Whether the credit can be disallowed if the assessee had not explained the use of services?

PJ/CASE LAW/2016-17/3192

Case-HINDUSTAN NATIONAL GLASS & INDUSTRIES LTD. Versus C.C.E., NASHIK

Citation-2016 (41) S.T.R. 527 (Tri. - Mumbai)

Brief Facts-This appeal is directed against Order-in-Appeal No. AKP/115/NSK/2009, dated 9-12-2009 passed by Commissioner (Appeals) Central Excise & Customs, Nashik, wherein the ld. Commissioner partly allowed the Cenvat credit on certain input services and partly disallowed the Cenvat credit amounting to Rs. 27,291/- on the inputs services namely Vehicle Maintenance Services (Rs. 1,353/-), Group Health Insurance (Rs. 24,682/-), Garden Maintenance (Rs. 1,034/-) and Entertainment Services (Rs. 222/-). Aggrieved by the portion of credit disallowed as detailed above, the appellant filed the present appeal.

Appelants Contention-Shri Pradeep Korde, ld. Consultant submits that all these services were used in relation to manufacturing in the factory. He submits that the ld. Commissioner disallowed the credit on the ground, that the appellant have not explained use of these services. He submits that in the Order-in-Original all the services have been explained and same has been recorded by the authority. Therefore, the contention of ld. Commissioner is incorrect. In support of his claim of Cenvat credit, he placed reliance on following judgments:
Group Health Insurance Service
Commissioner of Central Excise & Customs, Aurangabad v. Endurance Systems India Pvt. Ltd.[2009 (237)E.L.T.204] = 2010 (20)S.T.R.267 (Tribunal).
Vehicle Maintenance Service
Millipor India Ltd. v. Commissioner of C.Ex., Bangalore[2009 (236)E.L.T.145] = 2009 (13)S.T.R.616 (Tribunal).
In view of above, it is his submission that the Cenvat credit of Group Health Insurance Service is available. He further submits that Vehicle Maintenance Services in respect of Vehicle of Appellants Company used for the factory purpose. Therefore, it is directly related to the manufacture of final product. Similarly Garden Maintenance is under mandatory provision under Factories Act, for the environment of the factory. Hence, the credit is admissible. As regard Entertainment Service, he submits that these are hotel expenses for conducting the meeting in the hotel for management staff and union leaders. This meeting related to the functioning of the factory. Therefore, all the services are used in relation to manufacture by the appellant. He also submits that cost of all the services in question are absorbed in the cost of the final product manufactured by the appellant. In view of the larger bench judgment in the case of G.T.C. Industries Ltd. - 2008 (12)S.T.R.468 (Tri.-LB) wherein held that if the value of the service is absorbed in the cost of the final product, then credit should be allowed.

Respondents Contention-Shri Ashutosh Nath, ld. Asstt. Commr. (AR) appearing for the Revenue reiterates the findings of the impugned order. He further submits that the appellant could not establish the nexus between these services and the manufacture. Therefore, Commissioner (Appeals) has rightly denied the Cenvat credit. In his support, he placed reliance on the following judgment.

Reasoning Of Judgement-The tribunal have carefully considered the submission made by both the sides. These services are Vehicle Maintenance Service, Group Health Insurance Service, Garden Maintenance and Entertainment Service. As per the submission of the learned Counsel and the recorded facts in the Order-in-Original, they find that Vehicle Maintenance Services are in respect of vehicles used by the appellant for their factory staff. Therefore, in its view it is clearly covered under the definition of input service as same is used in the relation of the production of the appellant. Group Health Insurance is provided to the factory workers and staff, who are directly engaged in the production activity. As regard Garden Maintenance Service, the Garden is maintained in the factory under the statutory obligation, under the Factories Act. This Tribunal in various judgments allowed the Cenvat credit in respect of Garden Maintenance. As regard Entertainment Service, this is hotel service used for conducting meeting among management staff, union leaders and workers for important issues of factory. In its view, this service has nexus with the production activity of the appellant’s factory. In view of their above observation, they are of the considered view that in all these four services, Cenvat credit is admissible. Therefore, the appeal of the appellant is allowed.

Decision-Appeal allowed

Comment-The gist of the case is that since the various services provided by the assessee like Vehicle maintenance service, Group Health Insurance provided to staff and workers, garden maintenance service and Entertainment Service have direct nexus with manufacturing or production activity, therefore, the cenvat credit for the such services is admissible to the assessee according to Rule 2(l) of Cenvat Credit Rules, 2004.And, the ground raised by the department that since the assessee have not explained the use of service, credit could not be allowed to them is not tenable.

Prepared By-Neelam Jain

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PJ/CASE LAW/2016-17/3192

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