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PJ/Case Law/2016-2017/3449

whether Cenvat credit on input services, such as, commissioning and installation, housekeeping services, air travel services and rent-a-cab services shall be allowed ?

Case-GODREJ & BOYCE MFG. CO. LTD. Versus COMMISSIONER OF C. EX., CHENNAI-II
 
Citation-  2017(48)S.T.R.88 ( Tri. –Chennai)

Brief Facts-The brief facts of the case are that the appellant-assessee are engaged in the manufacture of steel furniture falling under Chapter 94 of the Central Tariff Act, 1985. They have availed Cenvat credit for excise duty paid on inputs and capital goods and they have availed Cenvat credit of Service Tax paid on input services. The appellants were issued with the show cause notice dated 1-2-2013 requiring them to reverse the credit. The appellant has contended that these services are input services as per definition in Rule 2(l) of CCR and are eligible to avail credit of the services. The Additional Commissioner disallowed the credit on input services to the extent of Rs. 25,49,624/- as per the chart given under and also imposed penalty of Rs. 2,00,000/-.

S. No. Input Services Amount
1. Rent-a-cab Services Rs. 25,234/-
2. Air Travel Charges Rs. 18,389/-
3. CHA Services Rs. 4,69,500/-
4. Sweeping & Cleaning charges Rs. 2,36,285/-
5. Commissioning & Installation Rs. 18,000,216/-

the Learned Commissioner (Appeals) upheld the order of the adjudicating authority to the extent of Rs. 20,80,124/- and set aside the recovery of Cenvat credit on Customs House Agent Service to the extent of Rs. 4,69,500/- and also confirmed the penalty of Rs. 2,00,000/-.
 
Appellant’s Contention-Ld. Counsels Ms. V. Ubhaya Bharathi and Ms. Minchu Mariam Punnoose, appearing on behalf of the appellant submitted that the input services are essential for the assessee and the same are eligible for Cenvat credit. One service after the other was dealt with and they submitted that with respect to Commission and installation services, the very activity of manufacture of the final products would be complete only when the goods are installed in the premises of the customer and therefore without installation, manufacturing process would be incomplete and manufacture does not stop with emergence of the final product alone. Thus, commissioning and installation without which manufacturing activity would not get completed, squarely falls within the definition of “input service” and therefore, Service Tax paid on such services would be eligible for Cenvat credit and placed reliance upon the Order of the Additional Commissioner dated 7-7-2009 in their own case. They submitted that with respect to Housekeeping services, the appellants are under a statutory obligation prescribed under Section 11 of the Factories Act, 1948, to maintain the factory premises neat and clean and that expenditure incurred towards the same, when included in the value of the final product, credit on such services cannot be denied and placed reliance on the decision of the Hon’ble Madras High Court in the case of Commissioner of C. Ex & ST, LTU Chennai v. Rane TRW Steering Systems Ltd. [2015 (39)S.T.R.13 (Mad.)] and the decision of this Hon’ble Court in the case of Hinduja Foundries Ltd. v. Commissioner of C. Ex, Chennai-I [2016 (42)S.T.R.494 (Tribunal)].
The ld. Counsels further submitted that with respect to air travel services, such services were employed only for the Company’s executives to travel in order to upgrade the technology and ensure uninterrupted production with a better quality. Such services were not employed for the employee’s personal needs. Therefore Service Tax paid on such services would be eligible to the appellants as Cenvat credit and placed reliance on the decision of this Hon’ble Tribunal in the case of Arkema Paroxides India Pvt. Ltd. v. CCE, Pondicherry; Goodluck Steel Tubes Ltd. v. Commissioner of C. Ex, Noida [2013 (32)S.T.R.123 (Tribunal)] and Innovasynth Technologies (I) Ltd. v. CCE, Raigad [2015 (38)S.T.R.1232 (Tribunal)]. They submitted that with respect to Rent-a-cab services, such services were used for transportation of their employees from the factory to the customer’s premises for the purpose of installation of the final products at the customer’s premises and placed reliance on the decision of this Hon’ble Tribunal in the case of BSNL v. CST Chennai-II and the decision of the Hon’ble Madras High Court in the case of CCE, Chennai-II Commissionerate v. Hyderabad Industries Ltd.
 
Respondent’s Contention-The ld. AR Shri S. Govindarajan, A. C. submitted that such input services in order to be eligible for credit must have nexus with the manufacture of final product and all the parts of the definition should be satisfied so as that input services becomes an eligible input.
 
Reasoning Of Judgement-Heard both sides On going through the appeal records, tribunal find that expenses incurred on services at the factory premises of the appellant-assessee are eligible as input service. As regards the service of commissioning and installation, the said services are employed only to install the final product at the premises of the customer and only upon such installation, the final product would become operational and purpose of manufacture would fructify. Therefore, the submission of the learned Counsel for the appellant cannot be faulted with and the order of the learned Additional Commissioner in appellant’s own case whereby the learned adjudicating authority has allowed the credit on Commissioning and installation services also strengthens their case.
Regarding Housekeeping services, tribunal find that the said services are employed by the appellants only in compliance of Environmental laws and in particular the Factories Act, 1948, and when money is spent for the purposes of maintaining the factory premises clean and tidy, and the same is includible in the value of the final product, following the decision of the Hon’ble Madras High Court in the case of C. Ex & ST, LTU Chennai v. Rane TRW Steering Systems - 2015 (39)S.T.R.13 (Mad.) as well as decision in the case of - Hinduja Foundries Ltd. v. CCE, Chennai-I - 2016 (42)S.T.R.494 (Tri.-Chennai), tribunal hold that credit of Service Tax paid on such services cannot be denied.
As regards Air travel services, when it is not in dispute that the said services were employed only for the company’s executives to travel to achieve the business objective and the same has not been used for the employee’s personal needs, credit of Service Tax paid on such services cannot be denied in view of the decision in the cases of Arkema Paroxides India Pvt. Ltd. v. CCE, Pondicherry - 2016-TIOL-1353-CESTAT-MAD, Goodluck Steel Tubes Ltd. v. Commissioner of C. Ex, Noida - 2013 (32)S.T.R.123 (Tri.-Del.) and Innovasynth Technologies (I) Ltd. v. CCE, Raigad - 2015 (38)S.T.R.1232 (Tri.-Mum.).
With respect to Rent-a-cab service, the Counsels for the appellant submitted that such services are employed only for the employees to travel to the customer’s site in order to install the goods and without such installation, the product cannot be functional and such services are not used for the personal consumption of the employees. tribunal find that, the nature of the business of the appellants is such that employees need to travel to the customer’s site to install the products and only on such installation the products would become operational. The very purpose of manufacture of such products is only to benefit the customer for whom it is made and that being the case, cab operator’s services used for the transport of employees to the customer’s site is an integral part to the manufacture of the final products and credit on the same cannot be denied. By respectfully following the ratio laid down by the Hon’ble High Courts as mentioned above,  tribunal allow the assessees appeal in respect of Cenvat credit on input services, such as, commissioning and installation, housekeeping services, air travel services and rent-a-cab services. The penalty is also set aside.
 
Decision- appeal allowed

Comment-The essence of the case is thatCenvat credit on Input service such as Commissioning and Installation services used for installing final product at customer’s premises, eligible to input service credit inasmuch as without such installation product would not be operational. Cenvat credit on Input service such as Housekeeping services availed for maintaining factory premises clean in factory and value of such services included in value of final product. Cenvat credit on Input service such Air Travel services utilized by company’sthatexecutives in relation to business activity and not in their personal needs.Cenvat credit on Input service such as Rent-a-Cab service availed for visiting customer’s site for installation of final product is an integral part of manufacture. Hence,Cenvat credit on input services ,such as, commissioning and installation, housekeeping services, air travel services and rent-a-cab services shall be allowed.
 
Prepared by –  Pushpa choudhary

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