Housekeeping, Manpower Services Eligible For CENVAT Credit Post-2011: CESTAT Chennai

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) on 23 February held that CENVAT credit on services such as housekeeping, gardening, pest control, manpower supply, and business membership cannot be denied merely due to the post-2011 amendment, so long as the services have a clear connection with manufacturing or business activity.

A Bench comprising Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao was hearing an appeal filed by Cetax Petrochemicals Ltd., a manufacturer of petrochemical products, against the partial denial of CENVAT credit for the period March 2014 to March 2015.

The Bench held:

"The disputed input services, namely pest control/housekeeping, gardening and cleaning, construction-related services, plant civil work, manpower services for factory maintenance, and membership services, are admissible as input services in principle, being capable of falling within the inclusive part of Rule 2(l) of the CENVAT Credit Rules, 2004, even after the amendment w.e.f. 01.04.2011, subject to fulfillment of the statutory conditions of nexus with manufacture/business and non-applicability of the exclusion clauses."

The disputed credit related to various services used for factory operations, safety, statutory compliance, and business promotion. While the taxpayer argued that these services were essential for running a hazardous petrochemical plant, the Department contended that the scope of “input service” had been restricted after 1 April 2011.

The Department issued three Show Cause Notices alleging that certain credits were inadmissible under amended Rule 2(l) w.e.f. 01.04.2011, proposing disallowance aggregating to Rs. 67,77,421/-, which were adjudicated through the Orders-in-Original.

On appeal, the Commissioner (Appeals) held several services to be eligible but allowed credit subject to verification, while denying credit on pest control, gardening/cleaning, civil works, cab/logistics, housekeeping manpower, and membership services.

The Tribunal observed that services like housekeeping, gardening, pest control, and manpower supply are necessary to maintain hygiene, safety, and operational efficiency in a factory and therefore have a nexus with manufacturing activity.

At the same time, the Tribunal noted that the taxpayer had not placed invoices or other documents on record to establish actual use of the services. In the absence of such evidence, the Tribunal remanded the matter to the adjudicating authority for limited verification, directing that credit be allowed wherever the nexus and documentation are found satisfactory.

The Bench stated:

“No invoices or supporting documentary material have been placed before this Bench to conclusively establish the nature of the services, their nexus with the manufacturing activity, and their non-coverage under the exclusion clause. In the absence of such evidence, we are unable to render a final determination on admissibility."

Regarding the gardening and cleaning services, the Bench found that cleaning services are essential for maintaining hygiene and operational standards in the manufacturing area. Gardening services may also be eligible where undertaken as part of statutory compliance, such as green belt development or pollution control requirements, and not merely for beautification. The Bench opined:

"Credit on gardening and cleaning services is admissible in principle under the inclusive limb of Rule 2(l), subject to verification that the services were actually used for factory upkeep/statutory compliance and are not hit by the exclusion clause."

The Tribunal ruled that rent-a-cab services fall under the exclusion clause of Rule 2(l) after 1 April 2011 and are not eligible for CENVAT credit.

Accordingly, the Tribunal partly allowed the appeal by way of remand, with directions to complete verification and pass a fresh order after granting due opportunity to the taxpayer.

For Appellant: Advocate, V. Ravindran

For Respondent: Advocate, Anandalakshmi Ganeshram