Case Law Details

Case Name : Commissioner Central Excise Commissionerate Vs M/s Bellsonica Auto Components India P. Ltd. (Punjab & Haryana High Court)
Appeal Number : Central Ex. Appeal No. 58/2014
Date of Judgement/Order : 16/07/2015
Related Assessment Year :
Courts : All High Courts (5987) Punjab and Haryana HC (288)

Brief of the case:

The Hon’ble Punjab & Haryana High Court in the case of Bellsonica Auto Components India Private Limited held that services directly or indirectly used in relation to manufacture of final products are eligible for Cenvat credit. In the present case, civil construction work was done for setting up factory which was directly used for manufacturing final products and land was taken on lease to set up factory over it was indirectly used in manufacture of final products.

 Facts of the case:

  • The assessee company is engaged in the business of manufacturing metal-sheet components for motor vehicles which fall under heading No.87082100 of the Central Excise Tariff Act, 1985.
  • The department during an audit in the year 2010 observed that the assessee had availed credit of service tax paid on civil construction work done in factory premises and on renting of immovable property service (in respect of property on which the plant is erected)
  • Commissioner of Central Excise confirmed the demand along with interest and imposed penalty. Aggrieved by the order, assessee is in appeal before the High Court.

 Contention of the Assessee:

  • It was contended that the services of renting of immovable property and civil construction services procured by the assessee has direct nexus with the manufacturing of final products. It is because without setting up of factory the production not possible and for setting up factory the land was taken on lease.
  • Further, the same are anyway includible in the definition of input services as they have some bearing with the manufacture of final products and could safely be included via inclusive clause of definition of input services as defined u/rule 2(l) of Cenvat Credit Rules,2004.

 Contention of the Revenue:

  • It was submitted by the revenue that the definition of input service is wide enough to cover even the activities which have indirect nexus with the manufacture of final products or rendering of output services.
  • But every service procured cannot be claimed as input service if it have only a remote connection with the manufacture of final products as in the present case.
  • Further, the commercial construction and renting of immovable property services cannot be said to neither goods nor services because neither service tax nor excise duty is payable on immovable property. Therefore, at all any service tax which was otherwise payable and paid cannot be claimed as credit as there was no service element.

 Held by High Court:

  • The services of which credit is disputed are renting of immovable property and civil construction services. Rule 2(l) of Cenvat Credit Rules, 2004 which define input services has its two limbs viz-‘mean’ part and the ‘includes’ part. The disputed services would fall under the both the parts of the definition because the same being directly or indirectly or in any event in relation to the manufacture of the final product.
  • The factory was constructed to manufacture the final product. The land and the factory were required directly and indirectly in or in relation to the manufacture of the final product and for the clearance thereof up to the place of removal. Further, unless the land is available the factory cannot be constructed.
  • Further, the definition of input services specifically include factory setting up services (law relevant for the period under dispute).As regards the lease rental, the same are paid for land taken on lease on which factor site was developed and as such it is very difficult to accept that such renting had no nexus with the manufacturing of final products.
  • As regards the civil works services, the rule 2(l) of Cenvat Credit Rules,2004 were specifically amended by Finance Act,2011 to deny the credit of construction & works contract service by excluding them from the definition of input services. I thus, implies that prior to amendment i.e. period to which case pertains the constructions services are covered in inclusive list.
  • Considering the above observations, the appeal of revenue was dismissed.

Author’s comments:

The judgment would not hold good for the period starting from 1st April,2011 because in Finance Act,2011 Cenvat credit rules have been specifically amended to exclude works contract and construction services. Further, word ‘set up’ has also been excluded from the inclusive part of definition of input services.

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