Cenvat Excise Valuation Rules, hence cost of township would remain included in their final product, which according to him is as per the law laid down by the Larger Bench of this Tribunal in the case of GTC Ltd. It his submission that the Hon'ble High Court of Bombay (2010 (20) STR 456 ( Bom .)) = (2010-TIOL-720-HC-MUM-ST) in has the case of Manikgarh Cement had taken a view that services of repair maintenance and Civil Construction used in residential colony will not be eligible to cenvat credit. It is his submission that though this judgment of Hon'ble high Court of Bombay is against them, there is another judgment of Hon'ble Court of Andhra Pradesh in the case of ITC - 2012-TIOL-199-HC-AP-ST, which according to him has held that if the staff colony is in vicinity of factory which is located in remote and scheduled area, credit of the service tax paid on services received for township should not be denied. It is his submission that there being two different views expressed by the different high Court on an identical issue, stay petitions filed for waiver of dispensations of pre deposit should be allowed. It is also his submission that the appellant has reversed an amount of Rs. 2.80 crores and is facing severe financial hardship, as is clear from the balance sheet for the year ending 31.3.2013. He would produce copy of the profit and loss account and submit that there is huge loss, and if any further amount is directed to be deposited, it would result in severe financial hardship.

Further he would submit that the CBEC circular No. 943/4/2011-CE. dated 25.04.2011 (sic), is also in an akin issue, wherein board has said goods brought in the factory like furniture and stationary used in an office within the factory, are goods used in the factory and are used in relation to the manufacturing business and hence credit of duty paid can be allowed; it is his submission that the case of the appellant is on more stronger footing as the residential township is accommodating those employees who are required for the smooth functioning of the appellant's factory.

Respondent contention:- Respondent submit that the appellant has already stated the case laws which are in favour of the revenue and submits that said judgment clearly indicate that the credit service tax paid on the services rendered at residential colony are ineligible for availment of cenvat credit as it is to be ascertained whether the said services are used in or in relation to the manufacture of final product or not. It is his submission that functional utility would constitute the relevant consideration for availment of cenvat credit. It is his submission that the judgment of the Hon'ble high Court of Gujarat in the case of Cadila Health care also laid down principal that if the cost of any expenses is included in the value would not mean that credit of that service tax or the inputs services will be available. It is his submission that the judgment of Hon'ble High Court of Bombay in the case of Ultratech Cement Ltd also talks about eligibility to service tax has clearly held that canteen facility being mandatory credit of service tax paid on such services on eligible which is mean that any services which are mandatory, this credit should be allowed and it is his submission that provision of residential colony is not mandatory or statutory. It is his submission that the appellant should be directed to deposit further amount for hearing and disposing the appeals.

Reasoning of Judgement:- The issue involved in this case is debatable for more than one reason. Firstly, the duty of eligibility of cenvat credit of the service tax paid on the services which are used in the residential complex, High Courts have taken different views, the facts of the case of ITC Ltd. where in High Court of Andhra Pradesh has upheld the order of the tribunal are more akin to the case in hand, at the same time, judgment of the Hon'ble High Court of Bombay in the case of Ultratech Cement and Hon'ble High Court of Gujarat are taking a different view in respect of specific services rendered at the residential complex. We find that the argument put forth for the ld. counsel that the residential complex is within factory is an argument which needs to be considered and was not put before High Court of Gujarat or Bombay for deeper consideration. Be that as it may, we are of the view that when there are different views on the very same issue, there is convention that stay on pre deposits needs to be granted if facts are akin.

Further some consideration needs to be given to the argument raised by the ld. counsel that the indirect cost of the employees includes the cost of maintenance and construction of the residential complex within the factory premises and discharge of duty liability thereof, is an issue which was not put forth before any judicial forum and was not decided. This argument of the ld. counsel needs deeper consideration.

In view of the above findings, the stay application filed by the appellant is allowed unconditionally.

Decision:-Stay granted.

Comment:-The analogy that is drawn from this case is that the fact that township is constructed and maintained because factory is situated at remote area and the cost of development of the township is included in the assessable value for the purpose of discharging excise duty, the stay application may be allowed as the grounds are genuine and valid that are to be considered at the time of final hearing.

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PJ/CASE LAW/13-14/2070

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