Case Law Details
General Motors India P Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)
In a recent landmark case, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Ahmedabad delivered a crucial verdict concerning Cenvat credit for construction services. The case in question, titled “General Motors India P Ltd Vs. C.C.E. & S.T. (CESTAT Ahmedabad),” has significant implications for businesses involved in renovation, modernization, and upgradation of existing plants.
CESTAT, Ahmedabad in M/s. General Motors India P Ltd. [Excise Appeal No. 11124 of 2015-DB dated September 13, 2023] held that, input tax paid for construction service used in relation to modernization, renovation of the existing factory is available as Cenvat credit per Rule 2(l) of Cenvat Credit Rules, 2004 (CCR).
Facts:
M/s. General Motors India P Ltd. (“the Appellant”) claimed Cenvat credit paid for services related to construction and restoration services for upgradation of the factory premises during the period from April 2008 to October 2012.
The Adjudicating Authority denied the Cenvat Credit in respect of construction service on the ground that factory was excluded from the definition of input service.
Aggrieved by the Impugned Order the Appellant filed an appeal before the CESTAT, Ahmedabad.
The Appellant contended that construction service received by them is in respect of expansion, modernization, modification of the existing plant was not excluded in the definition of Input service under Rule 2(l) of CCR. It is only setting up of plant was removed from the definition of input service but other activity such as modernization, renovation still remained included in the definition of input services therefore the Cenvat Credit is admissible on construction service.
Issue:
Whether assessee can claim Cenvat Credit of construction service utilised for renovation, modernization upgradation of plant?
Held:
The CESTAT, Ahmedabad in Excise Appeal No. 11124 of 2015- DB held as under:
- Observed that, construction service received for expansion of the existing plant, fall under the term modification, renovation, upgradation etc. as input service under Rule 2(l) of the CCR.
- Noted that, there is no dispute that the Appellant used the construction service in relation to modification, renovation, upgradation of the existing plant. Therefore, in view of the definition, which includes these services in the definition of input service, the Appellant has correctly availed Cenvat credit on construction service.
Conclusion
The verdict in the case of General Motors India P Ltd. Vs. C.C.E. & S.T. (CESTAT Ahmedabad) sets a crucial precedent for businesses engaged in renovating, modernizing, or upgrading their existing facilities. It clarifies that Cenvat credit for construction services is admissible when these services contribute to the enhancement and transformation of the plant, falling within the ambit of modification, renovation, and upgradation. This ruling provides businesses with clarity and the opportunity to optimize their tax benefits while investing in plant improvements. It underscores the importance of a precise understanding of tax regulations and their application in specific contexts.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The issue involved in the present case is that whether the appellant are entitled for Cenvat Credit in respect of insurance of Staff/Directors services and construction and restoration services for upgradation of factory premises for the period of April-2008 to October-2012. The Adjudicating Authority denied the Cenvat Credit in respect of construction service on ground that as per the Vandana Global judgment of the Larger Bench of this Tribunal the appellant are not entitled for the Cenvat Credit due to amendment to Rule 2K with effect from 08.07.2009, which was made effective retrospectively. The Adjudicating Authority also taken into account the amendment made with effect from 01.04.2011, whereby the setting of factory was excluded from the definition of input service. As regard the insurance service for staff/directors the adjudicating authority has contended this service was used for welfare and health of staff and directors and the same is nowhere being utilized in our relation to manufactureing process, directly and indirectly. Therefore, it cannot be considered as input service. Being aggrieved by the Order-in-Original the appellant filed the present appeal.
2. Ms Priyanka Rathi Learned Counsel, appearing on behalf of the appellant submits that it is evident from the record that construction service received by the appellant is in respect of expansion, modernization, modification of the existing plant and the same was not excluded in the definition of Input service under Rule 2(l). It is her submission that even though setting up was removed from the inclusion portion of the definition but other activity such as modernization, renovation still remained included in the definition of input services therefore the Cenvat Credit is clearly admissible on construction service.
2.1 As regard the insurance service it is her submission that the dispute can be raised in respect of insurance service, only for the period after 01.04.2011, when the service for personal use has been excluded from the definition of Input service. She submits that the appellant have reversed the credit for the period post on 01.04.2011 in respect of insurance service, however, for the period prior 01.04.2011 the insurance service is an admissible input service. In support of her above submission she placed reliance on following Judgments:
- Construction and renovation services qualify as ‘Input Service’
- Commissioner of C. Ex., Delhi-Ill v. Bellsonica Auto Components India P. Ltd. 2015 (40) S.T.R. 41 (P&H)
- Reliance Industries Limited v. CCE & ST, Rajkot -2022 (4) TMI 729-CESTAT AHMEDABAD
- Milestones Presevatives Pvt. Ltd. V. Commissioner of Central Excise & Service Tax, Vadodra-1, (2023) 3 Centax 233 (Tri. – Ahmd)
- lon Exchange (1) Ltd. v. Commissioner of C. Ex.. Cus., & S.T. Surat-II
- Bombay Market Art Silk Co. Op. (Shops & Warehouse) Society Ltd. v. CST, Surat-1 2022 (65) G.S.T.L. 86 (Tri. – Ahmd.)
Insurance services to staff and directors qualify as ‘Input Service’
- Commissioner of C. Ex., Bangalore-III v. Stanzen Toyotetsu India (P) Ltd. 2011 (23) STR 444 (Kar.)
- Shri Sai Calanates India Pvt. Ltd. V. CCE 2018 (363) E.L.T. 1179 (Tri. – Ahmd.).
3. Shri, P Ganesan, Superintendent (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.
4. We have carefully considered the submission made by both the sides and perused the records. We find that the main issue is whether appellant is eligible for Cenvat Credit on construction service. The claim of the appellants all along was the said service was used for renovation, modernization upgradation of the existing plant. In this regard we referred to some sample invoices of the service, one of the invoice is scanned below:
From the above sample invoice and other invoices, submitted by appellant, we find that the construction service was received for expansion of the existing plant, therefore, the same falls under the term modification, renovation, upgradation etc.
4.1 The definition of the ‘input service’ prior to 01.04.2011 and definition with effect from 01.04.2011 at the relevant time under Rule 2(l) was as under:
Definition prior to 01.04.2011
“input for which means any service-
i. used by a provider of taxable service for providing an output service; or
ii. used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal;
and includes services used in relation to setting up modernization renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research. storage up to the place of removal, procurement of inputs, activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, inward transportation of inputs or capital goods and outward transportation up to the place of removal”
Definition of ‘input service’ w.e.f. 01.04.2011
“Input service means any service-
i. used by a provider of taxable service for providing an output service; or
ii. used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal,
and includes services used in relation to modemization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal; but excludes-
(A) Specified in sub-clause (p), (zn), (zzi), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act, in so far as they are used for-
(a) Construction of a building or a civil structure or a part thereof; or
(b) Laying of a foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or
(B) Specified in sub-clause (o) and (zzzzj) of clause (105) of Section 65 of the Finance Act, in so far as they relate to a motor vehicle which is not a capital goods, or
(BA) specified in sub-clause (d) and (zo) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle which is not a capital goods, except when used by-
(a) A manufacturer of a motor vehicle in respect of a motor vehicle manufactured by him; or
(b) A provider of output service as specified in sub-clause (d) of clause (105) of section 65 of the Finance Act, in respect of a motor vehicle insured or reinsured by him; or
(C) Such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness center, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession when such services are used primarily for personal use or consumption of any employee.
From the definition of input service under Rule 2(l) before and after 01.04.2011, the services in relation to modernization, renovation and repairs of factory premises was clearly covered under the inclusion part of the definition.
4.2 As per the invoices of the service provider there is no dispute that the appellant have used the construction service in relation to modification, renovation, upgradation of the existing plant. Therefore, in view of the definition for both the period, which includes these services in the definition of input service, appellant has correctly availed Cenvat credit on construction service in the present case. This issue has been considered in various judgments cited above by the learned counsel, which is reproduced below:
(a) In the case of Bellsonica Auto Components (Supra) the Punjab & Haryana High Court has passed the following order:
“8. The land was taken on lease to construct the factory. The factory was constructed to manufacture the final product. The land and the factory were required directly and in any event indirectly in or in relation to the manufacture of the final product and for the clearance thereof up to the place of removal. But for the factory the final product could not have been manufactured and the factory needed to be constructed on land.
The land and the factory are used by the manufacturer in any event indirectly in or in relation to the manufacture of the final product, namely, metal-sheets. The respondents’ case, therefore, falls within the first part of Rule 2(l) aptly referred to by Mr. Amrinder Singh as the “means part.”
9. The respondents’ case also falls within the second part of Rule 2(l) i.e. the “inclusive” part. The definition of the words “input service” also specifically includes the services used in relation to setting up of a factory. Mr. Amrinder Singh rightly contended that it was not the appellant’s case that the services were not used for the setting up of the factory. The doubt in this regard is set at rest by the second part of Section 2(l)(ii) which includes within the ambit of the words ‘input service’ the setting up of a factory and the premises of the provider of the output service. The inclusive definition, therefore, puts the matter, at least so far as the payment for services rendered by the civil contractor for setting up the factory is concerned, beyond doubt. As the plain language of Section 2(l)(ii) indicates, the services mentioned therein are only illustrative. The words “includes services” establish the same. It can hardly be suggested that the lease rental is not for the use of the land in relation to the manufacture of the final product.
10. This becomes clearer from the fact that by an amendment of the year 2011 to Rule 2(l), construction services were excluded from the definition of “input service.” The amended section in so far as it is relevant reads as under:-
“(l) ”input service” means any service, –
…. ……….. …………….
(ii) (A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for –
(a) construction of a building or a civil structure or a part thereof; or” Clause (105)(zzq) of Section 65 of the Finance Act reads as under :-
“(105) “taxable service” means any service provided or to be provided, –
(zzq) to any person, by any other person, in relation to commercial or industrial construction.
Explanation.- For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force shall be deemed to be service provided by the builder to the buyer.”
11. If in fact the said services were not covered by Rule 2(l), it would not have been necessary to introduce the amendment. It is clear, therefore, that prior to the amendment the setting up of a factory premises of a provider for output service relating to such a factory fell within the definition of ‘input service.’ The amendment of 2011 is not retrospective and is not applicable to the respondents’ case.
12. Our view is supported by the judgment of a Division Bench of the Bombay High Court in Coca Cola India Pvt. Ltd. v. Commissioner of C. Ex., Pune-III, 2009 (242) E.L.T. 168 (Bom.). = 2009 (15) S.T.R. 657. The Division Bench construed Section 2(l) as follows :-
“39. The definition of input service which has been reproduced earlier, can be effectively divided into the following five categories, in so far as a manufacturer is concerned :
(i) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products,
(ii) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal,
(iii) Services used in relation to setting up, modernization, renovation or repairs of a factory, or an office relating to such factory,
(iv) Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,
(v) Services used in relation to activities relating to business and outward transportation upto the place of removal;
Each limb of the definition of input service can be considered as an independent benefit or concession exemption. If an assessee can satisfy any one of the limbs of the above benefit, exemption or concession, then credit of the input service would be available. This would be so even if the assessee does not satisfy other limb/limbs of the above definition. To illustrate, input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products upto the place of removal. This would follow from the observation of the Supreme Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. v. Commissioner of Income-tax, 1998 (5) SCC 48, which is as under :
7. We may notice that the provision is introduced with a view to encouraging and promoting growth of co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a co-operative society is exempt from tax what has to be seen is whether income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption.”
We are in respectful agreement with the judgment of the Bombay High Court.
13. We approve the findings of the Tribunal as well as the basis on which they have been arrived at. The Tribunal rightly did not agree with the Commissioner’s findings that the services in question had been used for brining into existence an immovable property and not for the manufacture of the final product. The said services cannot be said to be remotely connected to the final product as observed by the Commissioner.
14. In the circumstances, the questions of law are answered against the appellant and in favour of the assessees/respondents. The appeal is dismissed.”
(b) In the case of Milestone preservatives Pvt. Ltd (Supra) this Tribunal has passed the following order:
“4. I have considered the submissions made by learned Authorised Representative and perused the record. I find that right from beginning the appellant is taking a stand that construction and architectural services are used for repair and renovation of factory. This submission of the appellant was not effectively rebutted by the Revenue and the Cenvat credit was denied by the lower authorities on the ground that construction service is excluded and appearing in the exclusion clause which were brought in the statute vide Notification No. 3/2011-CE (NT) dated 1-32011. On this basis the credit on Construction and Architectural services was denied. The credit in respect of group Medi-claim Insurance, Group personal accident insurance, insurance, motor car/vehicle insurance etc. were denied on the ground these services have no nexus with the manufacturing of excisable goods.
As regards the Construction and Architectural services, I find that these services were used for repair and renovation work in the existing factory. As held in various judgments only such construction services which are used in initial setting up of factory are excluded. However, in the present case, the factory was already existing and this construction and architectural service were used for repair and renovation of the existing factory plant. As per the inclusion clause of definition of Input Services, repair and renovation/modernization is specifically included in the inclusion clause. Therefore, construction or architectural service if used for initial set up of plant will only be ineligible for Cenvat credit. Whereas as per facts in the present case, the services were used for repair and renovation hence, the credit in terms of inclusion clause of Input Service is admissible.”
(c) In the case of Ion Exchange (i) Ltd. (Supra) Tribunal has passed the following decision:
“6. The short issue involved for determination in the present case is whether the appellants are eligible to credit Service Tax paid on ‘construction service’ relating to modernization/renovation of their factory.
7. It is the contention of the Revenue that after amendment to the definition of input service all construction service undertaken within the factory premises fall outside the scope of the said definition, accordingly, Service Tax paid on ‘construction service’ is not admissible to credit. The appellant, on the other hand, submits that on deletion of words setting up from the scope of said definition, new construction undertaken, would no longer be eligible, however, the construction relating to modernization, renovation or repair of the existing plant and machinery inside the factory premises is definitely continued to fall within the ambit of said definition. Consequently, the Service Tax paid on construction service’ involving modernization, renovation and repair work within the factory is eligible to credit. Before scrutiny of the rival contentions: the relevant old and amended Rule 2(1) of the Cervat Credit Rules. 2004 are reproduced as below:
Prior to 1-4-2011
input service” means any service.
(i) used by a provider of taxable service for providing an output service, or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting auditing, financing recruitment and quality control, coaching and training, computer networking, credit rating share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal:
From 1-4-2011
(i) “input service means any service-
(ii) used by a provider of output service for providing an output service, or
(iii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal.
and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting auditing financing, recruitment and quality, control, coaching and training, computer networking, credit rating share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal
but excludes,-
(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of Section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods. except for the provision of one or more of the specified services; or
(B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) service of general insurance business servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by –
(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or
(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;
Explanation. – For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.
8. A plain reading of the said provisions makes it clear that service utilized in relation to modernization, renovation and repair of the factory are definitely fall within the meaning of ‘input service’ even though; construction of a building or civil structure or part thereof has been placed under exclusion clause of the said definition of input service. After amendment to the definition of the ‘input service’, a clarification issued by the Board vide Circular No. 943/4/2011-CX, dated 29-4-2011 whereunder answering to the questions raised on the eligibility of credit of service tax paid on construction service as an input service’ used in modernization, renovation or repair, it has been clarified that the said services being provided in the inclusive part of definition of ‘input service’ are definitely eligible to credit. Thus, harmonious reading of the inclusive part of the definition and the exclusion clause mentioned at clause (a) relating to construction service of the definition of input service, it is clear that the construction service relating to modernization, renovation and repair of the factory continued to be within the meaning of ‘input service and accordingly, the Service Tax paid on such service is eligible to credit. Undisputedly, the appellant carried out modernization/renovation work to meet USA, FDA guidelines for manufacture of their products therefore, the service tax paid on such construction service is eligible to credit. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per the law.”
(d) In the case of Bombay Market Art Silk Co.(Supra) this Tribunal has passed the following Judgments:
“4. I have considered the submissions made by both the sides and perused the record. I find that the fact is not under dispute that the industrial estate already existed and for moving around the Industrial Estate the tar roads were also existing. The works contract/construction was executed for the purpose of re-carpeting of existing road. Therefore, the said services are for the purpose of repair and renovation of the exiting industrial estate. I have also observed from the notes of the Board meeting for the purpose of re-carpeting of the road that it is for re-carpeting and not for new construction of road. Therefore, this service is for repair and renovation and not for originating the new construction. This issue has been considered in the decision of this Tribunal in the case of Reliance Industries Limited (supra) wherein the Bench has observed as under :-
Without prejudice to our above findings, we further find that “4.10 the appellant’s factory is admittedly huge existing petroleum industry and working for decades. The ECIS service was used for expansion, renovation and modernization of overall existing petroleum plant. As per inclusion clause of the definition the services relating to modernization, renovation is an admissible input service. In our view, even though service of construction of building or civil structure are falling under the exclusion clause but even if similar service is used for renovation and modernization of existing factory, the credit is admissible. The exclusion applies only in respect of such service as specified therein which are used for initial setting of the factory. It is pertinent to note that when the exclusion was brought in the rules, services relating to setting up of the factory was removed from the inclusion clause of the definition of input service in rule 2(l) of Cenvat Credit Rules, 2004 therefore, there is a direct nexus of the service mentioned in the exclusion clause and setting up of the factory. It is important to note that the legislature consciously continued the services of renovation, modernization, repairs appearing in the inclusion clause of definition of input service. This clearly shows that any service relating to modernization, renovation of the existing factory is admissible as input service which is the direct case of the appellant. This aspect has been considered in various judgments which are reproduced below :-
Bharat Coking Coal Ltd. v. Commr. of Central Excise & S. Tax, Ranchi – MANU/CK/0036/2021
Further, the said CHP has been set up with “9. the view to ‘modernise the coal loading process in the mines’ also satisfies the definition of input service. Moreover, since the credit has been allowed by the Department on certain invoices raised by the Contractor, the Department has in-principle found the service to be eligible for credit. We also agree with the submission made by the appellant that the mode of valuation adopted by the Contractor to discharge service tax on 40% of the contract value is in accordance with law contained in Service Tax Valuation Rules and cannot be disputed while deciding credit eligibility at the appellant’s end. When service tax has been levied only on 40% of the total value, it essentially means that service tax has been paid only on the service portion.”
ION Exchange (I) Ltd. v. Commissioner of C. Ex., Cus. & S.T., Surat-II – 2018 (12) G.S.T.L. 302 (Tri. – Ahmd.)
The short issue involved for determination in “6. the present case is : whether the appellants are eligible to credit of Service Tax paid on “construction service” relating to modernization/renovation of their factory.
It is the contention of the Revenue that after 7. amendment to the definition of “input service” all “construction service” undertaken within the factory premises fall outside the scope of the said definition, accordingly, Service Tax paid on “construction service” is not admissible to credit. The appellant, on the other hand, submits that on deletion of words “setting up” from the scope of said definition, new construction undertaken, would no longer be eligible, however, the construction relating to “modernization, renovation or repair” of the existing plant and machinery inside the factory premises is definitely continued to fall within the ambit of said definition. Consequently, the Service Tax paid on “construction service” involving modernization, renovation and repair work within the factory is eligible to credit. Before scrutiny of the rival contentions, the relevant old and amended Rule 2(l) of the Cenvat Credit Rules, 2004 are reproduced as below : or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, Prior to 1-4-2011 “input service” means any service, (l) –
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal;
From 1-4-2011
“input service” means any (l) service,
(i) used by a provider of output service for providing an output service; or
(ii) used by a manufacturer, whether
directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal;
but excludes, –
(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of Section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
(a) construction or execution of works contract of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or
(B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by –
(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or
(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;
Explanation. – For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.
A plain reading of the said provisions makes 8. it clear that service utilized in relation to modernization, renovation and repair of the factory are definitely fall within the meaning of “input service” even though; construction of a building or civil structure or part thereof has been placed under exclusion clause of the said definition of “input service”. After amendment to the definition of the “input service”, a clarification issued by the Board vide Circular No. 943/4/2011-CX, dated 29-4-2011 whereunder answering to the questions raised on the eligibility of credit of service tax paid on construction service as an “input service” used in modernization, renovation or repair, it has been clarified that the said services being provided in the inclusive part of definition of “input service” are definitely eligible to credit. Thus, harmonious reading of the inclusive part of the definition and the exclusion clause mentioned at clause (a) relating to construction service of the definition of “input service”, it is clear that the construction service relating to modernization, renovation and repair of the factory continued to be within the meaning of “input service” and accordingly, the Service Tax paid on such service is eligible to credit. Undisputedly, the appellant carried out modernization/renovation work to meet USA, FDA guidelines for manufacture of their products therefore, the service tax paid on such construction service is eligible to credit. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per the law.”
Musaddilal Projects Ltd. v. Commr. of C. Ex., Cus. & S.T., Hyderabad-I – 2017 (4) G.S.T.L. 401 (Tri. – Hyd.)
The department has denied credit alleging “15. that all these services are for setting up of premises of the appellant and therefore not admissible. It is the case of appellant that the input services were not availed for setting up of the premises, but the services were availed only for modernization and renovation of the premises. From the table itself it is clear that the services are not per se for “construction of building” or “setting up of premises” and these are merely renovation/modernization works. The services in the table show that these are construction services for laying the flooring, Erection of Machinery, Electric Installation Works, Single Leaf Door, Installation Boom Barriers, Electrical Consultancy Charges. Since these services would fall within the category of modernization, renovation services which come within the inclusive part of the definition of input services, I am of the view, that the services are eligible for credit. The judgment in the case of Infosys Ltd. v. CST, Bangalore (supra) is also applicable to the said issue. In para 5.8 of the said judgment, the Tribunal held that after 1-42011 services used in modernization, renovation or repairs alone would be admissible for credit.”
Mahle Engines Components India P. Ltd. v. Commr. of C. Ex., Indore – 2018 (363) E.L.T. 1150 (Tri. – Del.)
With regard to the availment of Cenvat credit “6. of the Service tax on painting of the factory building & machinery, I find that the Authorities below have denied Cenvat credit on the ground the construction of building or civil structure is falling under the Exclusion Clause contained in the definition of “input service” under Rule 2(1) of the Rules. However, on perusal of the sample copies of the invoices issued by the service provider, I find that the services were provided in relation to the painting of the factory building and plant & machinery, which are appropriately classifiable under category of “renovation or repair of the factory” contained in the inclusive part of the definition of the “input service”. Thus, I am of the considered view that such service falls under the purview of the “input service” for the purpose of availment of Cenvat credit. Therefore, denial of Cenvat credit and imposition of penalty on the appellant will not be sustainable.”
5. From the above decision of this Tribunal it is clear that any construction and works contract if used for repair and renovation of existing factory, the same falls under inclusion clause of definition of Input Service, accordingly, the Cenvat credit is admissible. The impugned order is set aside and the appeal is allowed.”
From the above judgments, it can be seen that constant view was taken by various forums that in case of construction service used in relation to modernization, renovation of the existing factory is admissible input service, in terms of inclusion part of the definition under Rule 2(l) of Cenvat Credit Rules, 2004 therefore, the issue is no longer res-Integra. Accordingly, we hold that appellant is entitled for the Cenvat credit on construction service used for modernization, renovation, upgradation of the existing factory.
4.3 As regard the admissibility of Cenvat credit on insurance service for health insurance of staffs/directors, we find that in the following judgment the similar issues has been considered and it was held that Cenvat credit on insurance service for staffs /directors is admissible.
(a) In the case of Stanzen Toyotetsu India Pvt. Ltd (Supra) The Hon’ble High Court of Karnataka has passed the following decision:
“14. In so far as Insurance coverage to the employees is concerned in the course of employment if the employees suffer injury or dies, there is a vicarious liability imposed on the employer to compensate the employee. If the employer employs its own transportation facility in order to cover the risk which also includes the risk of workers who are covered in that statutory establishment. He has to take the insurance policy without which the vehicle cannot go on the road. Under the Workmen’s Compensation Act he has to obtain the Insurance Policy covering the risk of the employees. The employees’ State Insurance Act takes care of the health of the employees also and casts an obligation on the employer to provide insurance services. Under these circumstances, this Group Insurance Health Policy though is also a welfare measure is an obligation which is cast under the Statute that the employer has to obey. Section 38 of the Employees’ State Insurance Act, 1948, mandates that subject to the provisions of the Act, all employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act. May be the employees also have to contribute but the employer is under an obligation to take an insurance policy and contribute his share. Therefore, the said Group Insurance Health Policy taken by the assessee is a service which would constitute an activity relating to business which is specifically included in the input service definition.”
(b) In the case of Shri Sai Calanates India Pvt. Ltd (Supra) this Tribunal has passed the following order:
“6. On going through the records, I find that the appellant has availed credit on the basis of the document of Bank of India dated 28-3-2013 wherein the value of services rendered and also the service tax paid by the Bank has been mentioned. The said document contains all the particular relevant to avail credit of service tax paid on bank processing charges, therefore, in my opinion, credit of service tax paid on such charges amounting to Rs. 2,84,265/- is admissible to the appellant. Regarding the service tax paid on Group Insurance Policy, the issue is covered by the judgment of Hon’ble Karnataka High Court in Micro Labs Ltd.’s case (supra). In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.”
4.4 In view of the above judgment the credit on insurance for staff/directors is admissible input service. However, the appellant have admittedly reversed the Cenvat credit in respect of insurance service for the period post 01.04.2011. Accordingly, the demand of Cenvat credit on insurance service which was reversed by the appellant is maintained, without expressing any view on merit.
5. Considering the overall facts and circumstances of the case the penalty is also set aside. As per the above discussion and finding the appeal is allowed in the above terms.
(Pronounced in the open court on 13.09.2023)
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