CESTAT Chandigarh Holds 'Input Service' Has Wide Scope Under Cenvat Rules, Allows Hero MotoCorp Appeals

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 26 May held that the definition of “input service” under Rule 2(l) of the Cenvat Credit Rules, 2004 has a wide ambit and includes services having even an indirect nexus with manufacturing or business activities.

Judicial Member S.S. Garg and Technical Member P. Anjani Kumar allowed a batch of appeals filed by Hero MotoCorp Ltd (formerly Hero Honda Motors Ltd) and set aside the demand raised by the Department. The BEnch held:

“....the 'input service' provided under Rule 2(l) has the widest possible scope & ambit and covers all services which have even an indirect connection with the manufacturing process/output services.”

The dispute arose from seven show cause notices issued for the period April 2004 to March 2012.

These notices alleged wrongful availment of Cenvat credit on services including construction services, insurance/mediclaim for staff, works contract services, outdoor catering, mandap keeper services, architect services, photography services, club membership services, freight and clearing charges on exports, repair and maintenance services, and manpower supply for canteen operations.

The adjudicating authority had confirmed a demand of Rs 3.87 crore along with equal penalty and interest, while allowing credit only on manpower supply for canteen services. Both Hero MotoCorp and the Revenue challenged the order before the Tribunal.

The Tribunal held that the phrase “in relation to manufacture” must receive a liberal interpretation and extends to services that facilitate manufacturing operations or business activities, even if not directly used on the shop floor. It further observed that where expenditure incurred on such services forms part of the cost of the final product, denial of Cenvat credit would defeat the object of the Cenvat credit scheme.

On the Revenue's appeal concerning manpower supply for canteen services, the Tribunal noted that providing canteen facilities is a statutory obligation under the Factories Act, 1948 for factories employing the prescribed threshold of workers. It held that manpower supply services used for operating the canteen qualify as admissible input services. The Bench stated:

“...the 'Manpower Supply for Canteen Service' falls within the definition of 'input service' in view of other decisions of the Tribunal where the definition of 'input service' under Rule 2(l) of CCR, 2004 has been given very wide interpretation holding that any service in relation to manufacture would fall within the definition of 'input service...'”

Accordingly, CESTAT allowed Hero MotoCorp's appeals, set aside the denial of Cenvat credit and consequential demand, penalty and interest of Rs 3.87 crore, and dismissed the Revenue's appeal.

For Appellant: Mr. Srinivas Kotni and Mr. Akshay Kumar, Advocates

For Respondent: Mr. Siddharth Jaiswal and Mr. Shantanu Kumar Meena, Authorized Representatives