By TIOL News Service

MUMBAI, NOV 02, 2015: DURING the period July 2006 to December 2009, various factories of the appellant had availed CENVAT credit in respect of services like construction service, repairs and maintenance service, security service, manpower recruitment and supply service, works contract service etc.

Revenue authorities noticed that these services were received by the appellant in the residential township constructed for their employees and, therefore, took a view that the credit was not permissible.

The lower authorities confirmed the duty demands along with interest and penalties.

The appellant is before the CESTAT and submits that undoubtedly the CENVAT credit availed is in respect of the services rendered at residential complex/townships that were attached with the factories and the said factories are situated at remote area; to ensure smooth functioning of factories, they were required to provide residential premises/quarters to the employees and such quarters were constructed and maintained by the Company and the cost was debited to their profit and loss account as expenses as per CAS-4; that in case of input services related to business activity, credit is eligible; that Cost Accountant's certificate reflecting the above &produced before the lower authorities is not disputed. Case law relied upon in support is Coca Cola India Pvt. Ltd. - 2009-TIOL-449-HC-MUM-ST [para34, 38 &43].

The AR submitted that the very same issue was discussed in the case of Manikgarh Cement - 2010-TIOL-720-HC-MUM-ST and by relying upon the case of Maruti Suzuki Ltd. - 2009-TIOL-94-SC-CX the credit was denied.

The Bench observed -

+ Undisputed facts are that appellant has various factories situated in remote areas. In order to run the factories smoothly, without any stoppages, they had constructed township/residential colonies near factory premises and accommodated the employees working in such factories.

+ It is a fact, that appellant had produced Cost Accountant's certificate indicting that the expenses incurred for setting up of the township/colony and various expenses incurred for maintenance and upkeep of such factory was charged to balance sheet/profit and loss account as expenses and the said expenses were considered as cost of production was produced before the adjudicating authority, as well as the first appellate authority and both the lower authorities did not controvert the said certificate in any way nor both the lower authorities have directed for special audit of the records of the appellant as provided under Section 14AA of the Central Excise Act, 1944.

+ We find that the expenses which were incurred by the appellant for setting up of the township/colony for their employees is expenses which is in relation to the business activity of the appellant which is manufacturing final products i.e. petroleum products.

+ It is also noted that while arriving at the price of the finished goods manufactured in these factory premises appellant had considered the expenses and included the same while arriving at the cost of production of the final products manufactured in those factory premises.

+ It would mean that setting up of residential colony/township is in ‘relation to the business activity' of the appellant which is manufacturing of petroleum products and clearing the same on payment of excise duty. The Central Excise duty paid by the appellant on their finished goods is on advalorem which has been arrived at after considering all the expenses that had gone into manufacturing of the finished goods which included the cost of setting up of township and the residential colony.

After narrating a little history about the levy of Central Excise duty and the reasons for extending credit on inputs since 1986 and on input service from the year 2004, the Bench extracted at length passages from the Bombay High Court order in Coca Cola India Pvt. Ltd. - 2009-TIOL-449-HC-MUM-ST where it is held that the burden of service tax or duty should be borne by the ultimate consumer and not by any intermediary i.e. manufacturer or service provider; that in order to avoid the cascading effect, benefit of cenvat credit on input stage of goods and services must be allowed, more particularly, if the same form part of cost of the final product on which excise duty is paid, in other words, credit on input must be allowed on the expenditure incurred by the assessee which form a part of the assessable value of the final product. Reference was also made to the Tribunal order dated 3.3.2014 - 2014-TIOL-768-CESTAT-MUM[accepted by Revenue] in the appellants' own case where it is held that if the cost of various services availed forms part of the assessable value of the goods manufactured and sold by the Appellant, there was no reason to deny cenvat credit of the duty/taxes paid on various inputs/inputs services availed, for undertaking the business operations.

The decision cited by the AR was distinguished and the Bench concluded that the ratio as laid down by the Bombay High Court in the case of Coca Cola India Pvt. Ltd. (supra) is specifically on the point raised by the appellant.

Holding that the credit was admissible, the impugned order was set aside and the appeal was allowed with consequential relief.

(See 2015-TIOL-2343-CESTAT-MUM)