Whether credit will be eligible for service tax paid for maintenance of staff colony near factory?

PJ/Case Law /2016-17/3312

Case:- MANGALAM CEMENT LTD VERSUSCOMMISSIONER OF C. EX. & S.T., JAIPUR-I

Citation:- 2016 (44) S.T.R. 422 (Tri. - Del.)

Brief Facts:-This appeal is directed against the impugned order dated 30-4-2013 passed by the ld. Commissioner (Appeals) Central Excise, Jaipur, wherein Cenvat credit of service tax taken by the appellant on maintenance and repair work of their residential colony has been denied on the ground that the said service has no nexus with the manufacture of final product.

Appellant’s Contention:- Sh. Mayank Garg, the ld. Advocate appearing for the appellant submits that the residential facilities have been developed near by the factory which is situated in a remote area approximately 60KM away from the District Headquarter, Kota. He further submits that if such facilities are not developed and not properly maintained, there would be no availability of proper staff and labour required for continuous manufacturing activities. Thus, he submits that residential colony constructed adjacent to the factory is in relation to the manufacture of the final product, and as such, the Cenvat credit taken on the disputed service shall be eligible for Cenvat credit. To justify his above stand that Cenvat credit is available to the appellant, the ld. Advocate has relied on the judgment of Hon’ble Andhra Pradesh High Court in the case of CCE, Hyderabad-III v. ITC Ltd. reported in 2013 (32) S.T.R. 288 (A.P.).

Respondent’s Contention:-On the other hand, Sh. Vaibhav Bhatnagar, the ld. DR appearing for the Revenue reiterates the findings recorded in the impugned order and also relies on the judgment of Hon’ble Bombay High Court in the case of Commissioner of Central Excise, Nagpur v. Manikgarh Cement reported in 2010 (20) S.T.R. 456 (Bom.), to justify the stand of Revenue that unless the input service has a nexus with the manufacture of the final product, Cenvat credit cannot be available.

Reasoning Of Judgment:- Tribunal found from the grounds of appeal that the residential colony was constructed adjacent to the factory because of the reason that the factory manufacturing cement is located at a place which is away from the city. Unless the residential colony is constructed near the factory, the appellant will not be in a position to get the proper/adequate manpower for running its plant activities.
Considering the aforementioned activities and the legislative intent behind the Cenvat scheme, the Hon’ble Andhra Pradesh High Court in the case of ITC Ltd. (supra), has held that Cenvat credit of service tax paid on the taxable services used in the residential complex shall be available to the manufacturer. The relevant paragraph of the said judgment is extracted herein below.
The Commissioner’s Order-in-Appeal dated 27-5-2008 reflects that he accepted that the efficiency of the employees of an organization would be dependent on various factors, one such being the provision of a housing colony. He further conceded that these facilities would contribute to the enhancement of the productivity of the organization. Having stated so, the appellate authority surprisingly took the view that maintenance of the residential colony by the respondent-Company was only an obligatory activity owing to situational exigencies and was not connected either directly or indirectly to the manufacture of its final products. This inherent contradiction in the Order-in-Appeal was noted by the CESTAT, which opined that if accommodation was not provided by the respondent-Company to its employees at this remote location, it would not be feasible for it to carry on its manufacturing activity. The finding of the Commissioner that providing a colony to the employees was not directly or indirectly connected with the manufacturing activity of the respondent-Company was therefore, not borne out on facts. The staff colony, provided by the respondent-Company, being directly and intrinsically linked to its manufacturing activity could not therefore, be excluded from consideration. Consequently, the services which were crucial for maintaining the staff colony, such as lawn mowing, garbage cleaning, maintenance of swimming pool, collection of household garbage, harvest cutting, weeding, etc., necessarily had to be considered as ‘input services’ falling within the ambit of Rule 2(1) of the Cenvat Rules, 2004.”
The judgment cited by the ld. DR is distinguishable from the facts of the present case in as much as the issue decided in the said cited judgment is with regard to the nexus between the input service and the finished product manufactured by the appellant. In the case of ITC Ltd. (supra), since the Hon’ble Andhra Pradesh High Court has categorically held that construction of residential colony adjacent to the factory has the nexus with the ultimate manufacture of the goods, the judgment cited by the ld. AR is not applicable to the facts of this case.
In view of above, Tribunal did not find any merits in the impugned order passed by the ld. Commissioner (Appeals) and thus, the same is set aside and the appeal is allowed in favour of the appellant.

Decision:-Appeal allowed.

Comment:- The analogy of case is that the cenvat credit on service tax paid for maintenance of staff colony near factory premises is admissible because the factory was situated in remote area. In order to carry out production at the factory, it was necessary to provide accommodation facilities to the employees. Therefore, the repair to residential colony had nexus with the manufacturing activity and thus credit remains admissible.

Prepared By: - Rakshay Tater

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PJ/Case Law /2016-17/3312

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